Congress, Other

New House majority leader, a commercial space supporter, opposes a tool that supports commercial space

Last week House Republicans elected Rep. Kevin McCarthy (R-CA) as their new majority leader, replacing Rep. Eric Cantor (R-VA), who was upset in a primary election earlier this month. This should be welcome news for the commercial space industry, as McCarthy has expressed support for the industry in recent years, including sponsoring legislation to “streamline” commercial spaceflight regulations.

That interest is, at least in part, because his district includes the Mojave Air and Space Port, a nexus of commercial spaceflight activity. On Saturday, his Twitter account noted the tenth anniversary of SpaceShipOne’s history making flight from Mojave. (And, in the interests of full disclosure, his account retweeted several of my tweets of images from that event.)

One day later, though, McCarthy expressed his opposition to a financial institution that has supported some commercial space companies in the US in recent years. In an interview on Fox News Sunday, McCarthy said he would vote against reauthorization of Export-Import (Ex-Im) Bank of the United States, which supports financing of exports of products and services created by US companies.

“One of the problems with government is it’s going to take hard earned money so others do things that the private sector can do. That’s what Ex-Im Bank does,” McCarthy said when host Chris Wallace asked him about the upcoming reauthorization of the bank. “I think Ex-Im Bank is one that government does not have to be involved in. The private sector can do it.” Asked directly by Wallace if he would vote against its reauthorization, McCarthy said, “Yes.”

The Ex-Im Bank has been increasingly used by domestic satellite manufacturers and launch services providers in recent years to provide favorable financing terms for the sale of commercial satellites and launches. For example, in 2012 it backed financing of satellites built by Boeing, Lockheed Martin, and Orbital Sciences to customers in Australia and Mexico. Later that year, it financed the sale of satellites built by Boeing and Space Systems/Loral to a Hong Kong-based company; the deal also covered the launch of two of those satellites on a SpaceX Falcon 9.

Like many other business organizations, the Aerospace Industries Association (AIA) has warned about the potential effects on industry should Congress not reauthorize the bank. “Ex-Im Bank export credit support has helped U.S. companies compete successfully for major foreign sales of U.S. civilian aircraft, launch services and commercial satellites in recent years,” the AIA states in its position paper about the bank on its website. “[T]he Bank helps level the playing field for America’s aerospace manufacturers, who are competing with foreign companies backed by the low interest rates and deep coffers of other nations.”

The head of the AIA, Marion Blakey, appealed to conservatives who oppose reauthorization of Ex-Im by invoking the name of a particular historic figure. “During his presidency, Reagan strongly backed Ex-Im, albeit with necessary reforms,” she wrote in an op-ed published in Aviation Week earlier this month. She warned that a failure to reauthorize Ex-Im would “amount to economic unilateral disarmament against 60 other nations whose export credit agencies aggressively support their businesses.” In the space industry, that would primarily be the French agency Coface, which has supported a number of space-related deals in the last several years.

That view is echoed by those companies trying to sell spacecraft and launches. “We believe that [Ex-Im Bank reauthorization] is a very important element in making US industry competitive,” said Mike Hamel, president of the Commercial Ventures division within Lockheed Martin Space Systems Company, in a June 9 interview during Lockheed Martin’s media day in Arlington, Virginia. “In many cases, we find that we have to compete not just with foreign companies but also with foreign governments that are very active in supporting their respective industries.”

The House Financial Services Committee plans to hold a hearing Wednesday on reauthorization of the Ex-Im Bank; the hearing is titled: “Examining Reauthorization of the Export-Import Bank: Corporate Necessity or Corporate Welfare?” The committee’s membership includes Kevin McCarthy.

(Disclosure: my employer has done occasional engineering and related studies for the Ex-Im Bank.)

25 comments to New House majority leader, a commercial space supporter, opposes a tool that supports commercial space

  • Andrew Swallow

    International banking is what international banks are for. If no bank or insurance company supplies similar services then Export-Import (Ex-Im) Bank of the United States can be privatised. I am sure that one of the stock markets will be happy to host the bank’s shares.

    • Andrew, while I stand by my comment, privatisation of ExIm is something that should be considered, especially if that made it more efficient — although I’m not sure how something that is supposed to match other countries’ subsidies with our own could be privatised. It is dismantling the bank that I am opposed to.

      – Donald

      • Fred Willett

        Privatization of ExIm is not an option. The ExIm gives low interest loans to support and facilitate Exports and Imports of US products in competition with similar Export Import banks in other countries that support their local industries.
        If such a bank were privatized it would not be able to provide low interest loans but would have to provide market rate loans like any other Trading Bank. Severely undercutting US business’ ability to compete.
        In theory the Republicans are right. ExIm distorts the market and is a bad thing. In practice abolishing it would seriously harm US business making it less competative on the world stage.

  • Boeing is about to lose another subsidy from Congress.
    Competition just got tougher.

  • failure to reauthorize Ex-Im would “amount to economic unilateral disarmament against 60 other nations whose export credit agencies aggressively support their businesses.”

    Indeed. This is stupid even by Tea Party Republican standards, and if this is they way Representative McCarthy is going to stand up to the nuts in his party, God help us. There is no free market unless everyone is playing, and letting the French (and China, and other big governments supporting their industry with low interest loans) eat our lunch in one of our few remaining export industries will not create one. If Tea Party Republicans really want to end ExIm, the next time Republicans have the executive office, they need to negotiate the dismantling of _everyone’s_ export bank. Short of that, it should be no deal, especially where space is concerned.

    – Donald

    • Andrew Swallow

      Subsidising exports is a way of shooting yourself in the foot.

      If the French Government wants to make rich men richer by exploiting the workers that is their business. Also as Commercial Crew is finding out the extra paperwork will probably cost more than the subsidy.

  • Subsidising exports is a way of shooting yourself in the foot . . . the extra paperwork will probably cost more than the subsidy

    I don’t think so. The United States has sold innumerable satellites (and aircraft) to foreign countries, creating many thousands of high-salary, tax-paying jobs, that would have gone to France without ExIm’s low interest loans. Note that the Iridium and Globalstar contracts, where ExIm could not participate, did go to France (What Commercial Space?). This had nothing to do with Thales Alenia Space’s technical superiority, which was unlikely to best Lockheed Martin’s, who built the original constellation that has performed far beyond all expenctation. Foregoing all of those jobs and all of that tax revenue does not seem like a good strategy for solving our budget problems, or getting more money for the U.S. space industry, commercial or otherwise.

    It is also worth noting that, at this point, SpaceX is probably a long way from being profitable, and the company has benefited from ExIm loans. It is conceivable that the contracts won made a difference to the company’s survival so far. Even Elon cannot lose money forever. . . .

    – Donald

    • Neil

      Well put Donald. It’s a fallacy that this sort of subsidy is necessarily ‘bad’. The flow-on effects are often overlooked and often returns through productive activities many times greater than the original subsidy. But the subsidy needs to be carefully thought through and not simply one for it’s own sake.
      Cheers.

  • McCarthy said he would vote against reauthorization of Export-Import (Ex-Im) Bank of the United States

    This will be a poisonous issue for the Tea Party that McCarthy is wise to oppose. The Ex-Im Bank is state sponsored crony capitalism at its worst. Let the private sector finance the next 3rd world purchase of 787s. Non-market returns on capital for the benefit of a few big companies are not in the tax payers interest. I am a Boeing shareholder.

  • Let the private sector finance the next 3rd world purchase of 787s.

    Great strategy, if you don’t want to sell more 787s to small airlines, and want to help Europe establish the late and less advanced A350. Funny, if I understand you correctly you’re happy to let us taxpayers subsidize NASA jobs with SLS, which has no commercial future of any kind, but opposed to helping actual commercial products compete against subsidized competition. How do you reconcile these views?

    – Donald

    • NASA should be a branch of the military. The government must provide for the common defense. Ergo, it must build SLS.

      Great strategy, if you don’t want to sell more 787s to small airlines

      I want to see Boeing sell its fine airplanes in great numbers. But I don’t want to put the American taxpayer on the hook for buying 787′s for a startup airline in Bhutan. That is what our wonderful capital markets are for.

      • John Malkin

        SLS would be a drop in the bucket for DOD but they aren’t building HLV or plan to use the one NASA is building. SLS doesn’t have a DOD purpose or payload.

        Personally I would like to see the government create a Department of Science and NASA would become a part of it along with other non-DOD R&D but I can’t see the space committees giving up control of NASA. The Department would set national priorities for science across the board including human spaceflight science. It won’t happen because it’s not really about making NASA a success.

        • John, I’m pretty sure I don’t agree with you on this one. If space science and other sciences competed on a level playing field, we would never do space science. Because of the basic physics of getting into orbit with chemicle rockets, whatever you do there is going to cost a lot more than doing the same thing on the ground. If we want to do space science, we have to justify it on its own; we can’t let it try to complete with, say, biology, on cost alone.

          Put another way, biology will always win because it’s directly about us (it’s more important to us) and it’s vastly cheaper. Space science is about the wider universe, about the big questions, and is rarely of direct benefit to human welfare, except in the sense of providing an intellectual challenge and answering “cosmological” questions. So, it comes down to, do we want those cosmological question answered? If so, we do space science, not because it can somehow win in value-for-money terms when duking it out with biology.

          If we are going to do space science, let alone human space exploration, they need to stay “special,” with their own dedicated funding.

          – Donald

      • Jim Nobles

        NASA should be a branch of the military. The government must provide for the common defense. Ergo, it must build SLS.

        If SLS got transferred to the military they’d probably cancel it immediately. Way to much cost for too little potential return.

      • Rhyolite

        “NASA should be a branch of the military.”

        If NASA were made a branch of the military, the Pentagon would zero out its budget request every year. No war fighting value.

  • That is what our wonderful capital markets are for.

    Great example of ideology trumping the facts and the real world. Where were our capital markets when we needed to fund Iridium Next?

    • Iridium Next, like Iridium, lacks merit according to the free market, If they government needs a worldwide cell phone network, they should procure one.

      • Almightywind: If [the] government needs a worldwide cell phone network, they should procure one

        Now, there’s a socialist argument if I’ve ever heard one. The answer is simple: why pay to design, develop, and deply a hugely expensive network from scratch when, for a modest subsidy (not of cash, only an interest guarantee), you can get someone else to fund it, and do all the hard work, for you?

        – Donald

  • Brian Swiderski

    There needs to be a US Ex-Im Bank just to balance the market-distorting effects of other countries’ similar institutions. If you don’t have a US Ex-Im Bank, the result is *less* of a free market because of these uncorrected distortions, not more of one.

  • Rhyolite

    This is idiotic. As far as I can tell, Ex-Im does good work. For the party of farm subsidies to cite “free market values” is something that belongs in an Onion article. The only questions is which lobbyists paid them off to kill Ex-Im and will they get a higher price from the Ex-Im supporters.

    • The pressure to shut down ExIm comes from domestic airlines, who argue that low interest loans to foreign carriers to buy the latest 787s is unfair to domestic airlines who must arrange, and pay for, their own loans. Then, the Tea Party jumped on the bandwagon. The airlines have a point.

      However, the United States has to decide if we are going to be strictly a service economy, or do we want to actually produce products that the rest of the world wants or needs to buy and actually fund our standard of living. It’s too bad for the domestic airlines, but I vote for the latter. Also, ExIm funds loans to a lot more exporters than just those of the aerospace industry (not least, communications satellites and SpaceX) and if the airlines succeed, they will hurt an awful lot of American jobs that are dependent on matching foreign export subsidies.

      – Donald

  • Andrew Swallow

    The charity is not in US Ex-Im Bank making loans but in making the repayments too small. The USA is basically bribing foreigners to take the goods away. The country makes a loss on every sale.

    Charge the buyers an interest rate based on their credit risk. If they choose to be naughty boys then they have to pay more.

  • Andrew: The country makes a loss on every sale.

    While I have no way to prove it with finite research, I think this exceedingly unlikely. Boeing makes a lot more on the sale of each 787, and the company, its domestic suppliers, and its and their employees pay a lot more in taxes, than the forgone interest payments cost the economy.

    If you prove me wrong, I might change my opinion, but I do think I’m safe. . . .

    – Donald

  • Dick Eagleson

    This is probably the best time there is likely to be to kill off Ex-Im. Market interest rates are already about as low as they’re ever likely to get so the spread between Ex-Im and market rates is also about as slim as it’s ever likely to get. Also, as NewSpace companies like SpaceX take more business away from U.S. dinosaurs like Boeing and LockMart, and Old World dinosaurs like Arianespace, no additional inducement will be needed for foreigners to avail themselves of U.S.-based launch services other than the unbeatably low prices. This seems like a good time to step off the “I’m willing to bleed my taxpayers more than you are willing to bleed yours to make a sale” bandwagon. Even with Eurozone subsidies, the A350 doesn’t look to be doing too well as the recent huge order cancellation by Emirates Airlines shows.

    Europeans are our main competitors in this financial pissing contest. Given that they have a sagging currency to save and a lot of other financial overcommitments to service they might well be grateful for an excuse to wind down their own subsidy bill. And, if not, the best way to break them of bad financial habits is to let new entrants into fusty, dusty industries break them financially by coming up with products and services so cheap continuing to subsidize the traditional players becomes unsupportable. We have that sort of dynamic economy – or at least we will again once the current Saboteur-in-Chief leaves office – the Europeans don’t.

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