The Corner

Emirates to Ex-Im Bank: We’ll Be Just Fine without You

The rumor that House Republicans are preparing to introduce a continuing resolution that will reauthorize the Export-Import Bank simmers about Washington. This apparent willingness to betray free-market principles is even more disappointing in light of another major revelation, from one of the bank’s top customers, that the program doesn’t play the important role its supporters claim.

On Friday, the airline Emirates confirmed to Reuters that the firm uses cheap financing from Ex-Im even though it doesn’t need it. It has ample financing options to continue buying Boeing planes without Ex-Im’s nonsensical subsidies, the airline says. From the article:

Emirates, Dubai’s flagship airline, would not have trouble buying planes from Boeing Co (BA.N) even if the U.S. Congress fails to renew the U.S. Export-Import Bank’s charter later this month, a senior company executive said on Friday.

The Ex-Im Bank, which provides financing to help US businesses sell products overseas, is only one of many financial sources that Emirates draws on when buying planes, Hubert Frach, the airline’s senior vice president for commercial operations in the West, said in an interview with Reuters.

‘Ex-Im is not an exclusive tool for Emirates to finance the aircraft,’ Frach said. ‘Our aircraft are financed by various concepts.’

This is not surprising. Emirates is the state-owned airline of an extremely wealthy country. Like many of Ex-Im’s biggest customers and beneficiaries, Emirates has sufficient access to capital markets to prevent any of the problems that Ex-Im fearmongerers proclaim permeate aircraft purchases. Contrary to the doom-and-gloom scenarios promulgated by groups like the Chamber of Commerce and the National Association of Manufacturers, Emirates can purchase plenty of aircraft from Boeing — and rascally rival Airbus — without any export subsidies. There are plenty of other aircraft customers just like it: According to the GAO, roughly 85 percent of Boeing and Airbus large-aircraft deliveries were not subsidized by export-credit agencies.

Some defenders of the bank admit these facts, but argue that Emirates isn’t abusing Ex-Im because it doesn’t use the agency’s services that much, and that plenty of other airlines do need export credit.

What’s wrong with those arguments? For one, the Ex-Im financing Emirates gets may not seem like a lot to Beltway types used to thinking in billions and trillions of dollars, but it’s still a lot of money for regular Americans and a certainly non-trivial risk for them as taxpayers. The Bank’s records show that Emirates Airline was able to procure 14 deals from 2007 to 2013, amounting to a total of roughly $3.4 billion in assistance

If we take Emirates at their word, the firm shouldn’t have received assistance in the first place according to Ex-Im’s charter, which mandates that Ex-Im funding should “supplement and encourage, and not compete with, private capital.” Bank defenders routinely point to the binding rules of its charter to argue that the Bank only “fills a financing gap.” If a high-profile customer like Emirates publicly admits it doesn’t need the financing, what else is going on in violation of Ex-Im’s charter? A quick look at the Ex-Im Bank’s lists of borrowers reveals that many airlines that used Ex-Im are no different from Emirates.

The first step to investigating potentially fishy business is to follow the money. Who benefited from these Emirates deals? You can probably guess pretty quickly: Boeing was the primary supplier for half of the Emirates deals and GE was the supplier for the remaining half. Second, according to Ex-Im’s data, large French banks like ​Société Générale, Credit Agricole, and BNP Paribas, plus U.S. banks like JP Morgan, are also gigantic beneficiaries of these deals. As we knew was the case, much Ex-Im activity gives a leg up to well-connected, wealthy firms that don’t fit the aims of the bank’s charter.

These untoward dealings are all the more sordid when you consider that U.S. airlines that compete with Emirates Airline are penalized by the deal. As I wrote in July:

Again, the data show that many companies buy planes both using Ex-Im guarantees and without them. In June 2012, for instance, Emirates bought two Boeing 777s using Ex-Im financing and four Airbus A380s using market financing. This is good evidence of two things: (1) the airline can afford to buy some aircrafts at normal market rates, and (2) that private lenders are willing to lend the money even absent of the help of Ex-Im. …

That very wealthy firm benefited from interest rates that were nearly half the rates that its unsubsidized competition could procure without Ex-Im privileges. The result? Emirates will save $20.3 million per plane — a perk that Delta Airlines and other U.S. airlines don’t have access to.

When Delta and other airlines can’t compete on costs, they have to cut jobs. And that’s what they do. During the hearing on Ex-Im before the House Finance Committee, the CEO of Delta, Richard Anderson, testified that some 7,500 U.S. airlines jobs had to be cut because they faced unfair competition from the Ex-Im subsidized ‘customers.’”

If defenders of the Export-Import Bank are genuine in their commitment to the bank’s true purpose, then they should be very troubled by this revelation.


Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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