Thursday, March 12, 2015

Boeing Helped Craft Own Loan Rule • Emails show extraordinary level of cooperation between Export-Import Bank and plane maker on tighter rules for aircraft sales

The Wall Street Journal
By Brody Mullins

March 12, 2015 7:45 p.m. ET

WASHINGTON—When the Export-Import Bank sought to respond to critics with tighter rules for aircraft sales, it reached out to a company with a vested interest in the outcome: Boeing Co., the biggest beneficiary of the bank’s assistance.

For months in 2012, according to about 50 pages of emails reviewed by The Wall Street Journal, the bank worked with Boeing to write rules that would satisfy critics in Congress and the domestic commercial airline industry—while leaving most sales of Boeing’s airplanes to foreign carriers unscathed.

Ex-Im Bank, which helps finance the purchase of U.S. exports through loans and guarantees, is the target of Republicans who want to kill it, in part because they say it mostly provides subsidies to America’s largest companies. The Boeing emails will add fuel to that fight.

The previously unreported documents, obtained through an open-records request, show how the two sides swapped ideas, drafts and data on sales of wide-body airplanes. Ex-Im Bank officials pushed their Boeing counterparts for information. Boeing suggested changes to the bank’s draft proposal.

They reveal an extraordinary level of coordination between public officials and corporate executives. In a message one Saturday morning, Bob Morin, then the bank’s head of aircraft financing, sent a plea: “If Boeing expects Ex-Im Bank to continue supporting wide-body aircraft, we need to get this right.”

When Congress renewed the bank’s charter in 2012, the bank was required to publish its methodology for determining which transactions were significant enough to trigger an additional “economic-impact review” and, potentially, rejection.

The requirement didn’t specifically include aircraft purchases, but Delta Air Lines Inc. and some lawmakers wanted the bank to include them in the rules, too.

That’s when Boeing and Ex-Im Bank started discussing how the rule should be written. Many of the emails between the bank and Boeing deal with the guidelines the bank was creating to determine which aircraft transactions would trigger the additional review.

The collaboration appears to have worked. In the nearly two years since the rule went into effect, no Boeing sales have been nixed as a result.

Republican presidential hopeful Jeb Bush recently joined the chorus of conservatives questioning the bank’s purpose. In late February, he told a gathering of the Club for Growth, a conservative advocacy group, that the government should consider whether this kind of financing “should be phased out.” The bank’s current authorization expires June 30 and the lobbying battle is heating up.

Its usual supporters include lawmakers of both parties, including House Speaker John Boehner (R., Ohio) and Minority Leader Nancy Pelosi (D., Calif.), as well as the U.S. Chamber of Commerce, major labor unions, manufacturers and Wall Street banks.

Officials at Boeing declined to comment on the emails. In general, said Tim Myers, president of Boeing Capital Corp., Boeing’s aircraft-financing unit, “it would be only natural” for the bank to ask for input since Boeing is the only U.S. maker of wide-body commercial aircraft.

Tim Keating, the company’s top Washington lobbyist, called the interaction an example of how government should work: “There doesn’t have to be a full hostile relationship between the regulator and the regulated,” he said.

Matt Bevens, a spokesman for Ex-Im, said other countries have their own export-financing agencies, but Ex-Im is the only one that assesses the economic impact of its transactions. Mr. Bevens, speaking on behalf of the individual employees named in the emails, said the bank developed the new guidelines voluntarily and that it would have been “irresponsible if Ex-Im Bank had failed to consult the only American manufacturer of commercial aircraft.”

Bank supporters say foreign airlines would buy planes from European rival Airbus Group NV without Ex-Im financing. Boeing customers are among the biggest recipients of Ex-Im Bank loan guarantees. In the most recent fiscal year ended Sept. 30, 2014, the bank helped Boeing sell 61 wide-body planes to foreign airlines by guaranteeing more than $7 billion in loans.

Overall, in that fiscal year the bank guaranteed $20.5 billion in financing for U.S. exports. The bank charges a fee on its loans and made $675 million in profit that it sent to the U.S. Treasury.

Yet while the bank helps some American exporters, it irks other domestic firms.

Delta, for one, says the bank’s financing gives rivals such as Emirates Airline, Thai Airways International PLC and Air India an advantage in their aircraft purchases that isn’t available to U.S. carriers. For some foreign airlines, Ex-Im Bank’s financing can be less expensive than a standard commercial loan.

It’s amid such criticisms that the Ex-Im Bank and Boeing collaboration began. In August 2012, a bank official forwarded a draft proposal on the economic-impact trigger to several senior executives at Boeing and its aircraft-financing unit.

“Please note that this is an internal Ex-Im document still in draft form, but we wanted to get your input on several aspects of it prior to further developing the paper,” wrote Claire Avett, an Ex-Im policy analyst on Friday, Aug. 31.

“We look forward to working closely with you to define concrete next steps to be able to achieve these ends,” she wrote, referring to imminent internal deadlines.

The next morning, Saturday, Sept. 1, a second bank official sent a follow-up email. “We do not have a lot of time,” wrote Mr. Morin, the Ex-Im official in charge of aircraft financing.

The emails suggest Ex-Im Bank officials wanted Boeing’s help to write guidelines that would limit the number of additional reviews on aircraft purchases.

“Subjecting and applying other transactions to detailed analysis under economic impact procedures has had the effect of killing most of those deals,” wrote Mr. Morin, in the Sept. 1 email. “Accordingly, it is very important that we establish the correct procedures here,” he said.

Mr. Bevens, the Ex-Im Bank spokesman, says those deals were killed by delays and uncertainty created by the review process, not the review process itself. He said those delays are why Boeing and its suppliers opposed subjecting aircraft purchases to potentially lengthy scrutiny.

A few hours later on Sept. 1, a senior official at Boeing Capital responded that the company was working “to look at what data we can pull together.” The Boeing official, Kristi Kim, director of aircraft financial services at Boeing Capital, said the company was building model impact studies “to see how the data would vary.”

Tim Neale, a spokesman for Boeing, said the company’s goal was ensure that the reviews were “based on reasonable criteria.”

On Sept. 6, James Cruse, a senior vice president at Ex-Im’s policy and planning group, wrote to Boeing to thank the company for its input. “We recognize we are pushing and pressing you in ways that are not in your natural strike zone (and may verge toward ridiculous),” he wrote.

The next month, the partners delved into nitty-gritty details, including the time frame that would be used to assess economic impact (shortening the time period to 12 months might be best, one Boeing official suggested). They settled on 12 months.

They also discussed who would conduct the reviews, if they were ever triggered. Boeing itself was an option because it had access to industry data. Other options were Ex-Im Bank or an outside consulting firm.

In one email where the two sides discussed who should conduct the analysis, Ms. Avett, the Ex-Im Bank policy analyst, asks for input on “what would be most palatable to Boeing.”

In the end, Ex-Im Bank took the job of performing the reviews. In the two years since the new rules went into effect, Ex-Im has helped finance roughly 50 aircraft deals. Just one of those—a lease deal of Boeing planes by Aeroflot Russian Airlines—triggered the detailed economic review. Ultimately, that transaction was approved.

—Doug Cameron contributed to this article.

Story, comments and photo:  http://www.wsj.com


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