Washington: The US airline industry has sued the Export Import Bank (Exim) alleging that its financial support to Indian national carrier Air India, which itself is in deep red, will harm the American airlines.
In a revised complaint filed before a US court on Friday last week, the Air Transport Association of America, Delta Air Line and Air Line Pilots Association International, alleged that Exim Bank’s decision to provide a loan guarantee of USD 3.4 billion to Air India, to help it buy 30 aircraft from Boeing, would badly affect several US airlines, the Delta in particular.
Arguing that without the financial support from Exim Bank, Air India, which in itself is in deep red, would not have purchased these aircraft and thus would deploy them on those routes where it gives a tough competition to US airlines.
"The Bank's support for foreign carriers puts ATA's operator members, including Delta, at a competitive disadvantage because, among other things, the Bank's foreign beneficiaries have access to cheaper capital to finance their aircraft purchases," the complaint said.
"Delta's experience is illustrative. In 2006, Delta offered nonstop service between New York and Mumbai. Between 2006 and 2009, the Bank gave Air India loan guarantees totaling approximately USD 3.3 billion.
"Those guarantees allowed Air India to flood the US-India market with extra capacity and crowd out competitors like Delta. Delta stopped flying from New York to Mumbai in October of 2008 due to the Bank's loan guarantees to Air India," the
court affidavit said.
The Exim Bank’s subsidies to foreign carriers have forced US airlines to cut between 4,100 and 7,500 jobs. The loss of those jobs has led to USD 372 million to USD 684 million in lost employee income, it alleged.
The Air Transport Association of America also challenged the argument of the Obama Administration that orders placed by foreign airlines like Air India is creating jobs in the US.
"Boeing's production process for new aircraft is heavily outsourced overseas. According to a recent report by the Inspector General for the US Department of Transportation, only four of the 17 principal components of the Boeing 787’s airframe are manufactured exclusively in the US," it said.
The complaint alleged that the Bank's support for foreign carriers has caused dramatic increases in the size of those carriers' wide body fleets.
"By 2015, foreign carriers are scheduled to take delivery of 1,157 wide body aircraft, 692 of which will be net additions to foreign carriers fleets. By comparison, US carriers are scheduled to take delivery of only 55 wide body aircraft by 2015, seven of which will be net additions to US carriers fleets," it said.
Noting that the available seats on routes between India and the United States are in surplus, the complaint said the India-US overcapacity problem is so large that 41-90 percent of Air India’s total operating losses (which are substantial) came on routes to and from the US.
The Bank’s support for Air India in 2006 created a surplus of available daily seats between Mumbai and John F Kennedy Airport in New York.
The Air India Commitments would exacerbate that surplus, it said.
The Air India Commitments will cause substantial injury to US carriers that compete on international routes to and from India, it said adding that the US airlines currently produce 1,296 available seats per day on routes between the two countries.
Richard H. Anderson, CEO of Delta Airlines argued that based on its operating losses and its debt burden, Air India could not afford to finance 30 additional wide body aircraft without support from the Ex-Im Bank.
"If Air India takes delivery of 30 new wide body aircraft, it will be able to do so only because of the Bank’s loan guarantee. And, if Air India deploys some of those new aircraft on routes between the United States and India, as I expect that it will, I believe that Delta will be foreclosed from that nonstop market for the foreseeable future," he said.
"The additional capacity supplied by aircraft that Air India could afford only with below-market financing guaranteed by the Bank will so exceed potential demand as to make it economically impossible for Delta to reenter and compete, he said.
First Published: Monday, February 20, 2012, 13:17