New House Leader Kevin McCarthy Deals a Blow to Boeing

"I think Ex-Im Bank is ... something government does not have to be involved in. The private sector can do it." -- Kevin McCarthy (R-Calif.)

And with that quip on Fox News Sunday, the new House Majority Leader threw down the gauntlet for the Export-Import Bank, and by extension, Boeing (NYSE: BA  ) .

A long history
The Export-Import Bank has a long and storied history. Established by President Franklin D. Roosevelt in 1934 with a $3.8 million loan to Cuba for U.S. silver ingots as part of the New Deal, this is now an organization that currently supports nearly $50 billion of exports in 2012. According to the organization, in the past five years, it has supported 1.2 million American jobs.

The purpose of the organization is to authorize loans, credits, guarantees, and insurance to our trading partners to facilitate those jobs. And just how much does this cost American taxpayers? Well, according to the Export-Import Bank's website, nothing. It's actually returned $1.6 billion since fiscal 2008 due to the fees and interest it charges trading partners.

A changing of the guard
That's not to say it has always been a well-liked program. Liberals have occasionally derided individual deals of the bank -- mostly lumping it in with what they consider manufacturing-job-killing free trade agreements, but generally consider it a way to facilitate trade. Conservatives, namely the Tea Party, are more philosophically opposed. Many on the right have derided the bank, calling it a prime example of corporate cronyism and the government picking winners and losers.

This chain of events was started by one of the biggest House upsets ever. The former House Majority Leader, Eric Cantor (R-Va.), lost his reelection to a rather unknown challenger, Dave Brat – a race in which Cantor allegedly spent more in steak than Brat spent in total.

Cantor, for better or worse, stood by the Export-Import Bank, at times begrudgingly. Considered by many to be a "Chamber of Commerce" Republican -- the interparty antithesis of the Tea Party -- in 2012, Cantor cut a deal with Minority Whip Steny Hoyer (D-Md.) to both reauthorize the bank and to increase its lending authority to its current amount -- $140 billion for three years.

Kevin McCarthy (R-Calif.)

After Cantor lost, he whole-heartedly supported McCarthy as the next leader.

Why Boeing investors (and employees) should worry
Although reports of Export-Import being "Boeing's Piggy-Bank" are overstated, it is an important part of Boeing's operations. In its fiscal 2012, the Export-Import Bank supported $11.6 billion of large commercial sales of Boeing's aircraft and supported 85,000 workers both at the company itself and at its suppliers. And while it's rash to believe all that revenue will be lost (as Mr. McCarthy said, there are private lenders/solutions and the Export-Import Bank merely supports transactions), it is interesting to know that's over 13% of Boeing's last fiscal's revenue.

As the U.S.'s largest exporter, Boeing has established a highly skilled workforce. That has allowed Boeing workers to be highly paid and a demand-driver of other businesses in the area. An interruption of financing for Boeing equipment has the potential to be a jobs killer.

Final Foolish thoughts
While Boeing investors should keep an eye on this, now is not the time to panic. If the defeat of Eric Cantor shows anything, it is the winds of change can shift in an instant. The Chamber of Commerce is firmly committed to the reauthorization of the Export-Import Bank, and they have deep pockets. And while many in Congress are philosophically opposed to the Export-Import Bank, not too many want to go on the record as harming job growth.

If the private sector can't provide the necessary financing, it will be hard for Congressmen to tell their constituents that they are against the Export-Import Bank's reauthorization.

Don't rely on Washington for your entire retirement!
Social Security plays a key role in your financial security, but it's not the only way to boost your retirement income. In our brand-new free report, our retirement experts give their insight on a simple strategy to take advantage of a little-known IRS rule that can help ensure a more comfortable retirement for you and your family. Click here to get your copy today.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 24, 2014, at 12:11 PM, longinvest wrote:

    McCarthy is correct. Private enterprise should not rely on Federal government for subsidies. Govt has no business in funding any company. We must reduce government and corporate reliance on government. Boeing will do just fine with its backlog of orders and depth of talent. Now Wall Street needs to understand this.

  • Report this Comment On June 24, 2014, at 12:40 PM, TMFJCar wrote:

    @longinvest

    Thanks for the comment, but I'm not for sure it is totally true.

    <<We must reduce government and corporate reliance on government. Boeing will do just fine with its backlog of orders and depth of talent.>>

    The interesting thing is Boeing competes with AirBus for customers. In the event that private enterprise raises the cost for Boeing's planes, you can bet Europe will work to lower the cost of theirs.

    And while quality factors into the buying decision, costs play a huge role with such a large purchase. So I don't think it is as simple as you state, unfortunately.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3004820, ~/Articles/ArticleHandler.aspx, 10/22/2014 1:09:10 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement