Boeing Heads Plan for Private Financing of Exports

"I've got to take something out of Boeing's hide to make this look right," U.S. budget director David Stockman told Atlantic magazine. Stockman was explaining his decision to urge cuts in U.S. Export-Import Bank (Exim) funding as a way to offset cuts in social programs.

Exim, like the export-financing banks of other nations, lends money to developing countries at lower-than-market interest rates and longer-than-market terms for the purchase of domestically-produced goods. The Boeing Company in 1980 received $2.68 billion worth of contracts financed by Exim, or 48% of Exim's total.

Worried about the security of Exim financing in the face of budget cutbacks, Boeing is spearheading a drive to establish an "international equipment trust" which would act as an alternative to Exim. Several other private firms including Citibank and Lockheed (another large Exim beneficiary) are supporting the proposal, which is sponsored by the Aerospace Industries Association of America (AIAA).

The "international equipment trust" would work as follows: A leasing company would obtain loans on the private long-term capital market to purchase an airplane, using the airplane itself as collateral. The leasing company would then lease the plane to an overseas airline. By leasing instead of buying the plane, the airline would pay less taxes; and its payments for the lease would probably be less than for a purchase, since the leasing company would be eligible for longer-term financing on the private market than the airline itself would.

To be viable, however, the proposal would need substantial U.S. government support, and an AIAA official conceded the trust is "a long way from being set up." First, to counteract the threat to expropriation and other political risks which make many private banks unwilling to lend for assets in developing countries at regular rates, the U.S. government probably through Exim would have to guarantee the loans.

In addition, the plan would depend on an international agreement between the U.S. and other, aircraft-exporting nations to set export financing terms and interest rates at, or near, those available on the mainly-U.S. based international capital market. Without such an agreement, European governments' generous export financing plans - which U.S. manufacturers have complained give an unfair advantage to their European competitors - could continue to undercut the financing available from U.S. sources.

In a speech to the National Aviation Club on December 7, Boeing president Malcom T. Stamper bemoaned foreign competition - especially from the British-French-German consortium Airbus Industrie -which is eating into Boeing's markets overseas, and cited subsidized export financing by foreign nations as a principal cause of their ability to outbid U.S. firms.

But it is far from clear whether the U.S. can persuade European nations and Japan to stop concessional financing for their exports, many of which are produced in state-run industries employing thousands of workers. When asked what means the U.S. might use to induce other nations to agree to limit export financing to market or near-market rates, a spokesperson in the office of U.S. trade representative Bill Brock said only that the U.S. plans to take a "forceful diplomatic approach" in upcoming talks.