Delta Air Lines won its appeal of a judgment granted to the Export-Import Bank of the United States (Ex-Im Bank) in its suit challenging Ex-Im credit support of Air India aircraft purchases. While this battle is over, the war is not yet decided.
In September 2011, the Ex-Im Bank committed $3.4 billion in export credit financing support to Air India for the sale of 30 Boeing aircraft. Many of the aircraft were for international service, including service to the U.S. In response, the Air Transport Association (ATA) detailed in a letter to Ex-Im Bank’s president the harms caused to U.S. airlines by the financing. The bank responded that its Air India commitment was final. ATA then sued Ex-Im Bank on behalf of its member airlines. Six airlines, including American Airlines and United Airlines, declined to join. Delta Air Lines joined as an individual plaintiff.
The Ex-Im Bank was established by executive order of President Franklin Roosevelt in 1934. Its statutory purpose is to, “aid in financing and to facilitate exports of goods and services… and the exchange of commodities and services between the United States… and any foreign country…, and in so doing contribute to the employment of United States workers.” 
In deciding to make a commitment, the Ex-Im Bank must, among other things, “…take into account any serious adverse effect of such loan or guarantee on the competitive position of United States industry… and employment… and shall give particular emphasis to the objective of strengthening the competitive position of United States exporters and thereby of expanding total United States experts.” 
The Ex-Im Bank implements these statutory obligations through its economic impact procedures (EIPs). These are five “screens” aimed at identifying the potential economic impact of prospective commitments.  The Ex-Im Bank developed and implemented the formal EIPs in the 197os. Any transaction not passing one of these screens must go through a more extensive review process.
The lawsuits claim the Ex-Im Bank violated its statutory obligations by failing to consider whether the Air India commitments would have an adverse effect on the U.S. domestic airline industry. They also claim the Ex-Im Bank is prohibited from providing export support if it will cause, “substantial injury to United States producers of the same, similar, or competing commodity.” Finally, they claim the Ex-Im Bank failed to provide notice and solicit comment before approving the commitment and further failed to provide a reasoned explanation for its decision.
The crux of Delta Air Line’s main argument is that the “commodity” or “good” they produce is seat capacity. By financially supporting the export of seat capacity through the sale of aircraft to competitors, the Ex-Im Bank is causing injury to U.S. airlines. Delta Air Lines argued that the Ex-Im Bank financing practices, “skewed the
competitive playing field sharply in favor of foreign airlines.”  It permits competing airlines to obtain financing at below-market rates (backed by the full faith and credit
of the U.S. government) as opposed to U.S. domestic airlines that must rely on their credit rating alone. Delta Air Lines claimed that a foreign carrier would pay
about $5 million less per year in interest payments on a typical 777 financing than a U.S. carrier.
As a result, there is an oversupply of aircraft and a permanent oversupply of seat capacity in international markets. Delta Air Lines argued that Ex-Im Bank-subsidized airlines have put about 12 percent more capacity into service in competition with U.S. airlines than they would have if Ex-Im Bank guarantees had not been available. In turn, this caused a 4.1 percent decline in international U.S. airline seat capacity. Delta Air Lines cancelled nonstop New York-Mumbai service when Air India Hooded that market with seats, they argued.
In applying their EIPs, Delta Air Lines alleged the Ex-Im Bank did not consider, among other things, seat capacity as an “exportable good.” The screening process was therefore flawed by automatically exempting the financing commitment from a proper and then more detailed analysis. In essence, the seat capacity that U.S. airlines “produce” is no different from the aircraft that Boeing produces. Supporting the sale of Boeing aircraft does not aid a competitor of Boeing. However, Delta Air Lines argued, supporting the sale of aircraft to Air India aids a competitor of U.S. producers of air transport seat capacity.
The U.S. District Court hearing the case conceded in its opinion that the case brought…”significant and probing challenges to the Bank’s procedures.” In the end, however, the court concluded that seat capacity was not an “exportable good” or an “export,” but rather a service. As such, it was within the Ex-Im Bank’s discretion to automatically exempt the Air India commitment from a more detailed impact analysis through the application of its EIP screens. While the Ex-Im Bank conceded no heightened review was accomplished in connection with the Air India support, they said that consideration of the impact was implied by the application of the EIPs and therefore no further consideration was required.
“The Bank Act…leaves it to the Bank-not the courts-to determine both how the ’adverse effects’ of a transaction on domestic industry and employment ought to be identified and when a more detailed inquiry is merited…It is not for the Court to determine the advisability of these Commitments …” The court said it is up to Congress to amend the law and require more if it sees fit. Summary judgment (judgment before trial) was granted in favor of Ex-Im Bank.
Delta Air Lines appealed. The U.S. Court of Appeals “split the baby” by reversing the judgment of the lower court, but permitting the Air India credit support to proceed. The court’s opinion rejected Delta Air Line’s argument that seat capacity was a commodity under the Bank Act. It concluded that the dispute arose, “because the [EIP] procedures categorically determine that loans and loan guarantees to foreign service providers will not affect U.S. industries and U.S. jobs.” It is the categorical assessment that this credit support can never cause adverse effects to U.S. industries, without reasonable explanation, that violates the Bank Act and related legislation. The Ex-Im Bank was ordered to provide reasonable explanation in the context of the Air India support or consider and then explain the impact.
The impact of this ruling is not yet known; although, a reversal of the decision to provide Air India credit support is unlikely. What is known is that in the Export-Import Bank Reauthorization Act of 2012, the U.S. Congress mandated that the bank revisit its EIPs. In response, the Ex-Im Bank approved new EIPs that became effective in April 2013. In these new EIPs, the Ex-Im Bank acknowledged the need and implemented additional guidelines concerning the review of potential economic impact on services as it relates to the credit support for aircraft sales. The guidelines provide for heightened review when the impact could be “substantial.” This is now defined as an increase to capacity of at least 1 percent.  Whether these new EIPs will change the free flow of export credit support for aircraft sales remains to be seen. Delta Air Lines believes possibly not.  Their suit, if nothing else, may have spurred Congress to action so that Ex-Im Bank must now account for the impact to the suppliers of capacity, and not just the suppliers of aircraft. This, coupled with the Aircraft Sector Understanding (ASU), will undoubtedly have their impact.
- 12 U.S.C. § 635 (the enabling legislation fur the US Ex-Im Bank, or “Bank Act”)
- 12 U.S.C. § 635
- Delta’s First Amended Complaint
- More detailed information may be found at this link: http://exim.gov/generalbankpolicies/economicirnpact/upload/Final-April-ZOI3-Procedures.pdf
- See joint comments of Delta and ALPA to Etihad application for Ex-Im support of 777 aircraft purchase.