Why Delta Air Lines Is Fed Up With the "Bank of Boeing"

For decades, U.S. aerospace giant Boeing (NYSE: BA  ) has benefited from the support of a little-known U.S. government-sponsored agency called the Export-Import Bank. The Export-Import Bank helps arrange financing for U.S. exports, and Boeing planes represent a large chunk of its financing volume.

Delta Air Lines (NYSE: DAL  ) and (to a lesser extent) Hawaiian Holdings (NASDAQ: HA  ) have claimed that the Export-Import Bank props up their competitors. As a result, both carriers want Congress to reform the Export-Import Bank -- or shut it down.

The "Bank of Boeing"
While the Export-Import Bank funds thousands of export transactions for U.S. small businesses each year, these deals tend to be modest in scale. By contrast, a single wide-body airplane can cost more than $100 million.

Boeing customers account for about 40% of the U.S. Export-Import Bank's financing volume. Photo: The Motley Fool

As a result, Boeing jets account for about 40% of the Export-Import Bank's financing volume in dollar terms. This makes Boeing by far the bank's largest beneficiary, and has led to some people calling the Export-Import Bank "The Bank of Boeing."

Delta Air Lines and Hawaiian Holdings have both protested the organization's support of Boeing: particularly its financing of wide-body airplanes. The two airlines argue that foreign carriers -- many of which are government-owned or have ample private access to credit -- use below-market financing from the Export-Import Bank to compete with U.S. airlines.

In this effort, Delta and Hawaiian have found support from an unlikely corner: the Republican Party. The GOP has traditionally had pro-business leanings, and has therefore been a staunch backer of the Export-Import Bank.

However, a new generation of conservatives are more attracted to a pure free market approach, and thus plan to vote against reauthorizing the Export-Import Bank's charter. This includes several prominent Republicans, including new House Majority Leader Kevin McCarthy, former vice presidential candidate Paul Ryan, and House Financial Services Committee Chairman Jeb Hensarling.

The case against the bank
In recent testimony before Congress, Delta CEO Richard Anderson argued that the Export-Import Bank is subsidizing foreign airlines. Export-Import bank customers can save up to $20 million per Boeing plane thanks to lower interest expenses  relative to private market rates.

Delta believes the Export-Import Bank is subsidizing its foreign competitors. Photo: The Motley Fool

Beneficiaries have included airlines like Emirates, which is owned by Dubai's state investment fund. Emirates carries more international passengers than any other airline and has been expanding in the U.S. recently. Delta argues that Export-Import Bank financing -- which is only available to non-U.S. companies -- gives competitors such as Emirates an unfair advantage.

Hawaiian Holdings has similar gripes. The company is in the midst of a significant international expansion, and now gets nearly 30% of its revenue from international markets. Hawaiian is unhappy that some of its well-capitalized competitors are receiving below-market financing from the Export-Import Bank.

Some of Hawaiian Airlines' foreign competitors benefit from Export-Import Bank financing. Photo: The Motley Fool

Hawaiian's complaints are particularly salient in the case of Korean Air Lines. The two carriers compete on the Seoul-Honolulu route, which has suffered from chronic overcapacity for two years. Korean Air Lines -- which has financed Boeing wide-body purchases through the Export-Import Bank -- has continued to fly the route up to three times daily, while Hawaiian cut back its schedule to just five weekly flights a few months ago.

Searching for a compromise
Neither Delta Air Lines nor Hawaiian Holdings is demanding the demise of the Export-Import Bank. Unlike some of the bank's most strident critics, they recognize that the bank has stimulated demand for U.S. exports, helping numerous small businesses grow. They even see a role for the Export-Import Bank to continue supporting some Boeing exports.

However, Delta and Hawaiian both want to ensure that the bank is not helping foreign competitors dominate international routes to and from the U.S. They believe the bank should have to show on a case-by-case basis that loans to foreign airlines won't endanger U.S. airline jobs.

That said, given the partisan political environment in Washington, the Export-Import Bank's future may depend more on political maneuverings than explicit policy choices. The bank's reauthorization could become a political football within the larger budget process this fall.

U.S. airlines with significant international operations, including Delta Air Lines and Hawaiian Holdings, will be looking for serious reforms. Boeing and other major exporters will be hoping for the opposite outcome. U.S. citizens can only hope that Congress resolves this issue without doing significant damage to either U.S.-based airlines or Boeing.

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