Jobs may be at risk as fate of Export-Import Bank is debated
Thousands of jobs in Southern California and across the nation could be in jeopardy as politicians wrangle over the fate of an obscure, 80-year-old federal agency that helps U.S. companies sell their products overseas.
The Export-Import Bank has come under attack by conservative critics, including new House Majority Leader Kevin McCarthy (R-Bakersfield). They argue that it dispenses unneeded corporate welfare to large multinational firms — particularly Boeing Co.
As Congress gets back to work next week, advocates for the bank will have little time to persuade fellow lawmakers to reauthorize the bank’s charter: It’s set to expire Sept. 30.
Supporters point out that the bank is fulfilling its mission to create and sustain U.S. jobs by financing sales of U.S. goods to foreign buyers. They note that it has helped thousands of small and mid-size manufacturers throughout the country by providing loans, guarantees, insurance and other aid to those buyers.
Boeing, however, is the focal point of attack for conservatives. That’s because it is the nation’s largest single exporter and biggest beneficiary of the bank’s loans and other aid.
Boeing plays an outsized role in the U.S. economy. Its production of large commercial jetliners is so important that a good or bad month by the company alone can cause a major swing in the Commerce Department’s report on orders for long-lasting durable goods.
The aerospace giant and its supporters note that Boeing funneled $48 billion in business last year to 15,600 U.S. suppliers, including about 3,300 in California.
Those companies, such as Lamsco West, a small Santa Clarita aerospace supplier, face a hit to their business if Boeing’s exports fall off.
“If they lose half of their competitive advantage, we lose half of our business. We lay off half of our employees,” said Steve Griffith, Lamsco West’s vice president of sales and marketing. “There is no place else to go.”
Nearly all of the specialty products the company makes are sold to Boeing. “The fate of Boeing,” he said, “is our fate.”
Like any bank, the Export-Import Bank generates its income on loan interest and fees from customers, though the government is on the hook for any losses on what is now $140 billion in outstanding aid. The bank also sends its profits to the U.S. Treasury — a record $1.1 billion last year.
Although the bank boasts that 90% of its transactions involve small businesses, about three-quarters of its funding goes to large companies, such as Boeing, Caterpillar Inc. and General Electric Co., that sell expensive items.
Overall, the Export-Import Bank last year provided $27 billion in assistance, which supported $37.4 billion in U.S. exports and 205,000 jobs.
Major U.S. manufacturers contend that the Export-Import Bank is vital to their global competitiveness because at least 59 other countries have similar agencies. Boeing’s main rival, Airbus in France, gets export assistance from three European countries.
The U.S. Chamber of Commerce and other leading business groups have made saving the bank a top priority.
Conservative Republicans and other critics, though, deride the agency as “Boeing’s Bank.”
Rep. Paul Ryan (R-Wis.) told reporters recently that the bank represented “some of the crony capitalism we have in Washington: big government and big business joining in a common cause to hand out preferences.”
Boeing and other large companies “can do extremely well on their own,” he said.
The Obama administration, congressional supporters and leading business groups point to Boeing’s extensive supply chain as a key reason to keep the 80-year-old agency running.
“They’re a very important customer to us,” Tony Reardon, chief executive of Ducommun Inc. in Carson, said of Boeing. “If their sales go down and they don’t sell as many aircraft, you impact our business, and people lose their jobs because we don’t have the work.”
Ducommun makes electronics and other aerospace parts. About 18% of its annual revenue comes from Boeing, Reardon said.
Analysts said Boeing would survive a bank shutdown, but its business could suffer because export financing still would be available to Airbus customers. And if Boeing’s exports drop off, the pain would be felt throughout its supply chain.
Last year, Boeing’s exports totaled $49 billion and the bank provided $7.9 billion in financing for the firm’s commercial aircraft sales abroad. Boeing jets, such as the workhorse 737 and giant 787 Dreamliner, cost $78 million to $389 million each.
“Boeing is the name on the final product, but what they and Airbus really do is assemble a lot of parts and components that have been manufactured for them,” said Philip A. Baggaley, a credit analyst at Standard & Poor’s. “A lot of the value creation is actually at the level of the suppliers.”
Lamsco West makes shims, which fill gaps between parts on airplanes. About 98% of its $31 million in sales last year went to Boeing, Griffith said.
“It’s the elephant and the fleas,” he said of Boeing’s standing among his customers. “We have one elephant and everyone else are fleas.”
Baggaley estimated that Boeing accounted for more than a third of all the bank’s export financing from 2007 to 2013. Without the assistance, Boeing probably would have to provide financing to at least some buyers or face the loss of customers to Airbus, he said.
Such financing, which would increase Boeing’s credit risks, could be a problem for the company in the event of another economic downturn, Baggaley said. The percentage of Boeing jetliner sales financed by the bank jumped to 30% in 2010, from 16% in 2008, in the wake of the credit crunch caused by the financial crisis and Great Recession, he said.
“In the near term, it’s not a big concern” if the bank is shut down, Baggaley said. “The concern is what happens in the next downturn. That’s when the export credit agencies ... play a much larger role.”
From 2008 through 2013, the Export-Import Bank helped finance the sale of 789 Boeing jetliners, according to a recent Government Accountability Office report. During that same period, export assistance agencies in France, Germany and Britain combined to help finance the sale of 821 Airbus jetliners.
Export-Import Bank President Fred Hochberg said the U.S. needs the agency to maintain a level playing field for its exports.
“We would be unilaterally disarming and putting the sale of Boeing aircraft, and the thousands upon thousands of jobs that are generated from that manufacturer, at risk,” he told lawmakers at a hearing on the bank this summer.
Boeing Chief Executive James McNerney predicts lawmakers will reauthorize the bank.
“I think this idea of unilaterally disarming U.S. manufacturers while European manufacturers continue to get copious kinds of Ex-Im-type support ... I don’t think the political infrastructure will do that,” he told analysts on a conference call this summer.
Talk in Washington is turning to a possible short-term extension of the charter until after the mid-term elections in November, but no such deal has surfaced yet.
Conservatives also bristle at a government program that helps some companies but not others.
“There’s a lot of good people who work for Boeing. It’s a great American company. I want it to succeed,” said House Financial Services Committee Chairman Jeb Hensarling (R-Texas), who is leading the fight to shut down the bank. “But at the same time, my fiduciary responsibility is to the taxpayers and citizens.”
