A FINAL DECISION ON THE FUTURE OF EXPORT CREDIT COULD BE MADE TODAY

Dino D'Amore
By Dino D'Amore December 17, 2010 10:51

A FINAL DECISION ON THE FUTURE OF EXPORT CREDIT COULD BE MADE TODAY

A final decision on the future of a new Aircraft-Sector Understanding (ASU) on export credit guarantees is expected imminently from the Organization for Economic Cooperation and Development (OECD). Airbus has launched an eleventh-hour plea for the governments of Germany, France and the UK to water down the proposed changes. According the Financial Times, Airbus CEO Tom Enders has written letters to the respective governments in a bid to get the proposals modified.

Under the proposals, airlines eligible for export credit will face higher fees depending on their credit rating, which would be adjusted quarterly to make them more reflective of market conditions. Enders has asked that any quarterly movement in fees be capped at 10% rise on the previous rate and all previously agreed deals be grandfathered for aircraft deliveries up until December 2012. While the Airline Alliance has requested deliveries for the next three years be grandfathered.

In a statement Airbus has warned against any change to the rules that could make fees for export credit guarantees uncertain which Airbus says could “produce a degree of nervousness in the market as to how much financing is going to cost”.

“In the past it [export credit financing] was seen as more of a port in the storm, providing a stable form of funding at a reasonably predictable cost. In the case of another crisis, with extreme hikes in rates clients may choose not to take aircraft and that could cause production cuts and resulting job losses.”

Meanwhile, US trade organisation, the Air Transport Association of America (ATA), has also called on the US government and the other parties to keep the new proposals.

“Although the proposed new ASU will not eliminate the cost advantage that foreign airlines – including many of the world’s most profitable airlines – enjoy from subsidized export credit financing, as it should, it is a significant improvement over the current ASU,” said ATA president and CEO James C May. “Today’s below-market, subsidized financing of foreign airlines by the Ex-Im Bank puts US airlines at a clear disadvantage. Failure to conclude a new agreement will mean more U.S. subsidies of foreign airlines, continued market share loss by US airlines and more job loss by US airline workers.”

May said that claims the fees for export credit under the new agreement are too high prove the point that some airlines and manufacturers view the form of financing as a form of subsidy rather than a stop-gap financing for airline without access to credit markets.

The ATA president has also argued against grandfathering provisions, saying that the US government and the OECD parties should resist efforts to embed overly generous transition rules in the new agreement. “The time has come to conclude this agreement, promptly end the subsidies under the current and prior agreements, and begin to allow both airlines and manufacturers to compete on the basis of their products,” said May.

We watch and wait and it is certainly possible a deal will be agreed today but without doubt there will be a new ASU, in one form or another, in place by the New Year.

Dino D'Amore
By Dino D'Amore December 17, 2010 10:51
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