Why Are Government Bankers Favoring Foreign Air Carriers?

Stephen DeMaura

11/27/2013 12:01:00 AM - Stephen DeMaura

Governments in the Middle East recently announced that they would be collectively spending $162.6 billion to purchase aircrafts for their respective airlines. Meanwhile, the American airline industry is fighting to stay afloat in spite of actions taken by our federal government.

We live in a free market where American carriers should not expect government handouts, but we should also not expect the U.S. government to finance purchases made by foreign airlines which are already receiving funding from their own country’s government. Yet this is exactly what is happening.

The U.S. Export-Import Bank (Ex-Im Bank) is the culprit behind sweetheart financial packages to foreign airlines. For years, the Ex-Im Bank has been providing foreign airlines with loans at a rate discounted from that of a standard bank and with even better terms. A Bangladeshi airline is one of the most recent recipients with the U.S. Export Import Bank which approved a loan guarantee to Biman Bangladesh Airlines for $285 million dollars to buy several Boeing aircraft.

Worst yet, Biman is known for its inability to turn a profit and poor safety record. This risky loan to a company with a substandard financial track record is of course backed by American taxpayers. If anyone thinks this sounds familiar, they need look no further than the Freddie Mac and Fannie Mae bailouts.

The Ex-Im Bank was founded during the New Deal era as a taxpayer-backed federal agency that would finance U.S. exports to entities outside the country. The purpose of the Bank was to assist American companies by helping entities and nations purchase American goods that they otherwise would be unable to afford. The downside is that American companies serving U.S. citizens ultimately end up competing with foreign companies who have a competitive advantage provided by their own government and guaranteed by their fellow citizens.

As a result, foreign competitors gain a competitive advantage over American companies that are forced to acquire loans at much higher interest rates and with much less favorable terms. Initially, it may not seem like a large disadvantage, but over the long term, the consequences can be quite profound. Take for instance the American airline industry, which according to some reports has lost $684 million in potential revenue and as many as 7,500 jobs due to Ex-Im’s loans.

And the special treatment foreign carriers receive from the Ex-Im Bank is just one element hurting domestic airlines. For instance, it was recently reported in The Street that, “Unlike state-owned Middle East airlines, U.S. airlines often face government-imposed obstacles. They carry an extremely high tax burden, while foreign competitors often operate largely tax-free. The U.S. plans a U.S. Customs preclearance facility in Abu Dhabi, even though no U.S. carriers fly to Abu Dhabi. And the Export-Import Bank often subsidizes the purchase of Boeing aircraft by foreign carriers, including both Emirates and Etihad, but no one subsidizes U.S. airline aircraft purchases from Airbus or Boeing.”

And while it is true that some American companies benefit from Ex-Im loans, the number that do is surprisingly small. In fact, one single company, Boeing, has been the chief beneficiary of Ex-Im’s largesse. Ironically enough, Boeing does not need the government’s handouts considering its stock price is near an all-time high. Moreover, the company nets more than $80 billion in revenue per year. While the American airline industry suffers, Boeing flourishes. The tradeoff is unfair and goes against the principles of free market capitalism with the U.S. government manipulating the marketplace against its very own employers.

Our government should not be interfering in the free market, especially at the expense of other American companies. The Ex-Im Bank was founded to help American companies, not hurt them. Yet, that is exactly what it is doing by financing foreign airlines. Not only does it put the American taxpayers hard-earned dollars at risk, it is financing the destruction of the American airline industry and threatening the jobs of its workers. Instead of spending money recklessly, the government should allow the free market to work.

American carriers aren’t looking for a hand out; only a balanced playing field. The last thing our country needs right now is the government subsidizing foreign airlines with taxpayer backed loans. But that, in fact, is exactly what they are doing. Congress should come together and work to bring an end to the Export-Import Bank once and for all.