Missed Ex-Im Bank Authorization Opportunity Leaves Industry in Limbo
[Via Satellite 07-31-2015] On July 30 the United States Congress missed what many considered to be the soonest viable attempt to reauthorize the Export-Import bank — an important player in the satellite industry — leaving the Export Credit Agency (ECA) inactive for a lengthier amount of time. Ex-Im bank requires regular reauthorization, which in the past has been done with bi-partisan support from both Democrats and Republicans. This year, however, Congress did not come to an agreement on the bank. Thus, the agency is continuing to process previously approved transactions, but has ceased from taking on any that are new.
The recent opportunity to reactivate Ex-Im was with a significant highway transportation bill. The Senate version of the bill included an extension of the bank, but the House version did not. The Senate bill passed, but House Republicans are now on vacation, delaying action on the bank until the fall.
Ex-Im bank assisted Asia Broadcast Satellite (ABS) on the purchase of a Boeing 702SP all-electric satellite that launched aboard a SpaceX Falcon 9 rocket with Eutelsat 115 West B. Through loan facilities, the ECA supported BulgariaSat 1, a Space Systems/Loral (SSL) 1300 satellite, and ViaSat’s Boeing 702HP satellite ViaSat 2. Both satellites are scheduled to launch with SpaceX.
“I would say it’s not just the satellite industry,” Frank Slazer, VP of space at the Aerospace Industries Association (AIA), told Via Satellite. “It’s really space in general. I don’t think it’s the bulk of their portfolio, but it’s the fastest growing part of their portfolio, and it includes both satellites and launch services.”
Slazer said the timing of the Ex-Im lapse could exacerbate the impact of it’s absence, because U.S. satellite companies are more actively pursuing commercial business as government spending stays low. Additionally, last year the U.S. government enacted long-awaited export control reforms, reclassifying critical and often routinely used satellite technology so that it is not considered munitions and consequently treated according to International Traffic and Arms Regulations (ITAR).
“After over a decade of work we finally get the export controls modernized for satellites and satellite technologies where our companies are finally able to compete in the international market, and the ironic thing is this lapse is acting as a brake on our ability to capitalize on our reforms to the export control laws,” Slazer said.
Slazer added that it is too soon to gauge a direct impact in this manner but that there could have been deals underway when Ex-Im bank suspended new activity.
Ex-Im bank is commonly described as a way to “level the playing field” for U.S. companies. Without it, there is concern that deals may go to countries where similar financial resources are available.
“Factoring in that other sovereign ECAs such as Coface of France and Export Development Canada remain actively supportive of their domestic space industry hardware and services exporters, and other ECAs such as the Japan Bank for International Cooperation, U.K. Export Finance, and the Export Insurance Agency of Russia are seeking to become more active in the commercial space sector, it appears that a prolonged lapse in Ex-Im bank’s authorization could result in U.S. satellite manufacturers and launch services providers losing certain business and market share to their non-U.S. counterparts,” Dara Panahy, partner at Milbank, Tweed, Hadley & McCloy LLP, told Via Satellite.
Panahy said the criticism that ECAs support projects that are not creditworthy or commercially viable is a “generally inaccurate characterization.” He cited credit assessment procedures that are in some cases more rigorous than commercial lenders, as well as that ECAs engage in detailed business model, market, regulatory and technical diligence. This, he said, results in ECA financings being more involved, and usually taking longer to conclude, as compared to commercial bank or debt market financings.
“There’s always private sources of financing for these companies to go to — the question is whether or not they are always willing to fund it at attractive rates,” added Rich Efford, AIA’s assistant VP for legislative affairs. “The Ex-Im bank, in most cases, is the lender of last resort. They are not out there competing with the commercial banks. The amazing thing is their default rate is incredibly low. They are present when there is a credit crunch and banks don’t want to lend, but they are also there as a backstop.”
The collapse of burgeoning satellite operator NewSat also instilled concerns that Ex-Im could be further jeopardized. Milbank said the demise was unlikely to have been a seriously influential factor in the bank’s suspension.
“We understand that Ex-Im bank’s non-performing loan facilities constitute less than 1 percent of its loan portfolio (including in 2014-2015), and the relative size of the Jabiru Ltd/NewSat liability is negligible,” said Alexis Sainz, senior associate at Milbank. “It’s also important to note that Ex-Im bank has consistently generated positive returns for U.S. taxpayers so, if viewed on an objective basis, Ex-Im bank is one of a few U.S. government agencies that actually generates positive revenue for the U.S. Treasury.”
Because efforts to revive the bank continue to flounder, companies across multiple industries have started voicing concern about the long-term effect. A few have suggested relocating overseas, according to media reports. Asked what U.S. satellite companies should do to adapt to an environment without Ex-Im support, Panahy noted that industry has historically proven to be resilient, and suggested that new advances can keep it sharp. He mentioned all-electric satellites, dual launches, and the growing popularity of “Condo-Sats,” or shared satellite buses with customer-unique payloads, as means to provide value-added solutions. In certain cases, manufacturers could even look to partner with their customers to purchase capacity on satellites they are manufacturing to contribute long term, recurring revenue to the satellite project in order to help close the business case. Panahy said SpaceX’s reusability push and United Launch Alliance’s (ULA) development of a more efficient and cost-effective next generation launch system, Vulcan, could further drive U.S. business.
“In an environment without Ex-Im bank support, the U.S. satellite industry must continue to be innovative, resilient and demonstrate the competitive value it provides to its customers in order to enable and attract alternative sources of financing, whether from commercial banks, the debt markets, development banks, or equity investors,” he said.
U.S. President Barack Obama is among Ex-Im bank’s supporters. White House Principal Deputy Press Secretary Eric Schultz said July 29 that the president feels strongly that Congress needs to act and reauthorize Ex-Im bank.