Crony capitalism leads to fugitive private jet

A ghost jet haunts Canadian bureaucrats, stealthily flying the world and hiding out from them in obscure or covert airstrips.  Crony capitalism at its worst is on display in the aviation industry.

National governments (and the E.U.) are eager to foster the high technology segment of airplane manufacturing, particularly airliners and high-end business jets (the two categories overlap), and one way to do that is to offer easy financing for customers.

The U.S.'s own Export-Import Bank (The Ex-Im Bank) is a thorn in the side of pure conservatives, who see it subsidizing Boeing (by far its largest source of loans) and foreign airlines.  Whenever a move is made to defund it, Boeing (by far its largest beneficiary) and others claim that the E.U. or other competitors will step in and offer financing, taking away manufacturing jobs and technological momentum from the U.S. industry.

While the U.S. and E.U., which sponsors Airbus financing, are the giants, there are some smaller players in the global aviation business who also find it necessary to offer concessionary financial terms to buyers of the their products.  Canada's Bombardier manufactures business jets and commuter jets and recently has moved up the product chain to offer the C-series airliners to major carriers like Delta, essentially a slightly smaller version of the Boeing 737 or Airbus A320, which has a long range and good fuel efficiency.

When Bombardier wants to sell to a foreign buyer, it goes to Export Development Canada (EDC) for the same sort of financing the Ex-Im Bank would provide to Boeing or Gulfstream or others.  But in its eagerness to sell the high-end Global 6000 business jet – an ultra-long range twin jet that shares fuselage components with its commuter jets – the EDC appears to have ignored some warning signs about the customer's creditworthiness and trustworthiness.

Alan Freeman of the Washington Post (via MSN):

If you spot a sleek Bombardier Global 6000 business jet sporting tail number ZS-OAK, Canada would love to hear from you.

The jet belonged to South Africa's notorious Gupta family, whose alleged corruption helped trigger the scandals that recently forced President Jacob Zuma out of office.  But the Guptas bought the plane with help from a $41 million loan from Export Development Canada, or EDC, Canada's state-owned export-import bank.

EDC was helping Bombardier Inc., the Canadian aerospace firm, land the jet sale.  But that turns out to have been a poor bet: EDC now says the family defaulted on the loan in October and still owes the bank $27 million.

And with an arrest warrant outstanding for Ajay Gupta, one of three brothers in the family, there are other worries, too.  "There is a very real concern that the aircraft may be used to escape justice or for some unlawful means," wrote EDC in a recent application to a South African court seeking permission to ground the jet.

But EDC first has to find the plane; the Guptas made the plane's location data private after EDC sought the jet's exact whereabouts in a court filing. 

Lots of luck to them.  This bird can fly nonstop from New York to Tokyo.  If the fugitive owners can pay cash for jet fuel, and hold onto their pilots, they can hide out in obscure airfields and possibly even take apart the plane for parts, which will find an aftermarket in the shadier elements of the aviation economy.  Or there might be some folks in the drug trade who would appreciate the capabilities of this highest-end aircraft.

The underlying problem is that governments are all too eager to beat out their foreign rivals and are not good at evaluating commercial risks.  It's the same problem that cost American taxpayers about half a billion dollars when Solyndra went belly-up.

Crony capitalism stinks.  Unfortunately, in the aviation business, there is no sign that it will go away.  As China attempts to break into the jetliner business, it will get worse, not better.

Hat tip: Bryan Demko