Time is up as Ex-Im Bank tonight for eight days……Or maybe longer?

Dino D'Amore
By Dino D'Amore June 30, 2015 13:43

Time is up as Ex-Im Bank tonight for eight days……Or maybe longer?

The all-important US Export-Import Bank will closedown tonight for at least a full eight days – the first closure in its 81-year history – as Capitol Hill has failed to back export sales of Boeing aircraft after a no vote took place on the renewal of the Ex-Im Bank charter before Congress went into its Fourth of July recess. Effectively the Republicans made sure the matter was kicked into the long grass by running down the clock to reauthorize the bank before the current charter expires.

After tonight Ex-Im Bank staff will still report to work, as financing awarded before June 30 continues to be supported in full. The Ex-Im Bank, however, will no longer be able to extend any new financing.

Congress will now move to revive the bank next month by attaching reauthorization to must-pass legislation, such as a Highway Trust Fund bill. “The highway bill, of course, will be open for amendment, and it’s pretty obvious that that would be a place for this vote to occur,” Senate Majority Leader Mitch McConnell said last week.

Republicans are delighted: “This is a small step toward renewing a competitive free-market economy and arresting the rise of the progressive welfare state and the cronyism attached to it,” House Financial Services Chairman Jeb Hensarling said in a statement. “Ex-Im is not only corporate welfare; it is corporate welfare for foreign companies and countries.”

Rep. Jim Jordan, R-Ohio, said in a statement to a US newspaper: “Six months ago, no one in this town [Washington DC] would have thought the Export-Import Bank would actually expire. But by raising the issues at the bank and showing how it’s the ‘bridge to nowhere’ of corporate welfare, we are now on the brink of ending the bank’s charter… “Once it expires, the question changes. Then it’s not ‘Do we keep this program running’ but instead ‘Do we re-start a program plagued by scandal and that’s unpopular with Republican presidential candidates and members of House and Senate leadership?’ That’s a very different question, and it bodes well for Americans who are fed up with the status quo.”

Supportive Senators hope this chain of events will galvanise all manner of exporters into an intensive period of lobbying that will in the end ensure a path to legislation in the early part of July 2015.

Even so, the very mention of Ex-Im Bank closing its doors for at least a week caused Boeing shares trading down heavily yesterday, and well they might, Boeing aircraft are just not competitive against Airbus without export credit loan guarantees for a swath of airlines across the globe.

Gayla Keller, spokeswoman for Boeing, made a statement to the press: “A suspension of the bank’s ability to do new business after 30th June is a boon to overseas competitors at the expense of thousands of U.S. exporters and the jobs they support. In the case of Boeing, inaction by Congress to reauthorize Ex-Im makes it harder for Boeing to compete with Airbus and other emerging competitors with access to multiple export credit agencies.”

Jeff Immelt, CEO of General Electric, threatened to move jobs overseas if Congress failed to reauthorize Ex-Im Bank.

So what now for the future? Well in the here and now it is just a little bit more uncertainty to add to the mix, but it does show that Boeing and General Electric do need to up their game and start getting a substantive financing arm set-up. Maybe there is a chance here for thinking collectively perhaps about forming a joint financing arm between GE and Boeing – although both companies operate their own independent credit arms, and the GE one is substantial, the current Boeing facilities would reach limitations within a very short space of time indeed given the aircraft order backlog.

There is a general feeling that Capitol Hill will in the event try to heavily limit Ex-Im reauthorization post July 8, 2015 with punishing limitations put on the Bank’s charter. In any event though Boeing must come out sooner rather than later with a viable plan to finance aircraft in the event that Ex-Im guarantees cannot be used in the future or those LOIs and MOUs from the Paris Air Show will be the first potential orders to fade away.

With no export credit agency Boeing and GE will try to move production outside of the USA, but for Boeing the cost of moving production would be great in the short term and with new facilities only just breaking ground and new production lines coming online, this is a bad time to be upping sticks to Asia or South America.

The bottom line is: If Boeing and GE were to lose the use of export credit then many current aircraft/engine orders would most likely have to be cancelled. Boeing needs to form a bank and that in all reality may well mean turning to the Chinese, which may require production at least in part to move there from the USA.

Given the volatile global economic outlook (although you would not know it in the aviation finance and leasing sector), losing the US Ex-Im Bank is bad news for everyone in this sector, save for the US airline majors in the short term.

Dino D'Amore
By Dino D'Amore June 30, 2015 13:43