Bloomberg News

Export-Import Bank Sued by Airline Group Over Air India Deal

November 21, 2011

(Updates with comment from Indian government official in seventh paragraph)

Nov. 17 (Bloomberg) -- The Export-Import Bank of the United States was sued by the Air Transport Association of America Inc., which is seeking to halt the bank’s pending deal for $3.4 billion in loan guarantees for aircraft financing to Air India.

The trade association for the largest U.S. airlines filed the lawsuit yesterday in federal court in Washington, claiming the bank didn’t seek public comments or consider the impact on the U.S. airline industry before approving $1.3 billion in loan guarantees and $2.1 billion in preliminary commitments to support the sale of 30 Boeing Co. aircraft to Air India.

“This is yet another example of the U.S. government failing to recognize the contribution of the U.S. airline industry to our economy and jobs growth by creating an environment that favors foreign competitors over domestic carriers,” Nicholas E. Calio, president and chief executive officer of the airline association, said in a statement.

U.S. District Judge Royce Lamberth yesterday denied the group’s request to stop the loan while its challenge is reviewed by the court. He ordered the bank to turn over to the court documents related to its decision to issue the loan by Nov. 29.

The group asked the court to find the loan-guarantee commitments unlawful, to prevent them from being issued and to require the Export-Import Bank to study the loan’s potential impact on U.S. industry and jobs.

‘Without Merit’

“Ex-Im Bank is proud of its work on behalf of U.S companies and believes this litigation is without merit,” Maura Policelli, a spokeswoman for the bank, said in an e-mail. John Kvasnosky, a spokesman for Boeing Capital Corp., declined to comment.

India’s government hasn’t received any “formal communication” on the lawsuit, Nasim Zaidi, secretary at the Ministry of Civil Aviation, said in New Delhi today.

The Export-Import Bank is a federal agency that provides loans, loan guarantees and insurance to foreign companies. According to the lawsuit, the bank’s loan portfolio is “overwhelmingly devoted” to financing the purchase of airplanes for export. In fiscal year 2010, air transportation loans accounted for 47 percent of the bank’s $75.2 billion in total outstanding loans, the lawsuit claims.

The association also sued officials of the bank including its chairman, Fred Hochberg.

Not Joining Suit

In a footnote to the complaint, the trade group said the following members weren’t joining the lawsuit: United Air Lines Inc., Continental Airlines Inc., American Airlines Inc., Atlas Air Inc., Federal Express Corp. and United Parcel Service Inc.

The association alleges that the bank’s support for foreign carriers puts U.S. airlines at a competitive disadvantage because the foreign companies have access to cheaper capital to finance their aircraft purchases.

“When ATA’s operator members purchase such aircraft, they must do so without the United States as a guarantor for their financing,” the association said in the lawsuit. “As a result, ATA’s operator members pay substantially more than the bank- backed foreign carriers pay to finance the same Boeing aircraft.”

During a hearing yesterday in Washington, the association’s lawyer, Wan Kim, told Lamberth that the bank’s decision-making process is “completely opaque to the outside world,” arguing that the loan to Air India, approved on Sept. 30, was considered “behind closed doors.” He said the bank didn’t return a dozen phone calls from the association or say when the Boeing jets are to be delivered.

‘More Secrecy’

“This agency operates in more secrecy than any other agency,” said Kim, a partner at Kellogg, Huber, Hansen, Todd, Evans & Figel PLLC in Washington.

David Glass, a Justice Department lawyer, told Lamberth it was “mystifying” that some of the largest U.S. airlines opted out of the lawsuit. He also said that it was “speculative” for the airline association to trace back problems in the airline industry to Export-Import Bank loan guarantees.

“This is the sale of airliners sold by Boeing,” Glass said.

Lamberth said the court will review whether the bank violated the Administrative Procedure Act when it considered the Air India loan. He added that it is not in the court’s authority to consider whether the loan is “a good deal for taxpayers or industry.”

The case is Air Transport Association of America Inc. v. Export-Import Bank of the United States, 11-cv-2024, U.S. District Court, District of Columbia (Washington).

--With assistance from Eric Martin in Washington and Karthikeyan Sundaram in New Delhi. Editors: Fred Strasser, Peter Blumberg

To contact the reporter on this story: Tom Schoenberg in Washington at tschoenberg@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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