News | News Releases | 2001

Printer-friendly version

CHAIRMAN HARMON: I would like to start by thanking both Robert Lane, who I'm going to make comments on, who is the Chief Executive Officer of Deere, as you know, as well as Phil Condit, the Chief Executive of Boeing, for making a special effort to be with us today. Both have very busy schedules, and both had to move them around several times, I might, in order to make this doable. But I think they represent a very important part of what Ex-Im Bank does, and their experience and their work tell us a lot about what we all are addressing in the future.

So I'm going to start briefly by making some comments about both of them so you have the background, and then I will ask each to make opening comments. Then I have one or two questions I wanted to start with, and then we're going to turn it over to you all for any questions that you might have.

So let me first start on my left with Robert W. Lane, and I'm delighted that he has joined us. I had the great pleasure of visiting Deere only about a few months ago in Moline, Illinois. It's a very, very impressive plant to see, some of the sized equipment and the technology involved in this equipment. But Deere is the world's premiere producer of agricultural equipment, a leading manufacturer of construction, forestry, commercial and consumer equipment, and a business leader in parts, engines, financial services and special technologies. Bob was elected Chief Executive Officer of Deere in May of 2000, and became Chairman of the Board in August of 2000. He has served as President and Chief Operating Officer since January of 2000. Bob is the eighth person to head Deere in the company's 164-year history. Bob also has lead Deere's worldwide agricultural equipment division, and was previously the company's Chief Financial Officer. He was President of John Deere Credit, and has directed operations in most of John Deere's operations around the world.

Before joining Deere in 1982, Bob worked in corporate banking at First National Bank of Chicago, including assignments in Europe. This is a bit unusual. He was born in Washington, D.C. I rarely introduce anybody who was born in D.C. Bob graduated with high honors from Wheaton College in Wheaton, Illinois, and earned an MBA degree from the Graduate School of Business at the University of Chicago.

And maybe what I'll do is just give some background on Phil Condit, and then we'll ask them to make comments that way. As you can see, both of these gentlemen are uniquely qualified to lead their companies.

And I'm delighted really to introduce Phil Condit, Chairman and Chief Executive Officer of the Boeing Company. Phil became President of Boeing and a member of its Board in 1992. He added the title of Chief Executive Officer in 1996, and was elected the seventh chairman of the company in its 82-year history in 1997. Under Phil's leadership, Boeing has grown to be the world's largest aerospace company, employing more than 198,000 people, and serving customers in 145 countries. Boeing is the largest exporter in the United States, with revenues of more than $51 billion in the year 2000. Phil has held nearly 20 assignments during his 35 years of service to Boeing. He is the author of several published papers on commercial aircraft technology, and holds a patent awarded in 1965 for the design of a flexible wing called the sail wing. He also led the team that launched the wide-body Boeing 777 airplane, and he pioneered management concepts that integrated design-build teams of customers, suppliers and employees, to design and product the 21st century jet.

Phil received his bachelor's degree in mechanical engineering from the University of California at Berkeley in 1963, a master's in aeronautical engineering from Princeton University in 1965, a master's degree in management from MIT in 1975, and in 1997 Phil received a doctorate degree in engineering from Science University of Tokyo, where he was the first westerner to earn such a degree.

Among his many awards for engineering and management achievements are the 1997 Ronald H. Brown Standards Leadership Award for advancing international standards, and the Japan-American Society 1997 International Citizens Award for global leadership in the private sector.

A native of Berkeley, California, Phil has been an aviation enthusiast his entire life, and, interesting, earned a pilot's license at the age of 18.

So I'm delighted to introduce them both, and who would like to go first?

MR. CONDIT: I'm absolutely delighted to be here. For a company doing business in 145 countries, trade is a absolutely crucial element, and Ex-Im, a crucial element of that, and besides, since I own two Deere tractors, I thought maybe I could sell an airplane along the way. So we'll work on that as we go along. Trade is absolutely crucial to us, and in that, Ex-Im has been very, very important. About 50 percent of total Boeing revenue is exported. 70 percent of commercial airplanes are exported, so export is a critical part of our business.

Over the last 5 years Ex-Im's loan guarantee program has made it possible for overseas customers to secure loans from the private financing market, and that has rolled into the purchase of about $3.6 billion every year on an average basis. I know a lot of you are very familiar with the loan guarantee program, but I think it is critical to note that it represents 90 percent of the Bank's activity, not direct loans, and it is the provision that allows those customers to secure commercial loans, and it has been an extremely successful program for us.

Let me just give you a couple examples of why Ex-Im is so important from our perspective. One of them, the downturn in the Asian economy of just a few years ago. We found ourselves with a number of airplanes cancelled, and that had an impact on our revenues of about a billion dollars. The thing that really made a difference was Ex-Im, because a lot of the remaining customers in Asia were able to secure private financing with the aid of Ex-Im guarantees, and therefore, were able to take deliveries, and thus dramatically reduce what could have been a severe impact. The other thing, of course, is we look out, what we see happening is that the US market for commercial airplanes is relatively stable, relatively low growth rate, it has in fact matured. The high growth rate markets are in other parts of the world. And so this is not a stable situation, but one where we think exports will be a growing part of our commercial airplane business.

Let me make one sort of final point, and I think for me it is the critical one. We often think of Ex-Im as aiding big companies, companies like Deere and Boeing. The reality is that Boeing has several tens of thousands of suppliers. Last year we placed with US companies about $15 billion worth or purchase orders. Those people supplied about 60 percent of the parts on our airplanes, many of them small businesses. They are in fact the hidden exporters that are buried into every Boeing airplane. And we've tried to illustrate it. I hope a number of you have seen the airplane model with all of the names of our suppliers written on it. We've tried to help them understand that every export is an export for them. And while they ship domestically, they really are exporters every bit as much as Boeing is.

I can give you lots of stories of where Ex-Im has made a difference, or I can give you stories where lack of competitive financing, because of the export credit authorities in other countries offering a better product, has lost us business. So I am very heavily on the side that says we need to support Ex-Im, the reauthorization of Ex-Im, a budgetary level that is at least as high as it has been, if not greater, and I think we can make a very convincing economic argument that greater funding in fact will create jobs in the US, will create jobs in small businesses that are suppliers to the industries that are the end-product shippers.

So that's sort of a quick summary of why Ex-Im is important from my vantage point.

CHAIRMAN HARMON: Thank you, Phil.

MR. LANE: I too welcome this welcome to share some thoughts on the global marketplace and the role that Deere & Company plays in it.

It's a great privilege for me to share the platform with Phil, and as he said, when I first met him, he mentioned to me that--in fact, he broke the ice by telling me that he was the proud owner of a couple of John Deere products, and I told him that I only wished I had a couple of Boeings.

But as most of you probably know--and I think this is probably why the export story is so compelling here--is that Deere & Company is of course a business with a very rich heritage in the heartland of the United States. In many respect, we're as American as apple pie, as baseball. Our founding is really a piece of Americana. 164 years ago a Vermont blacksmith moved to the midwest and invented a plow that did particularly well in topsoil that's second to none in the world. And today it stands as the fifth oldest company in the United States. And of course, out of this midwest heritage, our logo and brand have become cultural icons as well as badges of corporate identity.

So while we enjoy at John Deere the nostalgia of our past, we're far more excited about what we have become, and even more about what we intend to achieve in the years ahead. And as Jim kindly said, in addition to manufacturing the world's most advanced farm equipment, we manufacture sophisticated construction and timber harvesting equipment, lawn care and work site products, things like lawn mowers and skid steel loaders, as well as engines and parts. We have a commercial credit company that ranks in the top list of 25 credit companies in the United States, and we deliver and manage health care for over 3,000 companies, including our own.

Deere's Special Technologies Group provides electronics-related products and services, from information management to wireless communications, which may be a surprise to some of you. In short, we are--we create smart and innovative solutions in the form of advanced machines and services and concepts for customers on the farm site, the work site, and the home site. And we do this now worldwide. In fact, as Jim said, before I became CEO, I probably spent as much time in Europe and South America and the Far East and the Commonwealth of Independent States than I did in Iowa and Kansas and the other farm states.

Now, as you can imagine, not too many people came up to me in those places wearing John Deere caps or telling me they owned John Deere tractors, and very similar to what Phil had to say, this is really the opportunity for us out ahead, and we're going to work hard to change that. This international experience gave me some insights into the emerging global market.

One thing that probably won't surprise you, but is clear, that today's customers, wherever they are in the world, wherever they are on the planet, are looking for more than just machinery. They really want comprehensive solutions to the challenges that they face in their own particular marketplace. A combine, a John Deere combine may be just right for a farmer in Russia, but it won't help him much if there's not a parts and service infrastructure, unless he can learn to use it, unless he can learn to maintain it, and then, in particular, unless he has a way to pay for it. And that's exactly the same kind of support and financial infrastructure that's lacking in many of our target markets.

So Deere & Company, is a global competitor. We have factories in 19 companies, major facilities in 34, and do business in 164 countries. There must be 15 that can buy tractors and not yet an airplane, so this is the food chain here.

About one-third of our sales are made outside of the United States. So competition for us is no longer defined by our domestic market. Today our competitor may be headquartered in Italy, Japan or India, and the contest will be played out in the Middle East, in South America, and in the newer emerging markets of the world. And the elements of competition are global. The human talent pool, as we all know, extends across the globe and is highly mobile. The transfer of technology across both political boundaries and economic sectors is faster than ever. The flow of capital, of course, is instantaneous.

Now, these realities of the global marketplace have broadened and deepened the meaning of competition. Deere is competing not merely against traditional rivals. In fact, we're competing against Boeing and others represented in this room, for talent, for capital--and we don't make anything that flies, and I don't think Phil is planning to have his product development experts go into harvesting grain, but in terms of recruiting the best and the brightest engineers and the MBAs from the universities of the world, we're chasing together the most important ideas. We're attempting to persuade investors that our business for the future offers the best risk adjusted return on dollars or pounds or marks or yen.

And, of course, our company has long proclaimed all around the world that nothing runs like a Deere. And we're wanting to better define that by talking about running smart, running fast and running lean. Running smart, in our case, affirms our commitment to staying out in front of developing new technology, smart solutions and advanced products, including intelligent machines. In Deere's case that means equipment, which isn't particularly new for aircraft, but when you think about it for tractors, a product whose course can be guided, condition-monitored by satellite over the Internet anywhere in the world, this is at hand.

Running fast. Using tools of the digital age, we can radically shrink the time between when a customer tells us what he needs and where we deliver a product anywhere that meets and exceeds his expectations around the globe.

And running lean. We say we can globally connect our operations, leverage our investments, lower our costs and reduce asset intensity like never before. Lean stresses the vital importance in operating a company that's 164-years-old in the most efficient manner.

But this economy in which we operate that's truly global, is far from perfect. And the rules of competition that I've been talking about are distorted by laws and policies and national governments. And this is indeed the point that Jim was making. We have a long ways to go before we can characterize this as a level playing field. And here in Washington, Deere & Company is joining Boeing and others to urge that national policy makers take the steps to get us there too.

This means continuing the reduction of trade barriers, building on measure of success, such as the WTO, NAFTA and the PNTR. It means revisiting archaic portions of the nation's tax code dealing with income generated overseas, and it means harmonizing the conflicting standards that so many nations have enacted to protect health, safety, privacy and the environment of their people.

So for Deere and for many of us in the audience, a level playing field requires a viable Export-Import Bank. The United States must compete based on what the market demands. Today in much of the world, financing is a point of competition and in fact, he said often that the company that brings the financing, gets the deal. Vitally important, the US Ex-Im Bank's work should be viewed against the record of other countries, those which are supporting our competition. Export credit agencies like Ex-Im around the world provided $500 billion of credit for exports in 1998, the latest official figures. And Japan provided 27 percent of that total, nearly 140 billion. France provided 10 percent of that, about 500 billion. And the US, as was mentioned, I think in your remarks earlier, Jim, ranks 7th on that list. This is in absolute dollars, not per capita, only 13.8 billion, behind the Netherlands and barely ahead of Spain.

Without a robust export credit agency to support high-paying export-related jobs of American businesses, both our own and in our suppliers that Phil mentioned earlier--we, by the way, buy $7 billion worth of materials from other companies, who are, as Phil said, also exporters, although they may deliver here--large and small, jobs will be lost. Decrying the Bank's programs as corporate welfare may score political points and grab headlines, but it does not scare with all the facts. American companies like ours, utilizing the Bank's services, pay interest and we pay fees, and in five of the last six years--credit to the management of the Bank--the Bank has earned a profit.

So beneficiaries of the Bank include American taxpayers, American workers, and American exporters right from the heart of the country. They also include people all over the globe for whom modern technology offers a more helpful future.

So, clearly, ladies and gentlemen, this is not the time to back away from support for the good work that the Bank does and for the important mission that the Bank has carried out so well. Thank you for listening.

CHAIRMAN HARMON: Thank you, Bob and Phil. I'm going to start by just asking one general question, and then we'll turn to the audience. But when we go up to the Hill, often people say to me, you know, "Ex-Im, you support maybe 15 billion out of $1 trillion of US exports, and even out of capital goods to the emerging world, which maybe capital goods exports to the--the whole of the emerging markets is 150 billion or so; you do 10 percent of the total capital goods to the emerging market. So what's the big deal? Why should we really care about Ex-Im Bank? Why should we care about the emerging market so much? It's 1-1/2 percent of total exports and only 10 percent of the emerging market capital goods exports. And so why is this such a sensitive subject", is the question I get. So how would you respond to that, Phil?

MR. CONDIT: I think it's almost the glass is half full or half empty kind of question. You know, you can make the same statement about us. Ex-Im supported $3-1/2 billion worth of sales out of a total Boeing sales of about 60 billion, 5 percent; why should I care?

As we begin to lose that edge where we are not deemed competitive, particularly in critical markets, that begins to erode your position. It affects downstream sales. And the roll-on effect on exports I think is very real. So it's not sort of the absolute percentage, but your ability to be competitive at the edge that builds future markets.

CHAIRMAN HARMON: Bob, some people argue that getting in early is an advantage, rather than have the country getting--or its competitor getting in earlier, but would you have a response generally to my general question?

MR. LANE: Well, of course, one of the things we have enjoyed over many years in this country, and increasingly as we've expanded out, is that we're not interested in the customer just for the moment. We're interested in getting that customer's children and that customer's grandchildren. And that of course means you earn that business. It's not any kind of a quick-buck approach to doing business. And that means the whole infrastructure of setting up and supporting and caring for that customer and the product. And getting in early is important in terms of setting up the infrastructure of not only teaching the customers how to use the product, but in our case often how to maintain the product, because our product tends to be a lot more sophisticated then, of course, what people have been doing farming, of course, for many, many years. It's not a new idea. It's a matter of doing it very productively.

But when we go in, we go--and right now, of course, just give an example. We're selling equipment into China, and there are parts in China where labor, as many of you probably know, is actually not sufficient to do the farming. They have to import labor from other parts of the country. And we have vetters from other countries who will deliver essentially interest-free financing for ten years of this sort of thing. This is, of course, extremely expensive, and over against what we offer, without support, we really aren't competitive. And so we can either abandon that market, allow these competitors to go in, set up the infrastructure, building the loyalty, build the parts infrastructure, train people on how to use these products. And then after all that is set up, then we say, "Well, fine, let's compete." By that time it gets very difficult to compete. Even though we firmly believe that the product is superior, the business is far more than just the product.

CHAIRMAN HARMON: I thank you, and I, of course, am glad to hear that. Rather than ask you a few other questions which I have in mind, I think I'll give the opportunity to the audience, so that we've been doing so much speaking in this conference to everyone here, we haven't given you much chance to ask any questions you might have. So I think I'll start earlier with that.

QUESTION: Most of us on the industry side, over the years, encountered many situations in which a sale of product or services just won't happen without the involvement of the Ex-Im Bank, which is to say that for periods of time, just like windows opening and closing, the private banking industry can't participate in the transaction. Can you share some experiences like that with us?

MR. CONDIT: Yeah. I think that's very definitely the case. You know, I happen to believe we're in one of those right now. Several factors all coming together, numbers that Bob put forward a minute ago. Japan has been a major source of airplane financing. Given their current economic condition and worries about the banking industry, they're pulling back. There are worries in the economy, so there are a number of banks pulling back. You know, this is the point where having Ex-Im available can make the absolute difference, because an airline that 5 months ago thought they had financing lined up, will now come back and say, "We've got a problem." The loan guarantee program steps in and it happens. That's exactly what happened in the Asian financial crisis. It was probably worth 2 to $3 billion in retained sales that otherwise would not have been able to go forward, so it's very specific, and particularly in economic downturns, that's critical.

MR. LANE: And the only thing I would add is, as we look into the former Soviet Union, many of our competitors are in Europe, who are used to exports as a vital part of their economy. That's going back hundreds of years. Not exporting is obviously not to have an economy, so often that's a indispensable part of how they do business, and they're used to that kind of government support. For many of our companies, this is a realization of how vital even a lot of our suppliers maybe--as Phil mentioned--maybe don't even realize how vital exports are now to this economy, particularly to the growth of the economy.

CHAIRMAN HARMON: I just might add a couple things from our own experience. If you look at the last ten years, you see a trend which continues. The banks just don't want to increase their assets with loans, increasing loans. They have to leverage to show a better rate of return. So that's a general statement. When you move to the emerging markets or the higher risk area, very few banks are willing to step up to take that risk. As those emerging markets grow with less credit available, the export credit agencies of the world get more and more important. So those are the countries who step up, who have been smart enough to figure a way to have an aggressive export credit program, will take some of that real business. We haven't been quick enough to see that developing, and unless we figure a way to get--we say a private/public type partnership to share the risk, which we talked about before, I see the banks continuing to be cautious on this subject, which is really a critical part of this. The banks are suddenly not going to turn around and take all this risk, unfortunately. The other part, which is very interesting, which Phil alludes to, is during the crisis in '97 and '98, we saw Japan, of course, withdraw, not be able to--its banks not go forward. We had to step in and provide credit for Japan. And I often say, I never imagined in my lifetime, at this point in my lifetime, that we would see the second largest economy in the world become an emerging market. So in answer to the question I was asked the other day on the radio, what's an emerging market? I really thought to myself, "You don't realize it, but Japan was actually an emerging market at that point in time", and that could happen--it probably will happen again as we go through another crisis. So the importance of having available an export credit agency is critical for all countries, but especially for us. Let me see if there are other questions that will come up now. While people are thinking about the question, I would like to ask a question. Do you all learn what the other export credit agencies are offering to your competition? Do you ever see that? Are you kept informed about that?

MR. CONDIT: I think we have a pretty good window into what, in our case, particularly is being done in Europe, given Airbus is the primary competitor. You know, any airline tends to sort of say, "Well, here's what I'm getting." Now, you may not actually see the final term sheet, but you've got a pretty good idea of what is being offered. On the other side, you know what you're offering, and if you're being told that there's a better deal on the table, you know that as well. You can usually back into what's there.

MR. LANE: Well, I would guess that since we have much smaller and more frequent transactions, we have more of a range, I suppose. Sometimes we'll have something put right on the table. Other times we may discover it after the fact, as to what's really happening.

QUESTION: Good afternoon, gentlemen. My name is Bert Bostwick with Capital Access International. I was wondering, what one thing would you change about Ex-Im Bank to make it better?

MR. CONDIT: Well, let's see. We could double its funding.

I think that the thing that I would change would be not something I would direct to the chairman, so much as it is to the ability to adapt to changing market conditions, changing offers, that the Bank finds itself limited in being able to respond to.

And, Jim, you might want to even go down that path a little bit more.

But, you know, this is a dynamic market and people are always coming up with new financial products, and within the definition of Ex-Im, can Ex-Im respond to those?

CHAIRMAN HARMON: I would say the reason that I alluded in my remarks to the fact that I hope Congress will take a closer look at what our competition is doing is because if you took a close look, you'd see how much more flexible they are to respond. We have--we have really fallen behind relative to our competition, as most of you gather, how strongly I feel about it. And it's not generally known among all the members, and members in a sense represent the shareholders of Ex-Im Bank, and if they do--which I hope they will--take a close look, they would see how much more flexible the other export credit agencies have become.

So this so-called market window which Canada has and Germany has and which the others will have, this is--if I were picking an entity I'd like to--if I were buying the shares of one of the other export credit agencies, I'd rather own theirs because they don't have to live within the rules of the OECD on interest rates and on term and all. They come along, and some applicant, exporter, goes to that export credit agency and says, "Would you give us support for the export here?" They then shape the deal so they don't have to live within the terms that we have to live in. The way they do that is say, well, we're going to charge you 25 or 30 or 50 basis points more, but for that, we can offer you more funds available instead of 85 percent of the export, a 100, or 125, or 150 percent. We will really make a loan to you for this term, but because it's a little bit more expensive, we can say it's not a subsidy; it doesn't fall within the so-called OECD requirements, and we can structure it, sometimes even shorter in term, but they offer more money.

That flexibility creates what we call a market window. That also allows them also to hire a lot more people, pay them at different rates than we can. So they're building a commercial bank, as I said, a very flexible commercial bank, that has, unfortunately, the subsidies in the form of the fact that it's the government that provides the funding for them because they raise money in the markets with the full faith and credit of their agency, which is part of the government. So it's a government agency raising capital. It's a government-sponsored institution that's able to live with rules that are totally different than we had.

It would be almost as if--you know, I think of the analogy--my son, in order to keep me in a tennis game, lets me play the doubles lines, and he gets only one serve. And still, he beats me.

But we are--unfortunately, we've allowed them to play the double lines and we're serving once, so they have all these enormous advantages, and no one has sort of figured out that this isn't fair. And it's growing. So 95 percent of all the business done by Canada last year was their market window, and Germany the same thing. Now, it's taken a while to get all the statistics together. So I don't want to, however, talk any further. I'll ask Bob, do you have anything you want to say on this subject before we turn to any other questions?

MR. LANE: Well, as to the question of what one thing I would change, yeah, if I had a magic wand, I would--instead of doubling the funding, I would take the funding to zero. Now, what I mean by that is there would be no need for it. In other words, if everyone else--if no one else was subsidizing that--this is the rationale here. It's not that we're anxious for this. The fact is we're responding to this $500 billion worth of export credit. The ideal world, if we had a magic wand, would be to take it to zero and compete face to face. We would bring on the competition. But the fact is, is that we're dealing with the real world and what's out there and where we are. So in that respect, maybe that's a different perspective of doubling, but it gets at kind of the rationale.

But maybe in terms of what the real intent of the question was, I think it would be ideal--if I could underscore one of the point you made in your remarks--and that is, is that if this could be an independent agency and not be as affected by the political winds which might be blowing at the moment, would be a very nice event in terms of the development of commerce, which we believe that in many of the emerging markets where we're working and where we're building relations, we're promoting freedom and promoting, ultimately, human dignity, and this is actually one of the tools that's doing that, and it's a long-term step-by-step battle. That would be idea.

CHAIRMAN HARMON: This is a very important point that we all said and we all will say, that if everybody would drop their export credit agency, we were all on a level playing field, that would be a very successful way to do it. The chances of that happening are 1 in a billion over--and everybody is fighting because they figure that's their advantage over the large competitor, the United States. And I think that it is very unlikely that there will be a change.

I see, most likely, a continued effort to try to create the advantages to their own exporters because they think that's the way they're going to get more business, and unless we match it or figure out a way to control it, then we're heading for more and more difficulty. So I think it's a very serious problem.

But there are probably lots of other things we could change at Ex-Im Bank, and I'll turn it now to see if there are any other questions from other people.

MR. CONDIT: In the ideal world--I might just add--it would also be nice not to spend money on aircraft carriers or--maybe aircraft carriers, but not destroyers.

MR. LANE: No, in the ideal world, you're right, that's not where you want to spend your money.

MR. CONDIT: [Inaudible] take that away, but I don't really propose unilateral disarmament in the military. I don't see any reason for unilateral disarmament when it comes to trade.

QUESTION: You made a comment about the necessity for Deere to be able to support its customers in their ongoing needs once they have purchased their products. But what do you think can--what is being done or what do you think should be done in the form of medium or long-term financing for--let's say long-term parts purchases agreements or long-term services agreements that would bind that customer more closely to you?

MR. LANE: Well, you know, we have invested a fair amount of our own capital in building these infrastructure networks around the world, and in fact, if we could--we're able to get some sales of whole goods into that, it would allow us to run, if you will, the parts through these networks, which we're investing in, and people that we've employed to deliver parts, so we're not opposed at all to putting our own capital in place, but the fact is, is that most of these deals are done where there's a subsidy based on a transaction--and if those transactions don't occur, we can't continue to support an extensive global network when we're competing against those who would be subsidized.

MR. CONDIT: I might just add just a slightly different direction, but sort of leading into the same general area. One of the things we have not discussed are governmentally-based soft loans that are going in another direction in support of export. That isn't even in the charter, but that's a piece of the competitive environment, so you do want to get your products in, you do want to get your network set up, or you are much more vulnerable in that marketplace.

QUESTION: I have a question. Most of my exporters are small, so what program--[inaudible] regional banks, because with more and more mergers you see less and less regional banks that used to help the smaller exporter. What programs are we going to have or what will be the role of Ex-Im Bank, say, for the people that can only afford a refurbished John Deere tractor or combine? Are we going to see more involvement on direct lending for the 100 or 150,000 refurbished tractors or whatever, that currently with the mergers coming in on banks, a lot of them have in house, where if it's less than 500,000, they ain't going to touch it. So are we going to address that in the future, or do you see any changes on it? Thank you.

CHAIRMAN HARMON: It's a significant problem, and it's been true for some time now, even when I was actively advising companies years ago. Often I'd say if it wasn't a certain size, the big banks didn't want to look at it and the smaller bank didn't understand trade finance, and it so it was very hard. Often, years ago, we would throw away orders that we had for representing these smaller companies because we couldn't figure a way to finance it, which is why Ex-Im becomes really critical for these small companies. And I think it's one of the very important things we have to address in the future. We have tried very hard to make additional changes.

Part of our problem is communicating and getting the story out to the smaller companies all over the country. There's a limited amount of speeches that all the board can make, there's a limited amount of papers we can send out. But we have made a very significant effort under good leadership of a small business group to reach more US exporters this way, and we will have to do a lot more. We have made some progress. Maybe as many as 20, 25 percent of our transactions we did were with new exporters to Ex-Im Bank. That's encouraging, but still fractions of where we could be.

So on the last point, I'm afraid there will continue to be consolidation in the banking industry. We started at 13,000 banks, and five, seven years ago, we were down to maybe 8 or 9,000. We'll continue to do that. And unless the large bank is willing to focus on trade finance, I don't really believe there are many more than 100 banks in the United States that really focus on trade finance now, and a good deal less than that, that means Ex-Im's got to step in. And unlike these two very strong companies, the smaller company doesn't have either the financial in house expertise, so they have to become familiar with Ex-Im, and we have got to find a way for--this is such a long answer, I'm sorry--to make it more and more user friendly, to explain to these smaller companies how to do it, and we're on our way.

It will take technology, as I alluded to in my speech, and probably the Internet eventually. Right now we take applications online, but there's a lot of work that we have to do in that area.

That's an awfully long way of saying, on the last point. I don't know if either one of you want to make any comments on this. We could have a separate discussion just on what more has to be done with smaller companies. It's a subject that's very important to Ex-Im Bank. We've made some progress. We have to make more. It is a subject very important to our reauthorization because that's what Congress will look at increasingly, although they will recognize the number of sub-suppliers and subcontractors that work on aircraft when they hear from small businesses what we do. That's extremely valuable in explaining how significant it is, because the bigger companies, long-term, if we didn't have an Ex-Im Bank, these two great companies would increasingly source where the credit is available. They would have to go to where they have credit available for their shareholders if you didn't have an Ex-Im Bank in the United States.

The smaller company, he can't source anywhere else. He just loses the business. So in some ways, the subject we talk about today in this conference, and the importance of Ex-Im Bank, is we're talking about a very important ball game for the long term of small business in the United States. It's critical. But I thank you for the question, and some day I hope we'll have more time to talk about this kind of thing.

QUESTION: This is directed to Chairman Harmon. Over the years, given the volume of support that you've provided to the aviation sector--I'll come up here. Is that better?

My question is directed to Chairman Harmon. Given the volume of support that Ex-Im Bank has provided over the years to the aviation sector, are you able to comment on what your loss experience has been?

CHAIRMAN HARMON: That's a good question. I would--I almost wrote it into my speech, but decided that I wouldn't do it. It's so extraordinary, and most people just don't realize it, but we haven't lost any, any money on any transaction in the last ten years in aircraft. And Bob Morin is in the room here. He may know the numbers better, so if that microphone works, you might just see if you know the numbers over that period.

MR. MORIN: Well, there's no doubt that we have provided quite a bit of support to the US aerospace industry over the last ten years. And just to sort of put it into perspective, we've collected approximately $700 million in exposure fees. We've probably set aside about $800 million in our program budget, you know, part of the appropriations we receive each year from Congress, and as Chairman Harmon indicated, we sustained zero losses. I mean, I think that works out to almost an infinite return on the US taxpayers' money.

CHAIRMAN HARMON: This is a remarkable story, and people have criticized us for helping the aerospace industry, the aircraft industry, which because of consolidation ends up being one company. But when you look at it from a taxpayer point of view, the amount of jobs that we have been able to support over this ten-year period of time, the fact that it hasn't--it generates significant fees, we have not lost any money on it. MR. CONDIT: -- Several years ago Boeing was making a particular piece of equipment which cost about $6,800 for assembly. It has since been redesigned, retooled. Today we're building that for $600. That's what keeps you competitive in the marketplace. Then we look to Ex-Im to level the field on the financing side.

MR. LANE: Well, we're wanting to follow many of the identical practices. I would just mention I appreciate the question, because I would underscore what Phil said, that we must be competitive in our competitive position.

What we're doing, last year, we entered--increased our research and development expense 18 percent. This year we're taking it up another double-digit amount. This point I made in my opening remarks about Deere running smart, the time has come now where in the past, some of these smart avionics, which have long been part of aviation, the price is coming down so much that we are now showing our farmer customers, for example, in dealerships all around the country, pictures of machinery that doesn't have a person in it, that can spray at night without harm to people. Many of you are very aware of the need for more information about food safety, to be able to trace exactly where the food came from, what kind of seed was planted. This is particularly of interest in Japan and Europe today, but growing in the United States, the ability to have the information from global satellite positioning coming into our product to keep track of exactly in which small centimeter section that seed was planted, where it came from, what kind of fertilizer was put on it, when it was harvested, where it went to. This will maybe bar code it so when you go into the grocery store, you can go to that Frito-Lay, let's say, and put your little Palm Pilot device on that food, and it will tell you exactly where that food came from. And you can say to whomever you're shopping with, you know, do we want that type of poison, you know, in our bodies?

No, we'll pay more for this over here. This is an exciting and new development in technology. We're rapidly investing. It's also going to be very applicable all around the world. This isn't something that's just done here. We spread this technology all around the world. This is an exciting future, and we say nothing runs like a Deere. We're not talking about the past, we're talking about the future. The financing is just, as Bill said, a means to deliver this exciting product to our customers. Appreciate your asking the question.

QUESTION : Mr. Harmon, if I may, I like to return to the small business question and offer maybe an avenue or a solution to the lady here and to everybody else.

Ex-Im Bank has, I think, 26 city-state partners. Various states have also export finance. Personally, I am from the State of California Export Finance Program. Here in the room there are probably--from the State of Washington, New Jersey, Illinois, Massachusetts. Who else?

We are here. We are the foot soldiers. We are in contact with those small banks, who do trade finance or do not do trade finance, and we train the bankers for the small exporters. So investigate your local resources at the state level, at the city level, chambers of commerce. There are hundreds of programs out there for the small exporters.

CHAIRMAN HARMON: Let me say to you that I'm grateful our city-state partners, which is--no question about it--a critical factor. What happens is that we get very good people like you and others here--they're very good. They do a very good job. But then they change. They get promoted, or they go into another position somewhere, and we have to work again to get them trained. And that's why we don't have, in my opinion, 50 city-state partners all at the highest level. You can't on moving around. I think we can do better in the city-state partnership area, but I'm certainly pleased with the people we have there now, but we should have more doing more.

I would like to come back to the technology question just one moment. Chairman Gramm, of the Senate Banking Committee, who plays a critical role, obviously, in this whole area, stated publicly that he expected Ex-Im Bank to focus more on financing exports of a technological nature to the emerging markets. So we looked at what we were doing, and we said, "Well, our growth has been up to 90 percent on technology products." And then I said, "I'll bet if we looked at some of the capital goods equipment, the share of technology, engineering, or new technology that's in there in recent years, probably represents a good piece of that equipment as well, and we can fold that into our answer.

This is really--I've not had a chance, of course, to raise this with you, so I will understand if you don't know the exact numbers, but if I were to guess what share of either one, this equipment, is in some way engineering or technology or new type of science that's in there over the last five years, I mean a total of five years. Does it represent 10 percent, do you think, of--

MR. CONDIT: The only--give me a little more time on your scale. You know, we've got a product with a five-year design life cycle, so triple 7, as an example, entirely designed on the computer, 100 percent, virtually all manufactured by numerically-controlled machines, an avionic sweep that is heavily digital, so that product contains a phenomenal percentage that has been directly touched by high tech.

Now, it's now been here for--in service for five years, but its design went back five years before that.

CHAIRMAN HARMON: Doesn't surprise me. And I know when I went out to Deere, you let me ride on some of that equipment, and you explained to me that as you were harvesting, you actually were measuring some [inaudible], which determined the amount of fertilizer you will need. It surprised me because I didn't realize how far you had come technologically. Would you comment on this?

MR. LANE: Yeah. There's a really tremendous development. Not only are, of course, the products being built on machine tools which themselves are increasingly intelligent, we have very, very intelligent factors, which most of you probably realize, and what's happened in our world is that now there are mobil factories kind of going out, which is another level of technology and construction. In mowing your lawn, you may decide to just go out and, you know, have a little robot mow your lawn rather than stand out there and actually walk back and forth. You may prefer to play golf rather than mow your lawn. The demographics of the United States are moving in that direction.

So throughout all out product lines, they're increasingly built, distributed. Customers let us know over the Internet what they want, their design, their computers picking up GPS signals on their farm site will increasingly talk to the computers in our factories, which will make products. Now the combine harvesters going down the line, which are these smart machines that you mentioned. We have customer names on virtually every one of them. This, of course, takes out enormous cost. We don't end up financing nearly as much inventory. This is how we end up with this so-called running lean. We end up with an investment that not only satisfies customers, which we've done a pretty good job on, but those of you who are looking for a good investment, will be running lean as well.

MR. CONDIT: That was a plug.

CHAIRMAN HARMON: That seems like an appropriate way to end. I'd like to thank Bob Lane and Phil Condit for coming and participating, not easy in the tight schedules they have, and for helping Ex-Im Bank in being certainly good friends of ours, and thank you all for participating in this program. And I'm going to adjourn.