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Politics as Usual Putting Local Businesses and Jobs at Risk

JULY 2016

Posted: July 7, 2016 6:18 p.m.
Updated: July 7, 2016 6:18 p.m.
A man passes by the Export-Import Bank of the United States in Washington on July 28, 2015. Associated Press photo A man passes by the Export-Import Bank of the United States in Washington on July 28, 2015. Associated Press photo
A man passes by the Export-Import Bank of the United States in Washington on July 28, 2015. Associated Press photo
Steve Wilburn, CEO of Firm Green, stands center at the project in Brazil which is now delayed due to a lack of quorum on the Ex-Im Bank to approve financing for the firm's project to continue. Couetsy photo. Steve Wilburn, CEO of Firm Green, stands center at the project in Brazil which is now delayed due to a lack of quorum on the Ex-Im Bank to approve financing for the firm's project to continue. Couetsy photo.
Steve Wilburn, CEO of Firm Green, stands center at the project in Brazil which is now delayed due to a lack of quorum on the Ex-Im Bank to approve financing for the firm's project to continue. Couetsy photo.
An employee at Lamsco West Inc. in Santa Clarita making laminated shims for aircraft. The firm is a supplier to Boeing. Photo by Tom Cruze/SCVBJ An employee at Lamsco West Inc. in Santa Clarita making laminated shims for aircraft. The firm is a supplier to Boeing. Photo by Tom Cruze/SCVBJ
An employee at Lamsco West Inc. in Santa Clarita making laminated shims for aircraft. The firm is a supplier to Boeing. Photo by Tom Cruze/SCVBJ
Boeing's B-52 plane. Aircraft sub-contractors say they are hurt and jobs are at stake locally when the Export-Import Bank isn't functioning. Courtesy photo Boeing's B-52 plane. Aircraft sub-contractors say they are hurt and jobs are at stake locally when the Export-Import Bank isn't functioning. Courtesy photo
Boeing's B-52 plane. Aircraft sub-contractors say they are hurt and jobs are at stake locally when the Export-Import Bank isn't functioning. Courtesy photo
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The business, revenue and jobs of scores of Santa Clarita companies are at risk. While the U.S. Senate Banking Committee drags its feet in a game of political one-upmanship, companies around the country - Santa Clarita included – are losing business.

Although Congress finally reauthorized the Export-Import Bank late last year, the Senate Banking Committee has refused to hold a vote to approve, or even disapprove, President Obama’s January nomination to the board of directors.

Without a third member added to the five-seat board, a quorum cannot be reached to approve loans over $10 million.

Currently only two of the positions are filled. And so both state and local companies who depended on financing suffer declining sales and loss of deals.

One firm; millions of dollars
A California renewable energy and alternative fuels company lost a $54 million project in the Philippines due to an inability to finance the project through the 82-year old Export-Import Bank, said the firm’s CEO.

Firm Green has clients overseas that use the Export-Import Bank to finance purchases from the California company’s proprietary renewal energy technology and biogas technology.

“Right now in Brazil we have projects totaling $22.3 million that are being delayed because of the client’s inability to pursue any financing over $10 million because of the Export-Import banks’ lack of a quorum on its board,” said Steve Wilburn, CEO and chairman of the Newport Beach-based Firm Green.

And while the company was worked unsuccessfully to find financing for another, the Korea Eximbank, the official export credit agency of South Korea, swept in and financed a competitor of Firm Green’s.

“We were harmed by that after having spent $1.5 million in development capital,” Wilburn said. “We lost that money over the inability of our client to get financing.”

Santa Clarita picture
Statewide, there are 831 exporting companies who have worked through the U.S. Export-Import Bank over the past five years. The majority of those firms are small businesses. Combined, the companies generated an additional $19 billion in total exports, according to the Export-Import Bank.

There are 11 firms who used the bank in state’s 25th congressional district and 10 of those firms are based in Santa Clarita. The local firms generated an additional $67 million in export activity. In exchange for generating that much business, clients of the Santa Clarita firms received some $24 million in loan assistance.

Far more Santa Clarita firms, however, are suffering as the firms they sub-contract for can’t secure support from the bank for their customers.

“It’s an absolute nightmare,” Doug Silva, president of Aircraft Hinge in Valencia told the SCVBJ. “We’re a small specialty house; we only make hinges. When Boeing is awarded sales on aircraft we supply hinges for them.”

Chasing cash
While many critics of the bank refer to it as Boeing’s bank, Silva says that is ludicrous.

Many see the bank’s mission as “crony capitalism,” but in fact there are so many laws restricting the lending and companies have to follow very specific rigid, protocols to qualify, he said. The bank isn’t the “bank of Boeing,” but Boeing is the largest exporter, according to Silva.

“Who else is going to support transactions this large? Are they going to hire Bank of America or Chase Bank to do it,” he said.

In fact, said Wilburn, when an exporter’s client is looking for finance, a certain percentage of the products – like 85 percent - have to be produced and/or assembled in the U.S. which creates jobs in this country.

“This is harming a lot of small-to-medium size companies,” Wilburn said. “Big companies generally find a way to work around it, but us smaller guys don’t have those options.”

Normally, Silva said, cash revenue would come into Aircraft Hinge from the big suppliers. The company knew it would hit on certain days. But that doesn’t happen anymore, he said.

“Our business is down, we had to look for other quick revenue avenues,” Silva said. “Over the last six months, it’s really been lagging. We’ve actually had to chase money. We’ve never had a problem that affected our cash flow before and it’s hard because we’re a small company.”

Boeing-dependent
Help from the Export-Import Bank is vital to U.S. companies because it helps level the playing field, Steve Griffith, president of Lamsco West in Santa Clarita confirmed for the SCVBJ. Other countries provide like-support to firms operating within their own countries – like the Bank of Exports in France lending a hand to aerospace firm Airbus, he said.

Without a quorum, U.S. companies are left in the lurch.

“It’s hurting Boeing’s ability to sell because $10 million doesn’t buy any airplanes,” Griffith said. “It trickles down and hurts the suppliers. We’re down 25 percent.”

As a supplier, Boeing represents 98 percent of Lamsco West’s business. But Boeing sales have trailed Airbus sales, he said. And Airbus has government support in Europe, he said.

“Without a fully operational board, Boeing and other large U.S. exporters – as well as their extensive supply chains – are at a significant disadvantage to competitors around the world,” Shannon David, a Boeing spokeswoman told the SCVBJ.

“If the bank is not fully restored, our overseas customers could take their business to Airbus and other emerging competitors with access to multiple export credit agencies.”

Jobs at stake
And loss of sales like that will have a direct impact on U.S. exporters and an indirect impact on their extensive supply chains, including right here in Southern California, David added.

“Boeing alone has about 150,000 employees in the U.S. and employs many more indirectly through our 13,000 American suppliers,” she said.

In April, the National Association of Manufacturers President and CEO Jay Timmons and U.S. Chamber of Commerce President and CEO Tom Donohue issued a joint statement.

“The Ex-Im Bank is a critical tool for ensuring manufacturers in the United States remain competitive in an already tough global economy. Right now, our global competitors are supporting their exporters with aggressive export credit financing at a rate of 20 to 1 compared to the United States,” they said in the statement.

Without the Export-Import Bank supporting U.S. exporters at full capacity – without a quorum - many exporters in the United States are stuck in neutral, unable to get their products to customers overseas, they said.

Politics
Meanwhile, although President Obama nominated Republican J. Mark McWatters to the Export-Import Bank’s Board of Directors in January, Senate Banking Committee Chairman Richard Shelby, R-Ala. has said in the past he’s “in no hurry” to hold a vote on the nomination. And conservatives have applauded the inaction as a way to stymie the bank’s ability to provide crucial financing to the nation's exporters – and even the president himself.

In the meantime, the political stalemate appears to be at the expense of small businesses who cannot continue to sustain the revenue losses they’ve experienced in the past year. Jobs could be at stake.

Griffith felt that when Congress finally re-authorized the bank in December – after political squabbling kept the bank shut down for nearly five months last year – American jobs were saved. Until a quorum can be restored to the bank’s board of directors, however, that may not be the case.

Inaction pushing more jobs overseas
The Senate Banking Committee’s inaction is forcing some firms to seek overseas financing – and that will only send more jobs to other countries. Firm Green currently has another project at risk; a $240 million project to produce 200MW of solar power – well above the $10 million threshold in which a quorum is required at the Export-Import bank.

It’s working with a joint venture partner in the Philippines, but they can’t apply to the bank. Firm Green is now looking at foreign Export Credit Agencies to see if it can secure financing.

“But that means we we don’t get the jobs here in the U.S. It will be manufactured overseas,” Wilburn said. “If we could get financing here about 200 manufacturing jobs would be created.”

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