US airlines sue bank to block $3.4 bn Air India loan guarantees

New York: A powerful trade body for America’s largest airlines, Air Transport Association (ATA), sued the Export-Import Bank of the United States on Wednesday to halt a pending deal for $3.4 billion in loan guarantees to debt-laden Air India for its purchase of new Boeing aircraft. The legal action was not entirely unexpected as the ATA had earlier fired a zinger at US Ex-Im Bank chairman Fred Hochberg through a letter. The trade group sought an injunction on Wednesday in the district court of Columbia to stop financing for Air India arranged by the Ex-Im Bank. It alleged that the bank didn’t seek public comments or consider the impact on the US airline industry before approving $1.3 billion in loan guarantees and $2.1 billion in preliminary commitments to support the sale of Boeing planes to Air India, including 27 Boeing 787s for delivery by 2015. [caption id=“attachment_132987” align=“alignleft” width=“380” caption=“Wednesday’s legal action is aimed at blocking loan guarantees being issued to Air India. B Mathur/Reuters”]  [/caption] Wednesday’s legal action is aimed at blocking loan guarantees being issued to Air India. Besides the bank, the airlines association sued bank chairman Hochberg. “We believe that it is time for Ex-Im Bank to revise its practices and consider the impact on the US airline industry and its employees. We repeatedly have sought additional information about the timing and details of the Air India delivery but the Ex-Im Bank has refused to provide it. ATA has no choice but to seek judicial intervention,” said Nicholas E Calio, president of the Air Transport Association. The Ex-Im bank is an independent agency that finances sales of American exports to international buyers. US airlines aren’t eligible to receive Ex-Im Bank financing since domestic purchases aren’t exports. The Ex-Im Bank mainly guarantees bank loans that overseas buyers take to buy US products. If a foreign buyer fails to repay a loan, it covers the payment and seeks to recover the balance. Thanks to the security of Washington’s guarantees, buyers of American products as diverse as dental equipment and jet planes can significantly reduce their financing costs. “Customers rarely default on loans backed by Ex-Im Bank,” noted “The Wall Street Journal.” In the earlier letter to bank chairman Fred Hochberg, ATA pounced on Air India’s financial and management troubles, warning that the Ex-Im Bank was disregarding the obligations to “protect the public coffers” by providing loan guarantees to a “credit-risky” company. It said Air India’s losses and management troubles should disqualify it from financing. Air India had ordered up to 50 long-range Boeing aircrafts worth about $6 billion in 2005. With Air India hemorrhaging money, the Comptroller and Auditor General of India (CAG), had criticised its fleet acquisition exercise financed almost entirely through debt, saying; “This was a recipe for disaster ab initio (from the beginning) and should have raised alarm signals in the Civil Aviation Ministry, Public Investment Board and the Planning Commission.” The US airlines association is brandishing the CAG report as ammunition. The US loan guarantees enable foreign carriers like Air India attain financing for aircrafts at rates up to 50 percent lower than can be attained by US airlines, which are prohibited from securing Ex-Im financing. “It’s time to level the playing field,” said Calio. “This is yet another example of the US government failing to recognise the contribution of the US airline industry to our economy and jobs growth by creating an environment that favours foreign competitors over domestic carriers.”