Aerospace and the Export-Import Bank of the U.S.

Governor Jay Inslee’s Aerospace Summit

Timothy Keating, Senior Vice President, Government Operations, The Boeing Company
September 30, 2014

U.S. Aerospace & Competitiveness

We need to do a better job of explaining what aerospace means to this state – and to this country.  During an era in which the U.S. has been effectively de-industrialized – with factories closed, company towns abandoned, and millions of jobs outsourced overseas – aerospace has remained one of the shining exceptions.  We are one of the last business sectors that still employ large numbers of Americans at good wages and benefits to make things in this country – and then sell those best-in-class products around the world.   These are the kinds of companies that were the mainstay of the U.S. economy when I grew up in a union household in Scranton, Pennsylvania; the kinds of companies that created the American middle class and made this country the most prosperous and powerful on earth.

And when you hear people complain that “we don’t make things in this country anymore,” consider that just Boeing alone employs roughly 160,000 people that either build things or directly support those who do.  Then there are the 2.5 – to 3 million jobs supported by the U.S. aerospace industry overall through our collective supply chain- jobs that allow people to make a decent living.

Traditionally, U.S. aerospace companies have not competed on price.  We have, and will continue to stay ahead through innovation.   Yet, as foreign competitors improve their level of quality, we cannot be oblivious to the cost of doing business going forward.  Here the relevant impact is not on our bottom line today or next year – but, in the case of Boeing, on our ability to sell an airplane to an international customer ten or 20 years from now.

Manufacturing executives, especially those in export-driven sectors, talk a lot about being competitive.  But, frankly, it’s not always clearly understood what exactly we are referring to- and how that affects the difficult choices made with respect to the many elements of our business.   In fact, a lot of the more controversial management decisions by Boeing- affecting labor, our supply chain, geographic footprint, public policy – start to make a lot more sense when put in the context of a global market that is growing more crowded and less forgiving every year.

For example, when aerospace companies and other advanced manufacturers receive tax incentives to either continue operating in Washington or start new programs here, it is widely reported and criticized as some kind of big tax giveaway.  In reality, the dollar numbers you hear quoted represent, at best, a partial discount for the added cost of doing business in this state versus another part of the county with less onerous tax levels, regulatory schemes, and costs of living.   On balance, the preponderance of the benefit will go to the Washington economy and, ultimately, into the state treasury.  Yet rarely is that the story getting out, which is most unfortunate when some politicians in Olympia begin to flirt with the idea of rescinding these incentives.

All told, there needs to be a more informed dialogue between the public and private sectors about how together we can compete on a global stage – not only against foreign companies, but with entire countries, even continents in the case of Airbus and Europe, that have put the power and resources of the state into supporting their domestic aerospace sectors.

Washington, D.C. Dysfunction

When it comes to state and local government, at least things are getting done – from trying to balance budgets to getting potholes filled.   That has not been the case in Washington, D.C., for several years now.   When I first came to Washington, D.C, nearly three decades ago the partisan zealots on the left and right might duke it out on TV.  But behind the scenes the pragmatists, bridge-builders, and party elders would find ways to get things done.  Today folks on opposite sides of the partisan divide, or of any given issue, just aren’t talking with each other – out of a combination of hostility, ignorance or, in many cases, fear of angering their own “base,” and inviting a primary challenge.

The result last year was budget sequestration, another blow to our country’s shrinking defense industrial base, followed by a federal government shut-down – the latest in a series of 11th hour crises and ‘cliffs’ that replaced the regular, rational, and constitutional process of making laws and passing budgets.

Due to the leadership of Senator Murray, the Congress was able to come together last December with the Bipartisan Budget Act, which mitigated temporarily the impact of sequestration. In that same spirit – of principled yet pragmatic compromise – we have to find a way to make progress in a number of areas; areas in which powerful and polarizing forces are pushing in the opposite direction. The reasons are varied – deepening income inequality, demographic and cultural shifts, growing distrust of established institutions of all kinds, global business especially.

Export-Import Bank

There is probably no more illustrative – or distressing – example of this phenomenon than the fight over the U.S. Export Import Bank.

As I mentioned earlier, aerospace has the distinction of being one of the last U.S. manufacturing sectors that is competitive on a global level, with a $72 billion positive balance of trade. It’s no surprise that Boeing represents a big part of that surplus, with $49 billion in foreign sales last year.

A significant part of this growth is attributable to carriers in developing markets.  For example, just last week, Ethiopian Airlines announced another commitment to Boeing, this time for 20 of the 737 Max., the largest single Boeing order by an African carrier.    While the financing arrangement will be determined closer to delivery, Ethiopian Airlines has used the Export-Import Bank to buy Boeing airplanes in the past.

We appreciated Senator Cantwell’s support as this deal was brought to fruition.  She continues to be a champion of American manufacturing and the Ex-Im Bank in the U.S. Senate illustrating, once again, the importance of enlightened and engaged political leadership.  As I mentioned at the beginning, the business we have chosen is one in which government’s role is inescapable and public-private partnerships are essential.

This partnership is so important because the international market for aviation is not a level playing field.  Just about every other developed country – and now a few developing nations as well -supports its domestic aerospace industry through credit guarantees, low-interest loans, or other means to boost exports.  Boeing’s major global competitor for commercial airliners, Airbus, has been lavishly and unlawfully subsidized by its European patrons – to the tune of $18 billion according to the World Trade Organization.

Airbus wants to control most of the global commercial airliner market and they are willing to use every tactic to achieve that goal – even selling their planes at a loss.  Next up is China, which has poured tens of billions of dollars – directly or indirectly – into its state-owned aerospace company to develop airliners that will be able to compete directly with Boeing and Airbus.

In this environment, the Export-Import Bank gives American manufacturing a fighting chance in the global arena.   Ex-Im has long enjoyed broad bi-partisan support in the Congress, and presidents ranging from Ronald Reagan to Barack Obama have favored its continued operation. In 2012 the Bank was re-authorized – but it was a near-run thing.  This year many of the same groups – mostly far-right political consultants, think tanks, and congressmen – banded together in a fit of ideological road rage to kill the Bank  The temporary extension recently enacted in many respects leaves us worse off than before.  The extension is to next summer, when in all likelihood the Congress will be more Tea-Party friendly, more polarized, than even now.  And a short-term extension does not provide business certainty – both for U.S. exporters and their potential foreign customers.

I won’t mince words about the consequences of a failure to re-authorize the Export Import Bank.    Slowly but surely Boeing would lose more airliner contracts to Airbus and eventually other foreign companies that are able to include official export credit as part of their sales pitch.  We would survive, but would build and sell fewer planes and employ fewer workers.   The same would apply to aerospace products like satellites and other high-end equipment for mining, construction, and energy.

Spending too long in Washington, D.C., can make you a bit jaded and hard to surprise – but it is still amazing to me that the people going after Ex-Im are basically willing to dismantle the U.S. aerospace industry and ship the jobs to France or China – all in order to raise some extra money and show their most rabid supporters that it is possible to kill a government program – irrespective of the real-world consequences.

D.C. Aerospace Agenda

And it’s not just Ex-Im.  Without action by the Congress budget sequestration will return in October 2015 – roughly $100 billion in across-the-board cuts to the military, NASA, FAA, Homeland Security, FBI, and more.   All of which will be felt, one way or another, by the companies and communities represented in this room.

Through sequestration Congress has tried to address what really is an entitlements problem – remember that Social Security, Medicare, and Medicaid make up roughly two-thirds of federal outlays and are growing – by gutting discretionary spending.

Yet our collective industry efforts must go beyond mitigating or reversing the negative – Ex-Im and sequestration – to advancing a positive agenda that will move this economy forward and expand the proverbial pie when it comes to jobs, wages and living standards – all of which could help address the underlying sources of discontent that have shaped the political dynamics of recent years. At the top of the list would be the Trans-Pacific Partnership, which by one estimate could add another $80 billion annually to the U.S. economy.   Then there is corporate tax reform and shifting to an effective top rate similar to our major global competitors – again, not a windfall, as some will no doubt characterize it, but a partial remedy to the unworkable situation we have today.

So all of us who care about the national strategic asset that is American aerospace –  the workers we hire, the communities we support, the defense and security we provide for this country – need to redouble our efforts and make it clear how high the stakes are.  We also need to be clear that we will remember who stood with us during these next critical months.  And we need our state and local partners with us every step of the way.
What’s required is something rare these days but, I believe, still possible in our nation’s capital:  real, old-fashioned legislating in which each side holds their nose and gives a little – whether on the Ex-Im bank, domestic spending, defense spending, free trade agreements, or taxes.  All this would lift the dead weight of dysfunction that’s hanging over our military, our industry, and the American economy.

As you can see, we have a lot of work to get done.