Boeing’s recent assertion that the appetite of capital markets to fund airliner orders has increased comes as especially welcome news to manufacturers and their customers at a time when other sources of funding seem under pressure. Export credit, in particular, now comes generally at higher interest rates and with tougher equity requirements. At the same time, such government-backed capital has become a hostage to global politics, according to Kostya Zolotusky, managing director for capital markets development and leasing at Boeing Capital.
“There are no surprises [about export credit becoming harder to secure] because it continues to be political on all sides,” he said at a press briefing earlier this month. Zolotusky predicted further rancor between Brazil and Canada over their long-running squabble about accusations that each country illegally subsidizes their national aerospace champions–Embraer and Bombardier, respectively.
Also clouding the export credit environment is how the new Aircraft Sector Understanding, which went into effect in January, may resolve long-running disputes over issues such as the so-called “home market” rule under which Europe and the U.S. maintained a long-standing agreement to abstain from providing financing to airlines in their own or each other’s domestic markets. This prompted accusations from “home” carriers of alleged anti-competitive assistance for new rivals from other regions, such as the fast-growing Arabian Gulf airlines.
Last month Delta Air Lines significantly elevated the issue when it filed a lawsuit against the U.S. Export-Import (Ex-Im) Bank, alleging that its loan guarantees to non-U.S. carriers such as Emirates Airlines, Etihad Airways and Korean Air amount to anti-competitive subsidies harmful to U.S. airlines. In unusually forthright criticism of a Boeing customer, Zolotusky characterized Delta’s lawsuit as irrational and without foundation.
“Delta and A4A [the Airlines For America trade association] were at the negotiating table when the Aircraft Sector Understanding was negotiated [through the Organization for Economic Development and Cooperation]. No one was happy with this deal but it was an agreed compromise,” he said. “The fact is that Delta still has access to capital at rates that are a lot cheaper than export credit. If it gets everything it wants [from the lawsuit against the Ex-Im Bank] it gets nothing but to see its competitors flying on Airbus aircraft.”
Nonetheless, Zolotusky predicted that the clamor over the future of the Ex-Im Bank would settle because “there are enough rational people behind it” and, in his view, it would amount to irrational “unilateral disarmament” if the U.S. scrapped such an important tool for supporting exports of U.S.-made aircraft.