The United States Court of Appeals-DC Circuit yesterday issued an order remanding to the Export-Import Bank of the United States (Exim) a decision by the bank to approve loans and loan guarantees for Air India. Delta Air Lines. Inc., sued the Export Import Bank claiming that the Bank did not consider the adverse impact loans and loan guarantees would have on the U.S. economy.
The appellate court held that the Bank, as a federal agency, was required to consider the impact loan guarantees to Air India would have on U.S. industries and U.S. jobs and that the Bank failed to reasonably explain its application of the Export-Import Bank Act to this case, pursuant to the Administrative Procedures Act.
Delta’s suit makes sense from a business standpoint. Air India poses a competitive threat and one of our U.S. agencies was about to be complicit in an economic crime. Delta got a two-fer. But we also need to consider why we need government action in the form of loan guarantees to foreign corporations. Air India allegedly was to use guaranteed loan funds to buy commercial jets from Boeing. One could argue that this is good for American commerce because Boeing would be able to sell some inventory.
But given the amount of cheap money floating around, does the U.S. government really need to be in the market of guaranteeing loans? Why not let Air India go into the money markets and borrow money? Shouldn’t we be concerned about artificially reducing the risk premium on loans via government intervention? On the flip side, why not let the private sector guarantee these loans? if the private sector doesn’t want to guarantee Air India’s loans, shouldn’t that be a signal to the U.S. government to let that sleeping dog lie?
I expect the rebuttal to be that the Export-Import Bank is stepping in to plug a hole created by market failure, but I think it’s time to lay that market failure concept to rest. If a market could not be made for financing Air India, then Air India should revise its business model and shop for aircraft somewhere else or Boeing should drop its prices or offer some type of financing assistance itself.