A government agency that finances U.S. exports directed 90 of its loan guarantees last year to subsidize one company: Boeing.
Before President Obama unfurls his export-promotion plan at the Export-Import Bank’s annual conference this Thursday, he should review the agency’s recent annual report, which documents an unparalleled case of corporate welfare — a government program dedicated almost entirely to serving one well-connected company.
Of the $9.3 billion in loan guarantees Ex-Im issued in fiscal 2009, $8.4 billion subsidized Boeing sales. In Ex-Im loan guarantees, private banks or foreign governments finance the purchase (by a foreign company or government) of U.S. goods, and Ex-Im underwrites the loan, putting the U.S. taxpayer on the hook if the foreign customer defaults. This allows Boeing to offer lower prices, and it guarantees that Boeing and the lender get paid. This is called public risk for private profit.
For instance, Boeing landed a $2 billion-plus deal with the state-owned parent company of Air India. Bailed-out investment bank JP Morgan is lending Air India the cash to buy 68 Boeing jets.
That’s when the taxpayer enters the picture. Ex-Im agreed at its June 11 board meeting last year to guarantee $2 billion of the deal. So, if Air India runs out of cash in the future, Ex-Im pays JP Morgan and Boeing — with taxpayer money.
Ex-Im officials like to downplay the risk of default, but if potential default didn’t loom, Ex-Im’s guarantees would be unnecessary. And the Boeing-JP Morgan-Air India deal recalls a history of recent foreign defaults where Ex-Im financing left taxpayers on the hook.
We know airlines sometimes default on their Boeing purchases, thanks to the fate of Air Nauru. Nauru is an island nation whose economy was built on harvesting bird poop for fertilizer. After all the guano was strip mined, Nauru underwent a fiscal collapse, and state-owned Air Nauru couldn’t pay its debt. In the end, Ex-Im seized the airline’s only jet and sold it at auction.
And when an Enron power plant in India failed last decade, Ex-Im ended up paying out $220 million to the shortchanged U.S. companies, and then suing India’s government to recoup the loss.
Guarantees are not Ex-Im’s only product. Last fiscal year, Ex-Im ramped up to $3 billion its direct loan program, in which Boeing didn’t heavily participate — only one deal, worth $114 million, subsidized Boeing. So, combining loans and guarantees, Ex-Im added $12.4 billion in new taxpayer exposure to foreign debt last year, with $8.5 billion, or 69 percent, going to sweeten Boeing sales.
(Ex-Im also deals in smaller programs, such as credit insurance, but those are not itemized in the agency’s annual report.)
While last year was above average for the jet maker, Ex-Im has long been known as “Boeing’s Bank.” Since 1997, most of Ex-Im’s financing has subsidized the jet maker. When you look at the company’s political connections, you can see how they pull this off.
Bill Daley — the former commerce secretary, brother to Chicago’s mayor, and member of Obama’s transition team — is on Boeing’s board. Obama’s national security adviser and the former commandant of the Marine Corps, Gen. James L. Jones, served on Boeing’s board between his government jobs.
Boeing’s K Street lobbying firms include the Podesta Group (co-founded by Obama’s transition director John Podesta), and Linda Hall Daschle, wife of Obama confidant Tom Daschle.
Candidate Obama assailed government policy that enriched the wealthiest in the hope that “somehow prosperity will trickle down.” But this is this mission of Ex-Im — subsidize Boeing’s profits in an effort to create jobs.
Ex-Im defenders rightly point out that Airbus, Boeing’s main competitor, gets billions in direct subsidies from European Union countries, with the result that it more closely resembles a government agency than a company. The Europeans, in turn, point to Boeing’s loan guarantees to justify their support for Airbus.
If Obama were serious about curbing special interest dominance of Washington, he would announce Thursday that this was Ex-Im’s last annual conference — that he was abolishing this corporate welfare agency and leaning on Europe to end its Airbus aid. But it was under Obama’s Ex-Im that both of Boeing’s billion-dollar deals were approved.
Republicans tend to support corporate welfare because they are “pro-trade” and “pro-business.” Democrats are pro-corporate welfare because they are pro-government. That makes things easy for Ex-Im — and for Boeing.
Timothy P. Carney, The Examiner‘s lobbying editor, can be reached at [email protected]. He writes an op-ed column that appears on Friday.
