Export-Import Bank:

Information on Export Credit Agency Financing Support for Wide-Body Jets

GAO-14-642R: Published: Jul 8, 2014. Publicly Released: Jul 9, 2014.

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Kimberly M. Gianopoulos
(202) 512-8612
gianopoulosk@gao.gov

 

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What GAO Found

Since 2004, the U.S. Export-Import Bank’s (Ex-Im) financing support for Boeing wide-body jet exports has generally increased, and, in fiscal years 2008 through 2012, Ex-Im’s total authorizations increased significantly in the wake of the 2007 to 2009 financial crisis. (Authorizations are export financing transactions for which Ex-Im has granted credit approval.) The highest level of wide-body jet authorizations as a percentage of Ex-Im’s total authorizations occurred in fiscal years 2007 and 2011, when it reached 24 percent. As of March 31, 2014, Ex-Im’s financial exposure (outstanding financial commitments)in wide-body jets was about $32 billion; this represented about 28 percent of Ex-Im’s total financial exposure. From 2004 to 2013, in each of three countries—the United Arab Emirates, India, and South Korea—buyers received in aggregate over $3 billion in Ex-Im authorizations for wide-body jets, and in each of an additional seven countries buyers received in aggregate between $1.5 and $3 billion. From 2008 through 2013, Ex-Im supported deliveries of 789 Boeing large commercial aircraft, and European export credit agencies (ECA) supported deliveries of 821 Airbus large commercial aircraft. Large commercial aircraft deliveries supported by Ex-Im and European ECAs rose sharply in 2009 and declined in 2011 and 2013.  

Three international arrangements affect Ex-Im’s and other ECAs’ support for wide-body jets. First, the 2011 Aircraft Sector Understanding (ASU) is an agreement among the United States, the European Union, Canada, Brazil, and other countries that dictates uniform terms and conditions for ECA support of commercial aircraft exports. The 2011 ASU established higher initial ECA risk premium rates across risk classification levels. In addition, it grandfathered ECA support for some aircraft under the terms of earlier agreements, which, according to Ex-Im officials, are generally less restrictive. Second, the 2006 Cape Town Convention (CTC) is an agreement designed to ease repossession of aircraft in cross-border transactions that use aircraft as collateral, according to Ex-Im officials. Under the 2011 ASU, buyers from countries that have implemented the CTC’s provisions are eligible for reduced ECA risk premium rates. Third, the “Home Country Rule” is an informal understanding among the United States, France, Germany, Spain, and the United Kingdomthat airlines based in those countries are not eligible to receive support from any of those countries’ ECAs for large commercial aircraft transactions.

From 2008 through 2013, Ex-Im and European ECAs supported 26 percent of large commercial aircraft deliveries (see figure). When procuring these aircraft, in addition to using ECA financing support, buyers can use various commercial financing options, such as cash, bank loans, or aircraft-backed bonds. Leasing is also an alternative procurement option. According to Boeing data, from 2004 through 2013 over 10 percent of wide-body jet sales were to lessors. According to Ex-Im, U.S. domestic lessors are eligible for ECA support when the aircraft they purchase are leased and exported to non-U.S. airlines.

Number of Boeing and Airbus Large Commercial Aircraft Deliveries, 2008-2013

graph of Boeing deliveries and a graph for Airbus deliveries from 2008-2013

Notes: Data presented are for calendar years. ECA-supported deliveries of Boeing aircraft were supported by Ex-Im. ECA-supported deliveries of Airbus aircraft were supported by the ECAs of France, Germany, and the United Kingdom. 

Why GAO Did This Study

As the ECA of the United States, Ex-Im helps U.S. firms export goods and services by providing a range of financial products, such as loan and bond guarantees, to foreign buyers. Ex-Im’s financing support includes support for Boeing wide-body jet exports from the United States. The ECAs of France, Germany, and the United Kingdom support Airbus wide-body jet exports from their countries. (Passenger wide-body jets are large commercial aircraft with two aisles; passenger narrow-body jets are large commercial aircraft with one aisle.) A number of countries in the Organisation for Economic Co-operation and Development (OECD) have entered into agreements—sometimes with non-OECD countries—to govern aspects of ECA activities.

GAO was asked to review ECA financing support for exports of wide-body jets. This report describes (1) trends in financing support for wide-body jet exports by Ex-Im and European ECAs; (2) international arrangements relevant to ECA support for wide-body jet exports; and (3) financing options, including non-ECA financing and support, used to procure wide-body jets.

GAO reviewed and analyzed reports, studies, documents, Ex-Im and European ECA annual reports, and data from aircraft manufacturers. In addition, GAO reviewed and analyzed data from Ex-Im on its authorizations and financial exposure, and the number of aircraft transactions supported by ECA financing. Some data GAO obtained did not break out wide-body jets from broader air transportation categories. GAO reviewed the data collection and verification processes for these data and discussed them with the relevant providers and determined that these data were sufficiently reliable for its purposes. GAO also interviewed officials from Ex-Im and OECD. In response to a draft of the report, Ex-Im provided written comments highlighting certain aspects of trends in ECA financing support for wide-body jets and other market characteristics.

For more information, contact Kimberly Gianopoulos at 202-512-8612 or gianopoulosk@gao.gov.

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