September 8, 2014 / 5:06 AM / 5 years ago

U.S. Ex-Im Bank's satellite push complicates its fight for survival

WASHINGTON (Reuters) - The U.S. Export-Import Bank, caught in a rare political storm over its mission, is fighting for survival and its best line of defense is to debunk criticism that the 80-year-old institution favors corporate giants over small businesses.

Yet even as bank officials showcase their work for the little guy, they have also been focusing their energy on global satellite deals geared towards space giants like Lockheed Martin and Spacex, building that sector into the faster growing bit of Exim’s portfolio.

According to the bank, it has approved $4.8 billion in satellite deals since 2002 – almost all of that in the last three years. That has supported $5.5 billion in exports but only $36 million, less than 1 percent, has gone to companies the agency designated as small businesses.

Lawmakers are due to decide by the month’s end whether to renew the bank’s mandate and what used to be a low-key procedure has turned into a tense political confrontation between the Democrat administration and Republican Party conservatives.

Critics say the institution is a tool of “crony capitalism,” funneling taxpayer money to big corporations that don’t need it and distorting markets.

“If people want to buy American satellites they should just buy them, it shouldn’t be the government encouraging them to do it,” said Barney Keller, communications director at the conservative Club for Growth.

Supporters, such as the U.S. Chamber of Commerce, have rallied to portray the bank as a champion of Main Street, parading small businesses that have benefited from Ex-Im deals like North Carolina-based Miss Jenny’s Pickles.

The bank that provides about $37 billion a year in loans, credit insurance and guarantees, says about a fifth of its funding goes to businesses it characterizes as small and that it plans to at least maintain such level of support.

But while doing so may be its political trump card, the institution has made it clear that growth opportunities and the biggest rewards are elsewhere.

Satellite financing best exemplifies the bank’s “damned if they do, damned if they don’t” dilemma.

Ex-Im Bank Chairman Fred Hochberg has singled out the sector as one where U.S. firms have a clear competitive advantage, and where the global appetite for communications bandwidth will keep demand strong.

“As the U.S. satellite industry grows, our support is growing, too,” Hochberg said in February.

But satellite deals are largely the province of a handful of firms with the technological wherewithal to place objects in orbit - from established giants like Space Systems/Loral to relative newcomers like SpaceX, the launch vehicle company founded by tech billionaire Elon Musk.


Those projects are not only capital intensive - not the sort to easily bring in mom and pop operations - but often global in scope.

One of Ex-Im’s signature projects of the past few years, for example, is helping finance the planned launch by Australia’s Newsat NWT.AX of the Jabiru-1 satellite. Lockheed Martin is building the satellite, but is sourcing the telecommunications hardware from Europe’s Airbus Defense & Space, a major rival.

Lockheed spokesman Matt Kramer said in an email that the satellite project involves about 30 subcontractors from five countries, though in general the “majority” of the content included in commercial satellites is from U.S. sources.

The satellite will be carried into orbit on a rocket supplied by France’s Arianespace, whose involvement is being financed by France’s equivalent of Ex-Im.

The bank has financed a billion dollars annually in satellite deals for the past three years, accounting for about 15 percent of its activity as of 2013.

According to Ex-Im records analyzed by Reuters, those deals have involved five firms as primary exporters: Boeing, Lockheed Martin, Orbital Sciences, SpaceX, and Space Systems/Loral (SSL), which says half of its California-made communications satellites are exported.

Musk’s SpaceX, for example, has been a prime contractor in Ex-Im satellite deals in Bulgaria, Israel and Hong Kong that the bank has financed to the tune of $500 million in financing at interest rates as low as 2.37 percent.

Ex-Im officials defend its engagement with big firms saying it is funding projects that may be too risky for private firms, boosting exports and jobs. The bank also helps U.S. exporters compete with foreign rivals such as China’s Great Wall Industry Corporation, Russia’s JSC Information Satellite Systems and France’s Thales SA (TCFP.PA) that enjoy government backing.

In all, a third of U.S. exports is made of capital goods typically produced by large, sophisticated companies, making it hard for Ex-Im to avoid deals with major exporters that rile its critics.

Some of the bank’s small business funding in fact, is bundled under contracts to big firms like Boeing (BA.N) and Caterpillar (CAT.N) under a “supply chain financing” program that allows Ex-Im to break out support for smaller firms from projects that largely benefit major corporations.

Ex-Im data indicate that as much as 9 percent of the money designated as going directly to small business is folded into financing for larger companies.

The bank estimates that small businesses benefit indirectly from a further 4 percent of the value of long-term deals, worth $740 million in 2013.

The loudest critics brush off such data and want to shut the agency down, but talks are going on over a possible compromise - perhaps restricting its lending to smaller projects or granting it a temporary reprieve.(This story has been filed again to add a dropped word in the third paragraph)

Editing by Tomasz Janowski

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