Boeing Co. BA Chairman Jim McNerney suggested moving some key operations abroad if the Congress doesn’t reauthorize the Export-Import (Ex-Im) Bank. While addressing the Economic Club of Washington, D.C. yesterday, he further stressed that the company will begin to rethink its strategy of carrying out all its manufacturing in the U.S. to pursue export credits overseas.
Boeing has in the past significantly benefited from the support it received from the Ex-Im Bank. After boosting U.S. exports for nearly eight decades, the credit agency’s charter finally ended in Jun 2015. The closure of the Ex-Im Bank is undoubtedly a setback for Boeing as a substantial portion of its foreign orders was guaranteed by the bank. About 15% of Boeing’s customers used Ex-Im financing.
In this context, it is worth mentioning that General Electric Company's GE chief executive, Jeff Immelt, informed last month that the company will be moving manufacturing jobs to Canada and Europe if the Ex-Im bank closed.
If media sources are to believe, many companies are even wary of buying a range of Boeing products, including commercial satellites. This, if it is true, would further add to Boeing’s woes.
Role of Ex-Im Bank
The Ex-Im Bank was the export credit agency of the U.S. government. The objective of this bank was to provide financing to foreign customers for purchasing goods and services from U.S. companies. The Ex-Im Bank’s role was to promote U.S. exports and increase employment at home. This bank also helped U.S. exporters to compete with international peers who had the backing of their own domestic credit agencies.
Duopoly Picture to Change?
The discontinuation of the Ex-Im Bank is definitely a blow for Boeing as this bank is also mockingly termed “Boeing Bank” and its customers the biggest beneficiaries. Although the bank’s closure may not create any near-term financial risk, it might hit Boeing’s long-term global competitiveness.
McNerney expects that there will be at least “a three-man game” involving Boeing, Airbus and China in the commercial airline industry as China seems to be “a little farther ahead” on manufacturing a plane that will compete with Boeing 737 and Airbus A320.
To Conclude
Although the Senate has passed a legislation to reauthorize Ex-Im BanK, the process has halted in the House, where it is opposed by many conservative Republicans. Hopes of energizing the trade bank are thin as Congress recently moved toward a temporary extension of the U.S. transportation funding without any provision for renewing the bank's charter. This means that no action is likely until September or October this year.
Boeing currently has a Zacks Rank #3 (Hold). Lockheed Martin Corp. LMT and General Dynamics Corp. GD are better-ranked stocks in the same space, both carrying a Zacks Rank #2 (Buy).
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