Boeing Company Chairman W. James McNerney startled a Washington audience on Wednesday by suggesting Boeing may need to move some operations offshore if the Export-Import Bank is not reauthorized. The federal agency’s charter expired June 30 due to opposition from conservative Republicans, leaving the nation’s sole export-credit agency with no authority to extend new credit to U.S. exporters and their overseas customers.
Boeing, the nation’s biggest exporter, is also the biggest beneficiary of Ex-Im Bank services. About 40% of the agency’s credit portfolio consists of loans and loan guarantees associated with the overseas sales of Boeing jetliners. The Chicago-based company says it depends on Ex-Im to level the playing field with rival Airbus, which has access to several European export-credit agencies. The World Trade Organization has ruled that all of the commercial transports marketed by Airbus since its inception in 1970 were funded using subsidies prohibited under trade treaties.
Some observers dismissed McNerney’s comments as scare tactics aimed at pressuring Congress to renew the Ex-Im charter. However, Boeing executives have detected a softening in demand for the company’s jetliners among foreign customers who tap Ex-Im credits. Ex-Im typically extends credit to developing countries such as Indonesia and Pakistan that have difficulty securing loans from private banks at economical rates. Ex-Im loans have to be paid back with interest — which allows the agency to be self-sustaining — but Boeing says they are a critical factor in deciding whether prospective customers buy from the U.S. company or Airbus.
Boeing (which contributes to my think tank) currently sources about 80% of the content of its planes domestically while selling 80% of the planes overseas. McNerney told the Economic Club of Washington Wednesday that might have to change, though, if it can no longer secure the export credit needed to make its pricing competitive. Many foreign customers for Boeing airliners do not use Ex-Im facilities — the terms it offers often mirror commercial interest rates — but losing customers who cannot secure credit in the private sector would shift demand in favor of Airbus products, eroding Boeing’s global market share.
With the two companies nearly equal in their market shares at present, that might deprive Boeing of economies of scale necessary to match Airbus pricing. The company says it could provide financing to disadvantaged customers with its own resources in the absence of Ex-Im facilities, but the money would have to be taken out of other activities such as marketing and product development. For example, funds for the development of a new family of 777X widebodies might be cut to cover export financing costs, delaying that plane’s market debut.
The option of moving key operations offshore, which Boeing says it is actively considering, would be aimed at setting up shop in a country where export credit facilities are available. Five dozen other countries have export-credit agencies, but the most likely destination for a Boeing move would be Canada, which has been rapidly increasing the financial aid available to its exporters. Several American carriers including Delta currently use Canadian government credit in purchasing planes from Montreal-based Bombardier .
The Senate earlier this week voted by a lopsided margin to include Ex-Im Bank reauthorization in a must-pass highway bill, indicating strong support for the agency in the upper chamber. However, the situation in the House of Representatives is less clear, with many Republicans lined up to oppose the bank’s continuation. Although a majority of Representatives favor reauthorization, Speaker John Boehner is ambivalent about bringing to the floor a measure that is opposed by so many members of his own party. Political observers are predicting the bank will be saved in the end, but McNerney’s comments today are clearly aimed at signaling what could happen if it isn’t.