In a meeting yesterday morning Boeing confirmed that there has not yet been an agreement to extend loan guarantees. Kostya Zolotusky of Boeing Capital said there has been no agreement on extending state loan guarantees to airlines in the home countries of aircraft manufacturers to date. The Organization for Economic Cooperation and Development (OECD) is still considering the extension of export credit to Europe and the US said Zolotusky, noting that it remains a contentious issue. Boeing is currently managing its business on the basis that a decision either way will be in place before the New Year.
A group of airlines located in the home countries that do not qualify for export credit have been lobbying hard for the rules to be reviewed and from documents revealed by the Financial Times yesterday it looks like they may have had an impact. Under new rules to be discussed this week, the FT says, export credit fees will vary “according to the credit rating of the airline and prevailing market conditions”. These rules are reflective of complaints from numerous quarters over cash rich airlines, particularly those in the Gulf, expanding their fleets on the back of export credit guarantees, which has flooded the market with overcapacity creating an unfair playing field. We have long referred to the debate in these editorials so stating the airlines once more is unnecessary. However this current turn of affairs may mean that the issue is resolved soon, albeit unsatisfactorily for both sides as the cost of financing will increase for all. That said, Zolotusky is bullish that the revised rules will impact aircraft sales: “My view is that export credit does not drive demand of aircraft,” he said. “The tail does not wag the dog.”
One senior airline contact looking to level the playing field confirms: “There appears to be progress on pricing which will reduce the scale of export credit subsidies,” he says. “However, US, French, German and British taxpayers need to ask questions of their governments as to whether their money should be used to provide subsidies to overseas air carriers when so many other cutbacks are being made to public services. Further, these governments are in a position to make decent profits rather than giving away credit at big discounts.”
He says: “An even more important dimension is the lack of access for home market carriers. If export credit subsidies are going to be allowed to continue, all carriers must be able to use them. This means that the Home Market Rule has reached the end of its life, and there is growing acceptance amongst the OECD members that it is no longer sustainable. Are the Chinese, Russians, Canadians, Japanese and Brazilians going to be steamrollered by the Americans as easily as the weak Europeans have been? Of course not! By the way, why isn’t Japan already a Home Country when it represents a larger proportion of Boeings supply chain than the UK does for Airbus.”
The “Airline Alliance” recognises that there are serious anti-competitive issues that need to be addressed. The OECD negotiators have full responsibility for dealing with all the issues to the satisfaction of all stake holders – not just a select few.
Our sincere thanks to all those that supplied information for this story.