Bailouts for Boeing?
It has now been nearly a month since the National Transportation Safety Board (NTSB) grounded Boeing’s entire fleet of 787 jumbo jets following several incidents in which the planes’ technical systems caught fire mid-flight. The NTSB continues to investigate the cause of the fires – apparently a faulty battery – but specific details and/or remedies remain elusive. In the meantime, Boeing has been forced to placate angry clients who are losing millions of dollars each day due to cancelled routes. All of this brings up an interesting question: if a company like Boeing fails, should taxpayers be on the hook to bail it out? As it stands now, thanks to an organization known as the Export-Import (Ex-Im) Bank, taxpayers won’t have a choice.
Boeing has a long history of receiving substantial subsidies from the federal government. Most of these subsidies have come from one agency: the Ex-Im Bank. It is an organization that is founded on the idea of using taxpayer dollars to facilitate the purchase of American-made goods by foreign buyers. It defines the concept of corporate welfare and it does so with a vengeance. The subsidies that the Ex-Im Bank awards companies are considerable; in 2011 and 2012, Boeing alone enjoyed tens of billions of dollars in taxpayer-backed funds from the Ex-Im Bank.
This form of federal subsidy is both detrimental to the market and extremely risky. Giving away and guaranteeing such large sums of loans to one company provides it with an unfair advantage over its competition. In this way, the Ex-Im Bank manipulates the notion of an open or “free” market by picking winners and losers. As it relates to Boeing specifically, the Ex-Im’s subsidies allow foreign airlines to purchase new Boeing airplanes at a price that is below market average, giving them an unnatural advantage over domestic airlines that are simply trying to play by the rules. Consequently, these domestic airlines cannot afford to compete in certain areas. Conservative estimates show that the Ex-Im Bank costs the U.S. airline industry up to 7,500 jobs and $684 million per year.
To understand the risk associated with these subsidies, it is essential to understand that the Ex-Im Bank operates in a similar style to massive government-sponsored enterprises in the mortgage industry, namely Fannie Mae and Freddie Mac. Fannie and Freddie are two government-backed companies that registered on the American people’s radar screens during the 2008 sub-prime mortgage fiasco. As soon as the companies went into the red, the federal government stepped in to cover their poor investments and losses with taxpayer funds. As it stands now, taxpayers have already been forced to give these failing companies more than $175 billion dollars without any promise of payback.
Like Fannie Mae and Freddie Mac, the Ex-Im Bank’s use of taxpayer-backed loan guarantees mean that taxpayers are legally obligated to cover any failure on the part of the bank or one of its beneficiaries. In other words, if a “guaranteed” company goes bankrupt, then taxpayers will be the first to lose their shirts. This was the case with Solyndra which had received millions of taxpayer dollars through the Ex-Im Bank, and it would also be the case with Boeing, should the company suffer the same fate.
Even though Boeing has proven a fairly sound investment until now, recent hiccups with the 787 Dreamliner, however, offer a stark reminder of what would happen if such a heavily subsidized company were to go under. In 2007, Fannie Mae and Freddie Mac seemed like sound entities. Much can change in a short amount of time.
Keeping this in mind, Congress held a series of hearings over the re-authorization of the Ex-Im Bank last spring. Noting the inherent risk and detrimental effects of the bank, many in Congress demanded that the organization be reformed to include a more transparent and accountable investment process that incorporated an opportunity for public oversight. As a result, language to that effect was inserted into the bank’s re-authorization bill. Moreover, additional language was written into the bill that required the bank to begin sun-setting its operations. So far, it seems that neither reform has taken shape.
The country cannot afford to let the Ex-Im Bank continue to operate in the same way it has for years. If the public doesn’t speak up now to end this constant stream of corporate welfare and enforce the reforms that Congress demanded, then we can expect Boeing to be merely the beginning of our financial worries. With an exploding national debt, we cannot allow ill-conceived and risky guarantees with taxpayer dollars to go forward. Private lenders should be playing a more active role in the marketplace, but they are being elbowed out by the activist agenda pursued by the Export-Import Bank. The damaging exposure perpetrated by the Export-Import bank on the American people must be stopped immediately.