July 30, 2007
HP-518

  OECD countries, Brazil Reach Landmark Understanding on
Export Credits for Civil Aircraft

The world's major civil aircraft producing countries – United States, Brazil, Canada, France, Germany and the United Kingdom – finalized a landmark understanding governing the terms and conditions under which official government financing for exports may be offered. Australia, Japan, Korea, New Zealand, Norway, Switzerland, and the European Community also signed this understanding.

This understanding was reached after more than two years of negotiations in the Organization for Economic Cooperation and Development (OECD) and is a significant international economic policy achievement. Brazil, a non-OECD member, is joining an OECD-based export credit understanding for the first time. The understanding represents a major revision of the prior OECD aircraft understanding, which dates from the 1980s. Major innovations in the way aircraft are financed since then have made the old understanding virtually obsolete.

By requiring government financing to closely track the market, the understanding will allow civil aircraft sales campaigns to concentrate purchase decisions on price and quality, where U.S. producers excel, rather than on the terms and conditions of official financial packages where subsidies can sway purchase decisions. The understanding will also level the playing field for the U.S. airline industry by eliminating or sharply reducing official financing subsidies available to their foreign competitors.

The path-breaking understanding not only represents governments' agreement to eliminate financing subsidies in such export competitions, but also to work cooperatively in the future on all financing issues in the OECD-based framework rather than engage in international litigation. By including Brazil, a major producer of regional aircraft, the understanding is viewed as a model for mutually beneficial economic cooperation between OECD members and rapidly advancing developing countries.

The understanding, covering all types of civil aircraft, from jumbo jets to small planes and helicopters, governs the interest rates, the fees for loan guarantees, maximum repayment periods, and other conditions applied to export credits for aircraft sales. In recent years, official export credit support for civil aircraft sales has supported deals valued at between $7 billion and $10 billion annually, and the volume of financing has been growing rapidly in recent years.

For large aircraft such as produced by the Boeing Corporation and Airbus Industries, the understanding governs official financing for all new civil aircraft contracts signed after April 30, 2007. Firm purchase contracts for such aircraft signed before this date will remain eligible for the existing terms and conditions for all deliveries through December 31, 2010, after which the new understanding will apply to these contracts as well.