) -- In 2009,
financed three 777s it bought from
, paying interest at 8.11% over nine and a half years. That same year,
bought three similar aircraft, paying interest at 3.4% over 11.9 years.
While the Emirates borrowing had a loan-to-value ratio of 50%, Delta's loan-to-value ratio was 40%. So Emirates' low-cost loan covered more of its purchase.
How can that be? The reason for the discrepancy is that Emirates and many other carriers can borrow at low cost for aircraft financing from the U.S. Export-Import Bank and similar agencies in Europe, Canada, Brazil and Japan, all aircraft exporters. But such financing is unavailable to U.S. and major European carriers.
"It's absurdly unfair to U.S. carriers that the U.S. government should be financing our foreign competitors with below market interest rates," said Ben Hirst, senior vice president and general counsel for Delta, in an interview. "It creates an unlevel playing field for U.S. airlines competing internationally, and it has led to [high] capacity levels in international markets that have been encouraged to develop regardless of market conditions."
U.S. carriers are speaking out now because this week, the Organization for Economic Cooperation and Development, a group of 33 developed countries, will meet in Paris to discuss extending a multilateral agreement called the Aircraft Sector Understanding, which codifies aircraft financing standards.
"We are particularly concerned that the damage to U.S. airlines caused by such export credits may be worsened by the outcome of the current negotiations," said Jim May, CEO of the Air Transport Association, in a recent letter to Secretary of State Hillary Clinton.
May noted that during the past decade, the Export-Import Bank provided guarantees backing $46 billion in financing for more than 800 Boeing aircraft. In fact, Boeing is the bank's principal beneficiary. In fiscal year 2009, aircraft financing accounted for $8.6 billion, about 40% of the bank's $21 billion in total export financing. "Given U.S. aviation's role as a major export factor and jobs source, it makes sense," said Boeing Capital Corp. spokesman John Kvasnosky.
But does it? The airline beneficiaries from the financing include nine of the ten most profitable airlines based outside of the U.S., France, Germany and the United Kingdom, May said. Among them:
Air New Zealand
. They all "compete with U.S. airlines for U.S. passenger traffic," May said. WestJet, founded in 1996, has received nearly $1.7 billion in Ex-Im Bank financing since fiscal 2002 -- and has been able to take traffic from U.S. airlines as a result, he said.