Airline trade group sues over loan guarantees

AP News
Posted: Nov 16, 2011 7:50 PM
Airline trade group sues over loan guarantees

The trade group for U.S. airlines sued on Wednesday over loan guarantees for a jet order by Air India, saying the U.S.-backed loans are hurting more American workers than they help.

The Air Transport Association sued the Export-Import Bank of the United States. The bank's job is to guarantee loans that help American companies doing business overseas, including Boeing Co.

The lawsuit seeks to force the Ex-Im bank to reverse plans to guarantee up to $3.4 billion in loans for Air India to buy 30 Boeing planes, including 27 of its new 787s. The lawsuit claims that the bank guarantees allow foreign airlines to save money on new planes, resulting in unfair competition.

The lawsuit claims a foreign airline buying a Boeing 777 would save about $5 million a year in interest payments with an Ex-Im backed loan compared with what a U.S. carrier would pay.

The idea behind the loans is to support U.S. workers at companies with overseas customers. Boeing employs about 171,000 people, most of them in the U.S., including more than 78,000 in its commercial airplanes division. Its airplanes also use components made by contractors in the U.S. and overseas.

John Kvasnosky, a spokesman for Boeing's finance arm, Boeing Capital Corp., said the airlines raised procedural issues about the loan guarantee that are best addressed by the bank. The Ex-Im bank said the lawsuit is without merit but declined to speak in detail about it.

The airlines say the law authorizing the bank instructs it to consider the impact of its loan guarantees on U.S. jobs. Their lawsuit says the bank has refused to consider the impact of its loan guarantees on the airlines.

Air Transport Association members backing the lawsuit include Delta Air Lines Inc., Southwest Airlines Co., and US Airways Group Inc. Some of its big U.S. members are not part of the lawsuit, including United Continental Holdings Inc., American Airlines parent AMR Corp., and cargo haulers Federal Express Corp. and United Parcel Service Co.

The lawsuit cited $3.3 billion in Ex-Im loan guarantees to Air India that began in 2006, which "allowed Air India to flood the U.S.-India market with extra capacity and crowd out competitors like Delta," the lawsuit said. It said Delta stopped flying from New York to Mumbai in October 2008 because of those guarantees.

The lawsuit doesn't say so, but that is also when Delta acquired Northwest Airlines, which flew from Amsterdam to Mumbai, a route that Delta still flies.

The ATA lawsuit also said the Ex-Im bank has failed to consider whether Air India can repay the loan. The airline has been struggling financially.

The Export-Import bank has long guaranteed loans for planes sold by Boeing to overseas customers. By suing over a deal involving Air India, the U.S. airlines are tangling with a carrier that is not in one of their international alliances. Talks for Air India to join the Star Alliance were put on hold in July. The Star Alliance includes United, Continental, and US Airways.