New York: A powerful trade body for America’s biggest carriers, Air Transport Association (ATA), called on the US Export-Import Bank to reverse its approval of some $3.4 billion in guarantees for loans to debt-laden Air India for its purchase of new Boeing aircraft.
The ATA has written to Fred Hochberg, chairman of the US Export-Import Bank, asking him to slash all “subsidies” to foreign buyers of Boeing jets saying the bank’s support for Air India hurt US carriers.
“The Bank should deny Air India’s loan guarantee application and others like it, because such guarantees put US carriers at a competitive disadvantage and cost US jobs,” said ATA legal counsel Michael K Kellogg in the letter, which was reviewed by Firstpost.
The ATA said that solely on account of the US Export-Import Bank’s guarantee, Air India would pay significantly less for a new Boeing than its US competitors.
“Solely on account of the Bank’s guarantee, US carriers pay approximately $5 million more every year to finance a Boeing 777 than a bank-backed foreign airline,” said Kellogg.
It is a Catch-22 situation for the Americans. The US Ex-Im Bank’s mandate is to support US jobs by boosting exports and in the Air India case it will be helping Boeing lock in an export order for 50 long-range Boeing aircraft by providing loan guarantees. Of course, it may unintentionally make the going tougher for American carriers which don’t enjoy the same loan guarantees from Washington.
“The practices of Ex-Im Bank put US carriers at a commercial disadvantage to foreign carriers. Specifically, the US loan guarantees enable foreign carriers to attain financing for aircraft at rates up to 50 percent lower than can be attained by US airlines, which are prohibited from securing Ex-Im financing,” ATA spokesperson Steve Lott, told Firstpost.
US airlines aren’t eligible to receive Ex-Im Bank backing since domestic purchases aren’t exports. The Ex-Im Bank mainly guarantees bank loans that overseas buyers take to finance purchases. If a foreign buyer fails to repay a loan, it covers the payment and seeks to recover the balance. “Thanks to the security of Washington’s guarantees, buyers of American products as diverse as dental equipment and jet planes can significantly reduce their financing costs. Customers rarely default on loans backed by Ex-Im Bank,” said “The Wall Street Journal.”
Not surprisingly, ATA pounced on Air India’s financial and management troubles, warning that the Ex-Im Bank was disregarding the obligations to “protect the public coffers” by providing loan guarantees to a “credit-risky” company.
India’s once-highflying airline industry is encountering serious financial turbulence. Kingfisher Airlines has grounded dozens of flights to cut costs and Air India has been censured by the federal auditor for incurring unnecessary costs. It has a debt burden of $9.5 billion.
“India’s own government has described Air India’s expansion plans as a “recipe for disaster” but the Bank is promoting it with American taxpayer’s money,” charged the ATA.
India’s Comptroller and Auditor General criticised Air India’s fleet acquisition exercise financed almost entirely through debt, saying; “This was a recipe for disaster ab initio (from the beginning) and should have raised alarm signals in the Civil Aviation Ministry, Public Investment Board and the Planning Commission.” Air India had ordered up to 50 long-range Boeing aircraft worth about $6 billion in 2005.
The Empowered Group of Ministers and the Cabinet Committee on Economic Affairs is currently formulating a financial restructuring plan for ailing Air India. Rising global oil prices have hit it hard. Tit-for-tat price cuts have also left most Indian carriers bleeding revenue.
At this point, the US Ex-IM Bank appears to be standing by its decision, although it says it will investigate some of ATA’s assertions about its procedures.
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