Will the lights go out at Ex-Im?

The US Export-Import Bank is now officially in limbo.

For much of the last week, the attention of most news media in the US has been on landmark Supreme Court decisions on the contentious subjects of the Affordable Care Act and same-sex marriage. But while the spotlight was on the Supreme Court, the US Congress quietly slipped into its Fourth of July recess without taking any action to reauthorize the charter of the Ex-Im Bank, which is set to expire at the end of today (30 June).

What this means in practical terms is that as of the end of the day, the Ex-Im Bank will not be allowed to make any more loans. Employees will still report to work, to deal with business arising from previous loans, but that is all.

Lack of mainstream media coverage of the reauthorization of the charter of an institution that most Americans have never heard of may be understandable, but that does not mean many Americans won’t be affected by the fate of the Bank. And the impact will be particularly significant in the aviation industry.

The Export-Import Bank was created in 1934, during the Great Depression, with the aim of creating jobs in the US by financing American companies’ business outside the US – a kind of lender of last resort that could step in to cover the risk of investments that private companies were unwilling to take on. It reportedly now finances less than 2% of US exports, but close to 90% of its loan guarantees go to Boeing, GE, and Caterpillar. Boeing and GE, needless to say, are major players in the US aviation industry.

Why was reauthorization denied this time, when it has passed without fanfare sixteen times in the past? The short answer is that the Senate Majority Leader controls which bills come to the floor for a vote, and he chose not to allow a vote on this bill. The longer answer is rooted in US partisan politics, and we’ll leave discussion of that subject to others.

A reauthorization vote may be allowed at some point after Congress returns from its recess, or, and this is seen as more likely by many political observers, reauthorization of the Ex-Im Bank charter may be attached as an amendment to some other bill – a bill that carries must-pass status with both political parties. This latter would allow Senators to reauthorize the Bank (something which most of them, from both parties, reportedly want to do) and at the same time appease voters by saying “I tried to fight it, but…”

Regardless of which side of the Ex-Im debate one is on, the fact remains that companies based in Europe and China continue to have access to the kind of support that US companies enjoyed through the Ex-Im bank. How serious a problem could that become? Serious enough to cause Jeffrey Immelt, CEO of General Electric, to say in an address to the Economic Club of Washington: “We’re not going to lose this business. We’ll build these products in places where export credit financing is available.”

And finally, to bring the whole subject closer to the world of air cargo, we point out that a significant chunk of Boeing’s current 747-8 order and LOI backlog would likely benefit from the availability of Ex-Im financing. And to critics who say that Boeing could finance these deals itself, the company has responded that money tied up in that kind of financing is money unavailable for research and development.

Cargo Facts expects that, sometime in the next month or two, Congress will reauthorize the Export-Import Bank charter. But if not, then we may be in for some interesting times.