Friday, September 29, 2023
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Airlines Claim Underwriting of|Foreign Loans Hurts U.S. Business

WASHINGTON (CN) - The United States' cheap financing of billions of dollars in planes for foreign airlines hurts U.S. airlines and employees by giving foreign companies a competitive advantage, Delta Air Lines and the Air Line Pilots Association claim in court.

Joined by Hawaiian Airlines, Delta and the pilots association sued the Export-Import Bank of the United States, its president, first vice president and two board members, in Federal Court.

The Export-Import Bank announced in September 2011 that it had approved $1.3 billion in loan guarantees and $2.1 billion in loan commitments to Air India, to buy 30 Boeing aircraft. The bank provided no other information about the massive loan guarantees or its review process, according to the complaint.

That year, Delta and the pilots association (ALPA) joined the Air Transport Association of America in a lawsuit challenging the Ex-Im Bank's decision to approve the $3.4 billion in loan guarantees.

In the new lawsuit, filed Friday, the plaintiffs challenge the bank's decision to move forward with the Air India loans without adequate explanation after the D.C. Circuit asked it to justify the loan approvals.

"The bank's aggressive approach to aircraft financing allows foreign airlines to borrow at much cheaper rates than they could in the private market," the lawsuit states. "Cheaper financing, in turn, leads to competitive advantages for foreign airlines vis-à-vis their American competitors, shifts industry growth abroad, and puts downward pressure on American production and employment. U.S. airlines and their employees, including plaintiffs in this action, have urged the bank to reconsider its subsidies to foreign airlines because of these adverse economic effects."

President Franklin D. Roosevelt established the original Export-Import Bank of Washington during the Great Depression to reduce unemployment by stimulating exports. The bank, which is the official export credit agency of the United States, provides loans, loan guarantees and insurance commitments to foreign corporations to finance their purchase of U.S. products.

When the bank extends loan guarantees, a lender receives a guarantee from the federal government that it will pay the loan principal and interest in case of default.

Federal law requires the bank to weigh the adverse effects its loans might have on U.S. businesses and employees against the possible benefits to the economy. The bank also must notify the public of its financing decisions, explain the purpose of each transaction of more than $100 million, and allow public comment before approval, according to the complaint.

ALPA, which represents 47,000 pilots working for 28 U.S. commercial airlines, and its co-plaintiffs, which operate flights between major cities all over the world, claim the bank's pattern of subsidizing the export of U.S.-made aircraft harms them and gives their competitors an unfair advantage.

In fiscal year 2012, the bank dedicated 46 percent of its financial commitments to air transportation loans and guarantees, according to the lawsuit.

"The bank has devoted a substantial portion of its financial commitments to aircraft financing," the complaint states. "From FY2001 to FY2012, the bank approved more than $67 billion in loan guarantees to foreign airlines and international aircraft lessors. Those loan guarantees allowed foreign airlines to acquire more than 950 commercial aircraft at below-market rates.

"The ability to buy Boeing aircraft using loan guarantees that are backed by the

U.S. Treasury gives a significant competitive advantage to the favored foreign airlines. These airlines are able to raise capital more cheaply and on more favorable terms than they otherwise could. In some cases, foreign airlines like Air India are able, with the bank's support, to buy aircraft that they could not otherwise have financed at all on economically feasible terms.

"The newly purchased aircraft that foreign airlines purchase with the bank's assistance also give the foreign airlines competitive advantages by reducing their fuel and maintenance costs; attracting customers who wish to fly on newer, more desirable planes; and enabling the airlines to charge prices for seats on the newer aircraft that are lower than the prices that U.S. airlines must charge for seats on competitive routes on the older aircraft that make up their fleets."

Delta and Hawaiian say they compete directly with foreign airlines that enjoy these advantages due to the U.S. financing.

They claim the bank failed to analyze the impact of the Air India loans on U.S. airlines and jobs before approving them, did not solicit public comment, and refused to reconsider the commitments.

And they say the bank's official responses to the appeals court's remand offer no additional justification for the "arbitrary and capricious" decision.

Though the bank has not yet issued the final guarantees for the Air India loans, Boeing already has delivered 10 of the planes to Air India, according to the lawsuit.

The airlines seek an injunction and a declaration that the commitments violate federal law.

They are represented by Michael Kellogg with Kellogg, Huber, Hansen, Todd, Evans & Figel.

Ex-Im Bank spokesman Phil Cogan said in an email: "The U.S. Court of Appeals for the District of Colombia has already ruled on this transaction in 2013 when it gave the bank options to address any concerns about the bank's procedures, acknowledging that Ex-Im has wide latitude in its decision-making. The court also expressly ruled that the district court should not vacate any of the bank's actions in this matter to date.

"In response to the mandate from the U.S. Court of Appeals, on Nov. 22, 2013 Ex-Im Bank filed a comprehensive, 34-page explanation of how it arrived at its decision to approve aircraft financing supporting sales to Air India."

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