Tuesday, March 25, 2014

Boeing Has It's Own Government Bank: Is It Creating a Bubble in Boeing Jumbo Jets

Tim Carney has a very important column out. Here's a snippet:
[S]tate-owned airline Air China ordered eight Boeing 777s last year, and applied for Ex-Im financing, according to Flight Global, an aviation-industry trade publication. To buy the jets, according to minutes of an Ex-Im Board of Directors meeting, Air China borrowed more than half a billion dollars from Citigroup and Canadian-based Toronto-Dominion Bank (better known as TD Bank). Ex-Im last June approved a $558,350,949 guarantee of that financing.

If Air China fails to pay back Citi and TD, Ex-Im foots the bill...the numbers show, Ex-Im is very heavily exposed to Boeing's customers: airlines. Some experts think the airlines are puffing up a bubble. Reuters reported last year on Lion Air getting cold feet on its huge Boeing order, and noted: “Many analysts have raised questions about the sustainability of massive aircraft orders in the region.”

Aside from the exposure questions, Ex-Im’s Boeing-heavy portfolio taints Ex-Im's loan guarantee program: Should we have a government program that is mostly dedicated to helping one company?

(ht Bill Bergman)

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