Last week, Boeing executive Dennis Muilenburg called for the restoration of his company’s entire set of Ex-Im subsidies. See, while the Boeing Bank’s charter was renewed at the end of last year, most of the subsidies to giant corporations like Boeing, GE, Pemex and Air Emirates were not. That’s because the agency lacks the right number of directors on its board to allow the bank to provide export-credit guarantees for deals exceeding $10 million.
I understand Boeing’s frustration. After years of getting its profits propped up by government intervention without any obstacles, the crony program has hit a rough patch. First, its charter was not reauthorized on June 30 of last year, and now even though it has since been renewed it can’t engage in its most crony activities (extending cheap loans to large foreign companies to buy stuff from large domestic companies). As a result, the reauthorization has made little difference for Boeing and its giant friends.
The truth of the matter is that after months of warning congress and the country about how low and how fast the sky would fall without Ex-Im’s extending subsidies to wealthy foreign airlines, we all can see that it is far from the truth. In fact, the only example of a deal that may fall through as a result of Ex-Im situation that Boeing could come up with is one that involves Ethiopian Airlines. The Wall Street Journal writes:
Mr. Muilenburg said at the bank’s annual conference that Boeing may face a delivery slowdown for customers that rely on the bank. He said Ethiopian Airlines, for instance, had told Boeing that it couldn’t take delivery of new jets without Ex-Im guarantees.
And here is Muilenburg at NPR:
Dennis Muilenburg, CEO of Boeing, told the Center for Strategic and International Studies’ John Hamre that “without it, we are starting to lose deals. I can tell you, we’ve received letters from airlines like Ethiopian Airlines that says they will not be able take delivery of jets without Ex-Im financing.”
It is interesting that Ethiopian airlines the only airline he is mentioning. That’s probably because the other airlines tend to be state-owned by rich governments – such as Air Emirates, or fast growing airlines like Ryanair — and have no problem getting private capital even though they used to cash in on Ex-Im subsidies.
However, as taxpayers, it should give us pause that Boeing is complaining about not being able to expose us further than we already are to the risk that lending money to the government of a poor country like Ethiopia represents. Indeed, this deal would be to add to the country’s $1.6 billion outstanding tab. As I have written before, there is something unseemly and immoral about the whole thing.
Take Ethiopian Airlines, for instance. The airline is owned by the government of Ethiopia, a country where 78 percent of the population lives on an income below $2 a day, the average life expectancy was 59 years in 2011, and state health expenditures amount to a paltry $3 per person.
And how does Ex-Im encourage Ethiopia to spend its meager public funds? Perhaps on education improvements, health services, or critical infrastructure? Don’t be silly. They sell them Boeing planes, of course! Bad credit, no credit? No problem! The Ex-Im Bank’s creative financing options will allow any country to put shiny new Boeing planes in their national airports — no matter how dire their fiscal position . . .
The whole ugly spectacle is particularly problematic considering how many other U.S. government programs disperse foreign aid in Ethiopia and other poor countries in the name of alleviating poverty. And that is, of course, in addition to the vast amount of IMF lending that has gone specifically to Ethiopia. Why should the U.S. government encourage Ethiopia to borrow billions of dollars to purchase brand-new U.S. manufactured aircraft if it has to turn around and borrow hundreds of millions of dollars just to finance its basic services?
The fact that Ethiopia may not be able to borrow money on the capital market to buy Boeing airplanes is not a capital-market failure. In fact, it is a feature, not a bug, of the market to not direct capital to high risk customers without first charging them with a premium. That’s a safety mechanism implemented by a system that isn’t in the business of using other people’s money to pay for its mistakes.
Moreover, the alternative to Ethiopia’s owning its own national airline isn’t no planes for Ethiopia, but rather to open its market further to foreign airlines.
Here’s an idea: Why can’t Boeing itself extend the capital to Ethiopia to buy the jets? It has a large financing arm and can extend credit to anyone the company wishes to finance.
And what about the impact of the lack of Ex-Im subsidies on Boeing’s competition with Airbus? As it turns out, ten months into losing its Ex-Im loan guarantee backing Boeing is significantly ahead of Airbus in turn of orders.
Boeing has outpaced Airbus for orders at the start of the year and had booked 122 net orders through April 5, including cancellation of 14 737 single-aisle jets and four 787 Dreamliners. The weekly update from Boeing included the surprise addition of an order for four 747s from an undisclosed buyer.
Boeing also leads Airbus in plane deliveries. The Chicago-based plane maker said it delivered 176 commercial planes in the first three months of the year. Airbus said it had delivered 125 aircraft in the period after shipping 57 in March.
Boeing’s sales have declined slightly, but Airbus is hurting more even with its export subsidies in place. (Airbus is now losing its export-subsidies too so Boeing won’t have that excuse to fall on, at least for a while.) Here one should remember that the perception that all airplanes or a majority of aircraft are bought with the help of export subsidies is wrong. Only 6 percent of Airbus planes and roughly 10 percent of Boeing ones are backed by export subsidies. That explains the lack of impact following the end of Ex-Im handouts.
For more on Boeing’s shameless call for more subsidies through Ex-Im, read this great piece by Diane Katz at the Heritage Foundation. For more on the failed satellite deal mentioned in the WSJ article read this piece by Katz and myself.
One final note: Mitch McConnell is apparently putting pressure on the chairman of the banking committee Senator Shelby to move on Ex-Im nominees. Seriously?