Government subsidies create winners and losers. When Congress and a federal judge ordered the Export-Import Bank to study who loses as a result of subsidized Boeing exports, Ex-Im turned to Boeing to craft the economic study, newly released emails reveal.
Ex-Im officials ran the early drafts of their economic model past Boeing officials before publishing it for public comment. Then after the public comment period ended, Ex-Im tweaked the model, at Boeing’s request, to exempt almost all Boeing subsidies from a detailed economic analysis, because such an analysis would sink the deals.
To create an appearance of distance between Boeing and the model, Ex-Im also suggested Boeing handpick a third-party to conduct some economic analysis.
These emails, first reported on by the Wall Street Journal’s Brody Mullins, show a federal agency extraordinarily cozy with the company it serves.
Here’s the background: When the U.S. government subsidizes Boeing’s exports to foreign airlines, this helps Boeing and the foreign airline. But it also hurts domestic airlines, such as Delta, who compete with Ex-Im’s foreign customers.
Congress requires Ex-Im to study the economic impact of its exports. Ex-Im initially argued that aircraft — the product it subsidizes the most — should be exempted from this requirement, but a federal judge ruled otherwise in mid-2012.
Forced to study whether its Boeing subsidies hurt anyone else, Ex-Im turned to Boeing for guidance. Mullins wrote about this special access last week, after the emails were made public as a result of a lawsuit against Ex-Im led by Delta.
Here’s what the emails show:
Four weeks before Ex-Im published its draft rules for public comment, agency officials emailed Boeing seeking input.
Ex-Im official Bob Morin explained, “Boeing should not underestimate the importance of developing a new set of procedures that are defensible as complying with our statutory provisions….”
Ex-Im and Boeing’s shared goal: to exempt as many aircraft transactions as possible from a detailed economic-impact analysis. “Subjecting and applying other transactions to detailed economic analysis under economic impact procedures has had the effect of killing most of those deals… [I]f Boeing expects Ex-Im Bank to continue supporting wide-body aircraft, we need to get this right.”
Ex-Im officials say the detailed analysis kills deals — not because the analysis would prove significant negative impact, but because the uncertainty of the process scares off foreign buyers.
Ex-Im published its proposal in late September, and Boeing and Delta were among the parties that filed comments. Delta, among other matters, objected to how Ex-Im would count the increase in seat capacity created by an Ex-Im-backed deal.
Ex-Im officials decided they wouldn’t count all the aircraft in a given order, but only those aircraft that would hit runways in the next three years. Delta, in its public comments, objected to this narrow timeframe.
Boeing’s public comments didn’t mention the three-year provision, but behind closed doors, Boeing officials lobbied Ex-Im to narrow it further.
After the public comment period ended Oct. 11, Ex-Im and Boeing restarted their private rule-making discussions. Apparently, Boeing officials and Ex-Im officials met on Oct. 17 to discuss the final rule. (In an email among Boeing and Ex-Im officials dated Oct.18, Ex-Im policy analyst Claire Avett referred to “follow-up items from the economic impact for aircraft meeting yesterday.”)
In this late October discussion, Avett indicated she wanted to limit the timeframe so that it would “capture roughly 10 percent of Ex-Im large aircraft transactions.”
Boeing’s James McBride suggested that an 18-month window would “still be capturing too many customers,” — that is, triggering a detailed economic analysis for too many Ex-Im’s subsidies of Boeing. McBride suggested “shortening the period to 12 months.” When Ex-Im issued its final rule a few months later, it used the 12-month standard
Another item Boeing and Ex-Im hashed out after the public comment period was an analysis of “elasticity” within the aircraft market. Avett wrote “I recognize Greg [presumably Greg Dole, Boeing’s director of Commercial Trade Policy replied] did not want Boeing attached to this analysis, but out of the other options I believe you were all still discussing what would be most palatable to Boeing.” Ex-Im and Boeing at the time favored outsourcing the study “to an independent economic analysis firm.”
Dole, an email suggests, referred the matter to Scott Scherer, the senior vice president for strategic regulatory policy at Boeing Capital, and told Ex-Im officials he would provide a name of a “third party consultant [Scherer] was comfortable with.”
Ex-Im, in the end, decided to do the study itself, according to Mullins.
Boeing’s spokeswoman Allison Bone said, “It shouldn’t be any surprise that Ex-Im reached out to us. We’re the only major aerospace manufacturer in the U.S.”
Ex-Im spokesman Matt Bevens responded to my queries with a similar statement: “It would have been irresponsible if Ex-Im Bank had failed to consult the only American manufacturer of commercial aircraft.”
But this economic model was for studying the impacts on the airline industry, not on the aircraft manufacturing industry. Throughout this entire process, according to a Delta spokesman, Ex-Im never requested “to meet or consult with Delta,” which by some measures was the largest airline in the world at the time.
But then, Ex-Im isn’t known as “Delta’s bank.”
Timothy P. Carney, The Washington Examiner’s senior political columnist, can be contacted at tcarney@washingtonexaminer.com. His column appears Sunday and Wednesday on washingtonexaminer.com.
© 2015 by the Washington Examiner. Reprinted with permission.