June 25, 2012

How Delta Learned to Stop Worrying and Love the Export-Import Bank

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A Delta airliner. (Original photo by Kaz T./Composite by Matt Molnar)

If you can’t beat ’em, join ’em,

Last Friday morning the Export-Import Bank of the United States announced that it would lend $171 million to Aeromexico for the purchase of Boeing 737 jets and associated maintenance and equipment. Not an insignificant amount of cash, to be sure, but a pretty mundane affair as far as Ex-Im Bank deals go.

Boeing, of course, was listed in the press release as one of American companies who would benefit in the deal, along with aerospace components giant Honeywell. And Delta Air Lines.

Wait, Delta?

It was Delta who led a lawsuit and lobbying effort against Ex-Im Bank just a few months ago. Their beef, along with co-plaintiffs Airlines for America and the Air Line Pilots Association: That Ex-Im was providing financing for Air India’s new Boeing 777 aircraft at a better rate than could be obtained by US customers, putting those domestic carriers at a competitive disadvantage.

At the heart of its mission, Ex-Im Bank — a federal agency commissioned by Congress — lends money to foreign companies to buy capital equipment built by US manufacturers, stuff like airliners and locomotives and power plants, all in the name of protecting American manufacturing jobs. Delta and its co-plaintiffs argued that the Federal government shouldn’t be in the business of subsidizing American manufacturing jobs to the detriment of American airline jobs. After all, Delta and Air India compete on routes to India. If Air India pays less for their planes, the thinking goes, they can probably charge lower fares and attract passengers that might otherwise choose Delta.

So how does Delta benefit when a Mexican airline gets a loan from Uncle Sam?

The Ex-Im deal dictates that some of the money will land at Delta TechOps, which will perform maintenance and overhauls of Aeromexico jets. (Delta has had a deal to Aeromexico’s CFM56 engines for years, but Delta TechOps is a wholly owned subsidiary of the airline, which happens to be the largest airliner maintenance, repair and overhaul (MRO) shop in North America and the third largest in the world. Airlines from around the globe — even some that compete with Delta — outsource their tech work to Delta’s mechanics.

There’s also the fact that Delta actually owns part of Aeromexico. For $65 million, Delta picked up a 4 percent stake in the carrier, a seat on its board of directors, and an agreement to build a Delta TechOps facility in Mexico.

This is actually not the first time since Delta’s battle against Ex-Im that one of their customers has scored financing for Delta TechOps services. In April, Brazilian low-cost carrier Gol got $85 million in financing overhaul their 737 engines at Delta TechOps in Atlanta. The wording in Ex-Im’s press release at the time almost seemed to jab directly at Delta’s opposition to their existence.

Some may argue that Delta’s stance is hypocritical in light of these deals, but maybe they nudged Ex-Im just enough to finance more long-term maintenance. After all Delta TechOps supports the same kind of jobs that Boeing does.

If that turns out to be the case, Delta’s Ex-Im hedge may turn out to be more successful than their oil refinery.

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