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Claiming unfair advantage being giving to foreign carriers, Delta Air Lines, one of the world’s largest, along with the Air Line Pilots Association (ALPA) which represents 47,000 pilots working for 28 U.S. commercial airlines, and Hawaiian Airlines, have sued the Export-Import Bank of the United States for providing cheap financing in the form of $1.3 billion in loan guarantees and $2.1 billion in loan commitments to Air India, to buy 30 Boeing aircraft.
In 2011, when the bank first announced this support for Air India, the Air Transport Association of America (now named Airlines for America or A4A), Delta and ALPA sued, challenging the decision claiming the the bank had provided inadequate information about transaction. In 2013, the Court of Appeals for the District of Colombia had instructed the bank to provide information on the loan guarantees and its review process to which the bank responded with a 34 page explanation. (Download the PDF here).
The new suit challenges the bank’s decision to move forward with the Air India loans without adequate explanation. As per the Courthouse news service (CNS), the suit claims
“The bank’s aggressive approach to aircraft financing allows foreign airlines to borrow at much cheaper rates than they could in the private market,” “Cheaper financing, in turn, leads to competitive advantages for foreign airlines vis-à-vis their American competitors, shifts industry growth abroad, and puts downward pressure on American production and employment. U.S. airlines and their employees, including plaintiffs in this action, have urged the bank to reconsider its subsidies to foreign airlines because of these adverse economic effects.”
The bank provides official loan guarantees and other commitments enabling foreign buyers to obtain low cost financing of their purchases of US products. Almost every country, including India have such an official export credit agency. CNS further reports, according to the lawsuit, US federal law requires the bank to weigh the adverse effects its loans might have on U.S. businesses and employees against the possible benefits to the economy. The bank also must notify the public of its financing decisions, explain the purpose of each transaction of more than $100 million, and allow public comment before approval, something the bank did not do, the suit alleges.
The complaint states the bank dedicated 46 percent of its financial commitments to air transportation loans and guarantees.
“The bank has devoted a substantial portion of its financial commitments to aircraft financing,” “From FY2001 to FY2012, the bank approved more than $67 billion in loan guarantees to foreign airlines and international aircraft lessors. Those loan guarantees allowed foreign airlines to acquire more than 950 commercial aircraft at below-market rates.
“The ability to buy Boeing aircraft using loan guarantees that are backed by the U.S. Treasury gives a significant competitive advantage to the favoured foreign airlines. These airlines are able to raise capital more cheaply and on more favourable terms than they otherwise could. In some cases, foreign airlines like Air India are able, with the bank’s support, to buy aircraft that they could not otherwise have financed at all on economically feasible terms.
“The newly purchased aircraft that foreign airlines purchase with the bank’s assistance also give the foreign airlines competitive advantages by reducing their fuel and maintenance costs; attracting customers who wish to fly on newer, more desirable planes; and enabling the airlines to charge prices for seats on the newer aircraft that are lower than the prices that U.S. airlines must charge for seats on competitive routes on the older aircraft that make up their fleets.”
Courthouse new service quotes the Ex-Im Bank spokesman Phil Cogan saying in an email
“The U.S. Court of Appeals for the District of Colombia has already ruled on this transaction in 2013 when it gave the bank options to address any concerns about the bank’s procedures, acknowledging that Ex-Im has wide latitude in its decision-making. The court also expressly ruled that the district court should not vacate any of the bank’s actions in this matter to date. “In response to the mandate from the U.S. Court of Appeals, on Nov. 22, 2013 Ex-Im Bank filed a comprehensive, 34-page explanation of how it arrived at its decision to approve aircraft financing supporting sales to Air India.”
May be with the US FAA downgrading India to Category 2 status, Air India may not be requiring those Dreamliners for a while.
Share your thoughts via a comment.
I am sure India will be back to Category 1 in a reasonable time. In any case Air India can use the B787 on routes other than the USA.