According to market sources, premium air transportation company Delta Air Lines (DAL - Free Report) has taken legal action against the Export-Import Bank of the United States to block loan guarantees being advanced to certain foreign airline firms for purchasing wide-body aircraft manufactured by The Boeing Company (BA - Free Report) . In this legal battle, Delta is joined by Hawaiian Airlines Inc. and the Air Line Pilots Association.
The Bank is estimated to provide guarantees over $100 million to Emirates Airlines, LOT Polish Airlines, Etihad Airways, Latam Airlines Group (LFL) and Korean Air Lines. Last year, the bank’s outstanding financial commitments netted $106.6 billion, of which 46% was directed as loan and loan guarantees toward the airline industry.
In a lawsuit filed against the Bank in a federal court in Washington, Delta stated that the subsidies to foreign airlines will have an unfavorable effect on domestic business. The loan guarantees are expected to reduce the cost of capital for the companies, allowing them to invest more in upgrading fleet dynamics or lower ticket prices. These measures will render the foreign air companies a competitive edge over the American firms.
Delta commented that in such a scenario, the unsubsidized domestic airline entities will be compelled to retort through fare reduction and capacity cuts. This will likely lead to economic instability within the industry and adversely affect the activities of the companies and their employees.
Following the attack on the World Trade Center and the Pentagon in Sep 2001, the U.S. airline industry faced the toughest decade with losses reaching billions and carriers going bankrupt. But with the support of various strategic initiatives ranging from fleet restructuring, optimization of routes, addition of innovative and advanced products and services as well as trimming of operating expenses, most of the carriers including Delta, Southwest Airlines Co. (LUV - Free Report) and JetBlue Airways Corp. (JBLU - Free Report) have recovered in the recent years.
This is the third legal action against the bank by the U.S. airlines in an effort to maintain their commanding position within the business circle.
Delta, currently, holds a Zacks Rank #3, implying a Hold rating.