-T / T / +T | Comment(s)

Friday, December 11, 2015

Ex-Im Bank Power Restored for Transactions Under $10 Million

Juliet Van Wagenen

Fred Hochberg, chairman and president of Export-Import Bank
Fred Hochberg, chairman and president of Export-Import Bank. Photo: Ex-Im Bank

[Avionics Today 12-11-2015] While CEOs across the aerospace industry are welcoming the reauthorization of the Export-Import Bank of America (Ex-Im Bank) announced earlier this week, industry group Aerospace Industries Association (AIA) notes there is still work to be done on the part of regulatory leadership before the bank’s power is fully restored.

On June 30, 2015, the charter expired for the U.S. Ex-Im Bank, which functions as an export credit agency that provides loan guarantees and other financing support to foreign buyers of U.S. products. This includes buyers of wide-body airframes such as those manufactured by Boeing, who has emerged as a major beneficiary of the bank and reported two satellite contract losses as a result of the charter lapse alongside compromised sales for its aviation arm.

In the five months since the bank’s expiration, “three satellite sales opportunities went to foreign competitors with government financing support, and there were similar threats to billions in commercial aircraft sales,” AIA President and CEO David F. Melcher told Avionics Magazine. “In addition, U.S. companies had to overcome the appearance of being unreliable in our ability to provide matching financing to foreign customers who were considering non-U.S. solutions.”

With the bank back online, U.S. aviation and space companies will see a direct benefit as the bank’s financing allows them to compete against government-supported foreign competitors, according to Melcher. “Over time, these initial sales create significant aftermarket sales opportunities for parts, components and service companies. This is an era of declining federal spending. [Aerospace and Defense] A&D companies traditionally turn to commercial ventures and increased international sales to reach their revenue growth imperatives. The potential opportunities that Ex-Im financing can provide function as a very welcome relief valve for these budgetary constraints,” said Melcher.

The four-year reauthorization of the bill has also emerged with some important changes, including the requirement that 25 percent of its authorizations must now go to small businesses, up from the previous 20 percent requirement. It also calls for greater ethics oversight, which will be managed through the establishment of an office of ethics within the bank to be directed by a chief ethics officer, a chief risk officer and a risk management committee. Last, it carves out a structure for greater risk management within the bank.

But the Ex-Im Bank is not yet fully operational. Currently, the bank does not have the required number of directors on its board to approve any transaction over $10 million. Filling the three remaining seats requires the cooperation of the U.S. Senate and the White House to nominate and confirm new members to the Ex-Im Board.

“With a board of directors comprised of three Democrats and two Republicans, the Ex-Im Bank requires a quorum of three members to authorize transactions over $10 million. Currently, the board stands at two members,” said Melcher. “While the majority of the bank’s transactions by number fall below the $10 million mark, in the aerospace arena the majority of financed sales cross that threshold. The U.S. aerospace industrial base is counting on those sales to go through.”

The White House has formally placed one nominee in the confirmation process, but the other two vacancies do not yet have named nominees.

“A lengthy delay in restoring the bank’s quorum will mean many more lost sales and a further erosion of the ability of U.S. exporters to compete in the global marketplace,” Melcher warns. “Similarly, prospective customers may look for non-U.S. solutions for their requirements if we have inadvertently sent the message that the United States is not a dependable trade partner.”

Live chat by BoldChat