Wednesday, April 2, 2014

The Export-Import Bank

The Export-Import Bank of the U.S. provides financing for the export of U.S. goods to International markets.  The Ex-Im bank attempts to give U.S. producers of goods a fair rate on financing exports in order to be competitive in the world market.
How it works, the Ex-Im bank doesn't compete with traditional lending institutions to finance the production of goods but rather takes on the risk of financing the exchange of goods in the export industry where there is a chance a U.S. supplier won't be paid.  The Ex-Im bank provides rates competitive to other governments which is a large barrier to entry for companies wanting to export U.S. produced goods.  The Ex-Im bank attempts to create jobs by providing some security in the foreign trades market, thus allowing U.S. companies to produce more goods and contributing to the overall Gross Domestic Product.  The Ex-Im bank also provides financing to international buyers of U.S. goods to help pursuade them to purchase imported goods.  So the Ex-Im bank provides both the exporter and importer of U.S. made goods financing and some security for the exchange of U.S. goods.
Historically, U.S. aviation component companies were unable to utilize Ex-Im bank financing for parts used on large commercial aircraft because of competition between Boeing and Airbus stemming back to 1972.  At that time, they were the only two manufacturers of large commercial aircraft in the world that could sustain production and provide airplanes to all airlines, the Ex-Im bank did not want to finance the competition.  In recent years, there have been many requests by aviation component producers to get export financing from the Ex-Im bank and they are obliging.  As of May 25th, 2012 the Ex-Im bank expanded its aviation industry export policy to allow for export financing of U.S. made aviation components.  One catch is that the company must be listed as an SBA small business in order to secure fininacing from the Ex-Im bank to service large aircraft manufacturers directly.  Although U.S. producers can provide goods to international airlines and foreign users of large aircraft, only SBA approved small business can provide products to large aircraft manufacturers which is where most of the product utilization and profits are.
I feel the Ex-Im bank has many well thought out and utilized funding resources to help U.S. producers export goods.  The savvy aviation component manufacturer will produce products for the global economy and not limit themselves to only providing equipment for Boeing aircraft which will be sold globally anyway.  The key to any producer of goods is to maximize marketshare and the Ex-Im bank helps facilitate that by providing financing and some security for these transactions.

2 comments:

  1. I love the way the government works (sarcastically speaking), just like you said back in the day about Boeing and Airbus in 1972. Since they are the only manufacturers why change it. Sounds to me like the government has some investments in both of these companies

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  2. I definitely did not realize that the company had to be listed as a "small business" in order to secure financing from the Ex-Im Bank, in order to service large aircraft manufacturers directly. One big thing that I noticed with this is that there seem to be many "holes" in the system - as far as who apply for it, what happens with this system in the future, and who the bank just plain will not help. There are just many unanswered questions about this system, that I think would take a lot more than just "googling" these things to really get to the bottom of them.

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