Actions often reveal more than words. But as far as words go, those written for a federal judge are often more telling than those peddled in lobbyists’ talking points.
Boeing, the aircraft giant, is lobbying this week to extend and expand the Export-Import Bank of the United States, a federal agency that subsidizes Boeing’s foreign customers along with other overseas purchasers of U.S. goods. Boeing’s lobbyists and executives say the company needs the Ex-Im Bank’s financing to compete overseas.
But Boeing’s actions tell a different story. In recent years, when conservatives blocked the Ex-Im Bank’s ability to finance aircraft exports with taxpayer backing, Boeing went out and assembled a consortium of financiers to provide private-sector financing for aircraft.
This consortium is now a matter of legal dispute. A would-be competitor to this consortium is suing, arguing that Boeing stole its idea. The filings in this case, on all sides, provide us with an honest assessment of the whole industry, and they make a great case for why Congress should end federal subsidies for Boeing exports.
Xavian Insurance v. Boeing Capital lays bare the workings of aircraft financing and makes very plain a fact that Boeing and most members of Congress have never admitted in public: U.S. government subsidies for Boeing exports distort the market and crowd out private financing that would be abundant if Uncle Sam just got out of the way.
What’s more, Boeing knows this to be true.
Thatcher Stone is an attorney who has represented the Ex-Im Bank. Starting in 2006, Stone began piecing together financial backing and collecting the data needed to create a private aircraft-financing entity, which he called Xavian. This involved extensive data collection and intensive analysis, according to the lawsuit filed by Xavian.
Xavian was bound to be tied closely to Boeing, obviously, since Boeing is the world’s leading jetmaker. As a result, Xavian shared trade secrets and other information with Boeing Capital Corporation, the finance arm of Boeing. Xavian shared both a Plan A and a Plan B. Plan A involved creating a private underwriter for aircraft exports. Plan B was assembling a consortium of lenders and insurers to finance exports.
The grand plan, as Boeing puts it in a court filing: “Xavian was founded in 2007 to implement a business model that would specialize in guaranteeing the financing of commercial aircraft sales in competition with the Export-Import Bank of the United States.”
Stone and his friends at Xavian believed “even a modest commitment from Boeing would have been a game-changing development for Xavian,” as they put it in one court filing.
Boeing, which you might think would have loved the idea of multiplying the sources of funding available to its customers, didn’t bite. They told Xavian to buzz off. With no interest from Boeing, the whole idea dried up. Boeing’s customers, such as Air China and Emirates, kept relying on the U.S. taxpayers for financing, through the Ex-Im Bank, when buying planes.
But then things changed in 2015. As Xavian’s lawyers put it in one court filing, “Defendants had a critical need to develop an alternative funding source when it suddenly became clear in mid-2015 that the Ex-Im Bank would no longer be able provide guarantees for the sale of Boeing aircraft.” This explains what happened when conservatives in Congress blocked the Ex-Im Bank’s reauthorization and prevented the board from having a quorum.
Suddenly, Xavian’s work to calculate the risk on financing aircraft to foreign buyers was much more valuable. And nobody else had done it because, as Xavian lays out in court filings, “a market inefficiency existed because market participants had long been relying on the Ex-Im Bank providing a ‘AAA’ guarantee for loans to foreign airlines purchasing Boeing aircraft.”
What happened next is the meat of the legal dispute: Boeing teamed up with former Ex-Im Bank official Bob Morin and insurance giant Marsh to form the Aircraft Finance Insurance Consortium, which Xavian says is a direct ripoff of Xavian’s Plan B. AFIC proved what the private sector could do once government stepped out of the way. In the years the Ex-Im Bank was hobbled, the consortium innovated, made large profits, and won tons of awards.
Aircraft financing flourished in the years when the Ex-Im Bank was dead, because private sector financiers could enter the industry without having to compete with Uncle Sam.
The legal arguments in Xavian v. Boeing are a bit arcane, and they’re beside the point for the public policy question, which is simple: Should the federal government finance Boeing exports?
Of course it shouldn’t. It doesn’t have to. The story of Xavian, Boeing Capital, and AFIC shows that when the Ex-Im Bank disappeared from the scene, the private sector easily filled the vacuum.
The House is voting this week on reauthorizing the Ex-Im Bank. Members shouldn’t listen to the words of the lobbyists but to the actions of the companies involved.
