This week, the Export-Import Bank of the United States (EXIM), the country’s official export credit agency, approved two transactions in support of the aviation sector, which has been hard-hit by economic effects of the covid pandemic. Per EXIM, the two aviation finance authorizations totaled $125 million, in support of 500 American jobs across nine states: California, Florida, Iowa, Kansas, Montana, Ohio, Oklahoma, Texas, and Washington.
In the first transaction, the EXIM Board approved a 90 percent guarantee of a $40 million facility under the agency’s Supply Chain Finance Guarantee program. Due to EXIM’s guarantee, Bank of America, N.A. has agreed to provide a credit facility to Spirit AeroSystems locations in Wichita, Kansas, and Kinston, North Carolina, so that the company can efficiently pay its U.S.-based suppliers.
Approximately 40 suppliers to Spirit AeroSystems are expected to participate in the facility, over 90 percent of which are small businesses across the aforementioned U.S. states. EXIM estimates that the facility will support 100 jobs at Spirit, as well as additional jobs through its supplier network.
EXIM’s involvement was needed due to broader market conditions and the impact of covid, which reduced the availability of commercial lending.
EXIM’s second transaction was approved for Queensland And Northern Territory Aerial Services Ltd (Qantas), Australia’s largest carrier and the world’s second oldest airline, in continuous operation for 100 years. EXIM’s Board voted to guarantee a loan, to be denominated in Australian dollars, equivalent to $85 million to Qantas to facilitate the purchase of seven spare engines manufactured by GE Aviation for the airline’s passenger jet fleet. JP Morgan will serve as the Guaranteed Lender.
EXIM estimates the transaction will support approximately 400 jobs at GE’s manufacturing and assembly sites, as well as at small business suppliers to GE, which make component parts for spare engines. EXIM support for the transaction was needed due to pandemic-related economic effects on aviation (particularly government travel restrictions), which meant commercial aviation financing options were not available.
“The EXIM Board’s unanimous action shows our agency’s commitment to helping U.S. companies, especially small businesses that are part of supply chains, in the wake of COVID-19. The Spirit transaction also provides an example for other U.S. companies, as this is the first time a first-tier supplier has used EXIM’s supply chain financing guarantee to get payments out to another layer of suppliers, many of which are small businesses,” EXIM President and Chairman Kimberly Reed said. “The Qantas transaction further underscores EXIM’s important role during the covid-19 pandemic and economic recovery, just as following the 2008 financial crisis, in helping the world buy outstanding American products, such as those made by GE Aviation and its network of suppliers.”
“Australia-based Qantas, consistently named one of the world’s safest carriers, rarely needs EXIM support. However, these are extraordinary times and it is important that we not only support our American exporters, but that we stand with Australia and Qantas during a period when they are under threat of outside economic interference,” said EXIM Director and former Congressman Spencer Bachus, in a statement announcing the transaction.
“EXIM has always played an important role in the global competitiveness of the U.S. aerospace industry and the jobs created by aerospace manufacturers,” said Spirit AeroSystems Chief Financial Officer Mark Suchinski. “We appreciate EXIM’s support for our supply chain, which includes many small businesses in communities across the United States.”
“GE’s competitive position across its industrial businesses is enhanced by competitive export financing. EXIM financing provides critical support for GE Aviation, suppliers, and valued airline customers such as Qantas, particularly during the pandemic crisis,” said Subha Nagarajan, Managing Director, Global Capital Advisory, GE Capital.
Earlier this week, Chairman Reed visited the Georgia headquarters of Gulfstream Aerospace Corporation, a wholly owned subsidiary of aerospace and defense firm General Dynamics, to present the company with EXIM’s “Deal of the Year” award, in recognition of an innovative, public-private risk-sharing transaction between the U.S. aircraft company and an unnamed buyer in Czech Republic.
Under the transaction, EXIM provided a $10 million medium-term loan guarantee to support the export of a new Gulfstream G650 aircraft to the Czech buyer. Per EXIM estimates, the transaction supported hundreds of American jobs at Gulfstream in Savannah, Georgia, and at companies in the Gulfstream supply chain, which extends over approximately 80 percent of the United States. The transaction was EXIM’s first financing in support of Gulfstream aircraft since December 2014.
Apple Bank for Savings in New York was the lender for the euro-denominated financing, which was initiated through AirFinance, an EXIM Qualified Advisor. The risk mitigation was arranged by Aircraft Finance Insurance Consortium (AFIC) with a private-sector partner, AXIS Insurance. Apple Bank made two loans for the financed portion of the contract, one supported by an insurance policy from AXIS, and a second one for which EXIM provided a medium-term guarantee. The buyer made a cash payment for the balance of the contract price.
EXIM’s participation in the transaction was essential to secure support from AXIS for its first business-aircraft transaction. Without the co-risk mitigation strategy, the transaction would not have been completed because business-aircraft financing on acceptable terms was not available and, at the time of approval, EXIM lacked a quorum on its Board of Directors needed to complete the transaction solely as an EXIM financing.
In the time since this transaction was completed, EXIM says it has approved three additional Gulfstream transactions, two of which involved AXIS as a co-risk mitigator.