The Air Transport Association of America (ATA) is suing The Export Import Bank of America (Ex-Im) in a bid to block the $3.4bn loan guarantees for the Air India Boeing 787 order. The ATA maintain that Ex-Im had distorted global competition and alleged that the agency had failed to meet its statutory obligations and are moving for an injunction blocking not only the deal but the free use of the guarantees in the future.
The ATA have their member’s to look out for and this is what the association is there for, but come on let us all be serious on this matter. Given the market financing situation and the desperate need for the ECAs in 2012 we have to ask – Are the people at the top of the ATA around the bloody bend? Anyway the Ex-Im Bank is there to support US exports and that is what they do and what they have done in this instance with Air India.
People out there need to note that the ECAs are already filling a huge funding gap and the number of deals has shot up in the second half of calendar 2011 and is expected to break records in 2012. Take out the ECAs, especially Ex-Im, which is the only one that is a bank, and you have nothing short of meltdown. It is worth noting now that the US-based lessors use ECA funding on a regular basis too.
However, the guys at United Continental know the order of things. They are one very-high-profile member missing from a recent ATA letter to Ex-Im.
Meanwhile, US carriers had a more pressing situation closer to home this week as, while the industry was all in Dubai, US airline stocks came under significant pressure. All the majors are down between 5-6% on the week. Many have put this decline down to continuing worries about the European debt crisis, which could negatively impact the network carriers. However, it is more likely that the cause of the declines was a spike in oil prices this week when NYMEX crude hit $102.59 closing the gap between NYMEX and Brent Crude. But the reality is that US airlines are now showing short term gain value for the week as the oil spike was down to Enbridge's announcement that it will reverse the Seaway pipeline so that it can carry oil from the overcrowded Cushing terminal in Oklahoma to the Gulf Coast. This news is great for airlines as the crack spread between NYMEX oil prices and jet fuel prices is further being narrowed which will lead to substantial windfalls for many airlines with hedges in place. The Enbridge news alone narrowed the crack spread by about 11 cents/gallon. To put that in perspective, Delta and United would save about $400 million each on an annual basis if jet fuel costs dropped by 11 cents/gallon. The Seaway pipeline news is thus a big win for the airlines (and consumers, for that matter) but airline stocks headed down??
So if you have cash on the hip then you best get into the US airline stocks before people see the mistakes and they rebound!
Ex-Im Bank targeted by Air Transport Association of America (ATA) over Air India deal
