By Peter Schroeder - 06/24/14 06:00 AM EDT
The escalating fight in Congress over the Export-Import (Ex-Im) Bank is threatening to put a financial squeeze on Boeing, the world’s largest aerospace company.
Boeing is the largest beneficiary of the bank’s lending help and has long relied on it to facilitate the sale of its jets across the globe.
The backlash against the bank has grown steadily in recent weeks, with an expiration of its charter in September an increasingly real possibility.
That’s a worrisome prospect for Boeing investors, as the company’s sales could suffer if the billions of dollars in loan guarantees provided by Ex-Im are lost.
“It’s a huge issue for Boeing,” said Roman Schweizer, an aerospace and defense analyst for Guggenheim Securities. “Exports within commercial aerospace have become a big driver of their growth going forward … this certainly throws a wrench in that.”
Boeing’s stock was down nearly 1 percent on Monday, the first day of trading since Rep. Kevin McCarthy (R-Calif.), the incoming House majority leader, said he would back a conservative effort to let the bank’s charter expire on Sept. 30.
The company’s stock took an even bigger hit earlier this month, posting its worst decline in two months, the day after House Majority Leader Eric CantorEric CantorJuan Williams: The capitulation of Paul Ryan The Trail 2016: The Big One Conservative sworn in to replace Boehner MORE (R-Va.) lost his primary election. The surprise seemed a bad omen for the bank, given that Cantor had cut a deal in the last Congress to renew it.
The bank, long a sore spot for conservatives, provides assistance to American companies trying to sell their goods abroad. One of the ways the bank provides that support is by guaranteeing loans for foreign companies looking to purchase U.S. goods, and Boeing has taken full advantage.
In its 2013 annual report, Ex-Im reported that Boeing entered into 23 different guaranteed deals worth at least $5.6 billion, with airlines ranging from Ethiopia to the Philippines.
Separate analysis from the Mercatus Center at George Mason University determined that in fiscal 2013, Boeing and its subsidiaries received roughly $8 billion in Ex-Im support via loan guarantees, which accounted for 66 percent of all guarantees provided by the bank.
Taking into account the bank’s varied support tools, Boeing accounted for 35 percent of dollars backed by Ex-Im, according to the Mercatus analysis.
The precise impact that the demise of Ex-Im would have on Boeing’s bottom line is murky, even to analysts who follow the company closely.
Bank critics argue companies could turn more often to the private sector without the Ex-Im safety net, and Boeing has its own financial subsidiary that some experts say could pick up some of the slack. The company is also flush with cash, having reported $86.6 billion in revenue in 2013.
Still, experts say the loss of Ex-Im would put a pinch on Boeing’s business.
“Certainly Boeing’s bottom line would be hurt, [but] it’s not as if getting rid of the bank means getting rid of the activity altogether,” said Veronique de Rugy, a Mercatus research fellow who is critical of the bank. “Boeing is the No. 1 exporter in America; they’re not someone who exactly needs someone’s help.”
De Rugy will testify about the Ex-Im Bank on Wednesday at a hearing of the House Financial Services Committee.
Some analysts suggested that, if Ex-Im were to be boarded up, Boeing would face less of an impact now than it would have at the depth of the recession.
The bank only guarantees about 15 percent of Boeing’s deliveries currently, but was supporting roughly a third of the company’s deals when credit froze up in 2008, according to Shapiro Research, an independent aerospace research firm.
“Effectively, the bank has become a financier of last resort,” wrote George Shapiro. “In the current easy credit environment, lack of renewal would probably have a minimum effect, but it would be significant in a tighter credit environment.”
Ex-Im backers are skeptical that companies like Boeing will be able to do the same businesses without the government support, regardless of whether they could line up private financing. They said Ex-Im’s demise would help Boeing’s foreign rivals, because other countries provide the same kinds of loan guarantees, often with more generous terms.
“If Ex-Im is not reauthorized, Boeing will be placed at a competitive disadvantage to Airbus and other airplane manufacturers, all of whom have government export credit agencies to support customer financing,” said Boeing spokesman Timothy Neale.
Boeing said Monday they are not commenting on what specific deals might be impacted by a failure to renew the bank. But the company said its customers have fretted for months about the effort to kill the bank and noted it can take up to nine months to get an Ex-Im guarantee approved.
“The airplane market is highly competitive, and every deal is won or lost by the slightest of margins,” Neale said. “Any uncertainty in financing availability could unnecessarily tilt the field against Boeing, putting thousands of manufacturing jobs at risk.”
Major business groups are with allies on Capitol Hill to push a renewal of the bank’s charter. They argue that thousands of small and medium-sized businesses rely on the bank alongside giants like Boeing and General Electric.
They also argue that small companies that do not deal with the bank would also feel the pinch, as they provide goods and services to exporting companies such as Boeing.