Turkey: U.S Fails to Renew EXIM's Charter. Is it a Challenge for Turkish Aviation Sector?

Last Updated: 21 July 2015
Article by Serap Zuvin, Alexandra Brown and Mustafa Ozturk

U.S. Congress Fails to Renew EXIM's Charter

On June 28 2015, the United States Congress failed to renew the charter of the U.S. Export Import Bank (EXIM) for the first time in 81 years.1 As a result, the Bank will be unable to process applications or engage in new business.2 EXIM is an independent agency that provides trade financing solutions, including "export credit insurance, working capital guarantees, and guarantees of commercial loans to foreign buyers" in order to "empower exporters of U.S. goods and services."3

In response to Congress' decision not to renew, the White House released a Factsheet entitled, "The Export-Import Bank: Supporting American Exports and American Workers in Every State Across the Country," which detailed the importance of EXIM.4 The document claimed that, over the last six years, EXIM has financed the sale of more than $200 billion USD in exports and supported over 1.3 million private-sector American jobs.5

Why wasn't it renewed?

Despite longstanding bipartisan support for reauthorization, the White House statement claimed that "a vocal minority in Washington is putting ideology ahead of American workers."6 A vote is necessary to reauthorize the Bank, and within the House of Representatives Financial Services Committee, Republican Chairman Jeb Hensarling has refused to allow the topic to be discussed which has prevented it from reaching the floor for a vote.7 This has allowed the charter to simply expire.8

The opposition believes that EXIM "distorts the US economy by favouring existing giants over new players." For example, the top 10 recipients of financing received 75% of the Bank's business in 2013; Boeing accounted for over a third while General Electrics accounted for 10%.9 Representative Hensarling has said "This [the Bank's closure] is a small step toward renewing a competitive free-market economy and arresting the rise of the progressive welfare state and the cronyism connected to it."10 While supporters, including all the major business groups, "remain hopeful that an agency that last year financed more than $27 billion in US exports and claimed responsibility for 164,000 US jobs can be saved, especially at a time when the US economic recovery still looks fragile."11

There is some optimism for reauthorization. In the Senate, a test vote resulted two to one in favor of the bill, and in the House of Representatives, 200 members have agreed to sponsor the legislation.12 It is possible that an EXIM reauthorization bill will be packaged with the Highway Bill, which would make reauthorization possible by the end of July.13

Impacts?

EXIM Lapse Threatens U.S. International Competition

Even though the charter expired at the end of June, EXIM is allowed to "continue to work on existing deals with existing clients"14 at least until the end of the U.S. government's fiscal year in late September. However, the intervening period with reauthorization uncertain poses a disruption to new and long-term business for exporters that compete against foreign rivals.15

EXIM supporters argue that allowing the Bank's charter to lapse will put American businesses and workers at a disadvantage when competing with foreign rivals because they will still be able to rely on their own export credit agencies (of which there are 85 in nearly 60 countries), while U.S. businesses will not.16 A senior official from a Chinese export-import bank said "EXIM going away would be a 'good thing' for China,17 which "feeds into one of the biggest policy debates in Washington": how great is the Chinese threat to US economic leadership?18

Because Boeing is the "single largest U.S. exporter"19 and the civilian aerospace sector is one in which the U.S. has a competitive advantage, its examination clearly shows the conflict surrounding reauthorization of EXIM's charter. The Asia Pacific & India Sales Communications Representative of Boeing, Joanna Pickup, said that this "makes it harder for the company to compete with Airbus [European competitor] and other competitors with access to multiple export credit agencies."20 According to Ms. Pickup, the lost overseas sales due to the Bank shutdown will negatively affect Boeing's 150,000 employees and 15,000 U.S. suppliers which support 1.5 million American jobs.21 EXIM works with Boeing to provide foreign airline customers financing to purchase American aerospace products,22 which subsequently has caused American airlines, such as Delta, to oppose EXIM for helping to fund aircraft purchases for competitors.23

EXIM Lapse Affects Turkey's Growing Aviation Sector

The U.S. EXIM Bank plays substantial role in the Turkish aviation sector by virtue of financial support provided to Turkish airline companies. To understand EXIM's role in the Turkish airline sector and the importance of recent discussions going on we should look at the official documents showing the significant development of the aviation sector published by the Ministry of Transport Navigate and Communication in 2014 and information about the aircraft fleets of the main airline companies in Turkey.24

According to a Ministry report,25 the number of operating airports increased from 26 to 53 between 2003 and 2014, and the number of domestic flight passengers increased seven fold and reached 76,1 million. According to Ministry's prediction this number expected to reach 170 million in following years. Also, the number of aircraft owned by Turkish airline companies reached 422 and the flight network of Turkey tripled in 2014.26 Lastly, the report asserted that over the last 12 years, the average annual economic growth rate of aviation sector in the world was 5%, while the average annual economic growth rate of aviation sector in Turkey was 14.5%. This stable growth rate brought Turkey to number 5 in Europe following Spain, and number 15 in the world fallowing India on the list based upon ton/km, and number 15 in Europe and number 11 globally for annual passenger preferred airways.27

These numbers clearly show the importance of the aviation sector in Turkey and prove that it is one of the leading sectors in Turkey's economy. Based on recent news that leading airlines in Turkey will be expanding their fleets, it can be claimed without doubt that these numbers will be increasing in 2015.28

Although there is no resource confirming the number of transactions between EXIM and Turkish aviation companies, EXIM Bank provides financial support (direct loan, loan guarantee etc.) only for international buyers (buyers importing goods from the U.S.). To understand Turkey's position in this discussion, the number of the American manufactured aircraft owned by Turkish aviation companies should be taken into consideration. As an example, we may look at the number of aircraft in the fleets of the two leading Turkish aviation companies. As one leading company, Turkish Airlines has 284 aircraft 133 of which were purchased from Boeing.29 Another leading airline, Pegasus, flies with 46 Boeing aircraft out of 51 in total.30 Lastly, the president of Boeing International, Bertrand Marc Allen stated that the most of the aircraft in Turkish aviation market are sold by Boeing.31

As the number of domestic flight passengers increases and Turkish companies wish to increase the number of aircraft in their fleets, Boeing and its longstanding Turkish clients, may be harmed by the absence of U.S. EXIM as airlines will need to obtain financing and aircraft from competing companies.

Footnotes

1 "FACTSHEET: The Export-Import Bank: Supporting American Exports and American Workers in Every State Across the Country," The White House Office of the Press Secretary, June 30, 2015, available at https://www.whitehouse.gov/the-press-office/2015/06/30/fact-sheet-export-import-bank-supporting-american-exports-and-American

2 Lapse Information, Ex-Im Bank, June 26, 2015, available at http://www.exim.gov/lapse-information.

3 What We Do, Ex-Im Bank, available at http://www.exim.gov/what-we-do

4 Supra note 1

5 Supra note 1

6 Supra note 1

7 US Exim closure grows exporters' concerns, Melodie Michel, Global Trade Review, June 30, 2015, available at http://www.gtreview.com/news/americas/us-exim-closure-grows-exporters-concerns/

8 Supra note 7

9 US trade: Trailing Behind, Shawn Donnan, The Financial Times, June 29, 2015, available at http://www.ft.com/intl/cms/s/0/fe1a26be-1be1-11e5-8201-cbdb03d71480.html#axzz3f6QIDkzt

10 Supra note 9

11 Supra note 9

12 Supra note 7

13 Supra note 7

14 US Exim reauthorization "unlikely" by deadline, Shannon Manders, Global Trade Review, June, 23, 2015, available at http://www.gtreview.com/news/americas/us-exim-reauthorisation-unlikely-by-deadline/.

15 Supra note7

16 Supra note 1

17 Supra note 1

18 Supra note 9

19 The Role of the Export-Import Bank in Commercial Aircraft Finance, John Lewis, Center for Transportation, available at https://www.enotrans.org/eno-brief/the-role-of-the-export-import-bank-in-commercial-aircraft-finance.

20 Exim Bank shutdown puts Boeing sales in jeopardy, K. Giripraksash, The Hindu BuisinessLine, July 2, 2015, available at http://www.thehindubusinessline.com/banking/exim-bank-shutdown-puts-boeing-sales-in-jeopardy/article7379622.ece

21 Supra note 20

22 Supra note 20

23 Boeing chief confident that US will re-authorize ExIm bank, Shereen El Gazzar, The National, July 1, 2015, available at http://www.thenational.ae/business/banking/boeing-chief-confident-that-us-will-re-authorise-exim-bank

24 Report published by Ministry available at http://ubak.gov.tr/images/faaliyet/a5ec26a31a72281.pdf

25 Supra note 24

26 See Turkish Union of Chambers and Exchange Commodities report available at http://www.tobb.org.tr/Documents/yayinlar/2014/TurkiyeSivilHavacilikSektorRaporu.pdf

27 See other official reports about aviation sector at fallowing links http://web.shgm.gov.tr/doc5/2013pp.pdf

http://www.dhmi.gov.tr/haberler.aspx?HaberID=2177#.VZ1BYl_tlHw

28  Please see following links for the news mentioned at fallowing links http://www.haberturk.com/yazarlar/guntay-simsek-1091/938285-thy-2015te-avrupa-lideri-olacak

http://www.flypgs.com/pegasus-hakkinda/haberler/418/pegasus-hava-yollari-filosu-yeni-nesil-boeing-737-800-ucaklariyla-her-gecen-gun-daha-da-genclesiyor.aspx

http://www.turkishairlines.com/tr-tr/kurumsal/basin-odasi/basin-bultenleri/basin-bulteni-detayi/turk-hava-yollarindan-buyuk-bir-karar-daha

29 For Turkish Airlines aircraft fleet see http://www.turkishairlines.com/tr-tr/seyahat-bilgileri/turk-hava-yollari-yolcu-kargo-airbus-boeing-tum-ucak-filo

30 For Pegasus aircraft fleet see http://www.flypgs.com/pegasus-hakkinda/filomuz.aspx

31 See the news on http://www.milliyet.com.tr/turkiye-boeing-icin-buyumeye-acilan-ankara-yerelhaber-872265/

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