Is 'Boeing's Bank' heading for a jumbo-jet bubble?

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Article Highlights

  • The good news for taxpayers is that Ex-Im’s aircraft deals almost never end in default.

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  • Ex-Im’s five largest guarantees approved in Fiscal Year 2013 (all bigger than $470 billion) were Boeing deals.

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  • Ex-Im is very heavily exposed to Boeing's customers: airlines. Some experts think the airlines are puffing up a bubble.

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President Obama's favorite export agency devoted two-thirds of its taxpayer-backed loan guarantees to subsidize Boeing sales last fiscal year.

The Export-Import Bank of the United States is a federal agency that subsidizes U.S. exports through loans and loan guarantees to foreign buyers of American-made goods. U.S. taxpayers bear the ultimate risk if these loans go bad.

Ex-Im's most important finance product is the long-term loan guarantee, which accounted for $12.2 billion of the $27.3 billion in financing the agency authorized in fiscal year 2013, according to Ex-Im's annual report. Boeing sales accounted for $7.6 billion of that $12.2 in guarantees -- or 62 percent.

For instance, state-owned airline Air China ordered eight Boeing 777s last year, and applied for Ex-Im financing, according to Flight Global, an aviation-industry trade publication. To buy the jets, according to minutes of an Ex-Im Board of Directors meeting, Air China borrowed more than half a billion dollars from Citigroup and Canadian-based Toronto-Dominion Bank (better known as TD Bank). Ex-Im last June approved a $558,350,949 guarantee of that financing.

If Air China fails to pay back Citi and TD, Ex-Im foots the bill. The good news for taxpayers is that Ex-Im’s aircraft deals almost never end in default, and when they do, the plane can be collateral. For instance, when Air Nauru (now called Our Airline) defaulted in 2002, Ex-Im seized the jet. (It happened to be the island airline’s only jet, leaving Nauru’s athletes stranded on their way home from the Micronesia Games.)

Ex-Im’s five largest guarantees approved in Fiscal Year 2013 (all bigger than $470 billion) were Boeing deals. The biggest was a $1.1 billion guarantee for Indonesia’s Lion Air to buy a fleet of Boeings. The Indonesia deal highlights one danger of Ex-Im’s heavy exposure to airlines: the threat of a jumbo jet bubble.

Ex-Im officials counter that the agency doesn’t add to the deficit, but actually makes a profit (which raises the question of why it can’t be privatized). If you point out that government-sponsored housing financiers Fannie Mae and Freddie Mac were profitable until they collapsed and were bailed out by taxpayers, Ex-Im officials fire back: Those GSEs were in just one industry, while Ex-Im is in many.

But as the numbers show, Ex-Im is very heavily exposed to Boeing's customers: airlines. Some experts think the airlines are puffing up a bubble. Reuters reported last year on Lion Air getting cold feet on its huge Boeing order, and noted: “Many analysts have raised questions about the sustainability of massive aircraft orders in the region.”

Aside from the exposure questions, Ex-Im’s Boeing-heavy portfolio taints Ex-Im's loan guarantee program: Should we have a government program that is mostly dedicated to helping one company?

Ex-Im officials and defenders are sensitive to this issue, and to the longtime label “Boeing's Bank.” “Nearly 90 percent of Ex-Im's transactions each year directly benefit small businesses,” Ex-Im's most recent annual report brags.

But that way of counting paints a five-figure Ex-Im transaction for a small manufacturer as equal to a billion-dollar Boeing guarantee. Measured in terms of dollars, Ex-Im looks like the taxpayer-backed bank for Big Business.

“Boeing is the largest exporter" in the U.S., Boeing's finance expert Kostya Zolotusky explains to me, “so you would expect for us to have the highest share of export support.”

Boeing officials also point out that Boeing is relying less on Ex-Im in recent years — this year, the company expects 15 percent of its plane deliveries to be Ex-Im subsidized, compared to 30 percent in 2012. In fiscal 2012, more than 80 percent of Ex-Im guarantees backed Boeing sales.

Ex-Im's current congressional authorization expires on Sept. 30. Reauthorization used to be an easy matter, but since the Tea Party wave hit Washington, Ex-Im has come under fire as corporate welfare.

On both ends of the Capitol, Ex-Im now has powerful detractors. Senate Minority Leader Mitch McConnell voted against reauthorizing Ex-Im in 2012. House Financial Services Chairman Jeb Hensarling, whose committee has jurisdiction over Ex-Im, also voted no in 2012, and he has publicly suggested the agency should be retired.

Ex-Im’s strongest defense is to point at the manufacturing subsidies given by Europe and China. European jetmaker Airbus is so subsidized it’s almost a government agency. “If we choose to participate in a global economy based on our view of how the economy should work,” Boeing’s Zolotusky tells me, “we’re going to be squeezed out of that market.”

If this view is correct, Congress has a choice between American free enterprise and Boeing.

Timothy P. Carney, a senior political columnist for the Washington Examiner, can be contacted at [email protected] This column is reprinted with permission from

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