The Air Transport Association (ATA), a trade group representing America's biggest carriers, has shot off a letter to US Export-Import Bank Chairman Fred Hochberg opposing the decision, saying Air India's financial ill-health should disqualify it from getting American help.
The US Exim Bank had last month decided to give loan guarantees of $1.3 billion to support Air India's fleet acquisition from Boeing and another $2.1 billion preliminary commitment to support future deliveries of the US aerospace company's planes to the Indian national carrier.
A decision to this effect was taken early October by the Board of Directors of the Export-Import Bank of the US.
In its response, Exim Bank's general counsel said the bank stood by its decisions and processes, though it would investigate some of ATA's assertions about its procedures, a report in the Wall Street Journal said.
"Air India's borrowing is backed by a sovereign guarantee of the Indian government and its business plan has been vetted by Exim Bank staff," the report quoted a US government official as saying.
The official said support to foreign buyers of Boeing planes was important since if the US plane maker could not sell airplanes to foreign buyers like Air India, its chief rival Europe's Airbus probably would.
Air India has pending orders for 27 Boeing Dreamliners, the deliveries of which are expected to begin by the end of this year. These are part of the 68-aircraft order placed by the national carrier with the US plane manufacturer.
The Exim Bank support would enable Air India raise finances for acquiring latest technology aircraft at competitive interest rates compared to commercial financing.
ATA opposed Exim Bank's backing for Boeing sales, partly because US airlines are not eligible to receive it as domestic purchases are not considered exports, the report said.
It quoted ATA's counsel Michael Kelloggis as saying that the organisation was unhappy with the US government subsidies to foreign buyers of Boeing jetliners since "the bank's support for foreign airlines injures US carriers."
Kellog said Air India is "generally considered one of the shakiest, riskiest and most poorly-run airlines in the world."
The letter, which focussed on Air India, asked Exim Bank to slash subsidies to all overseas buyers of Boeing jets.
The letter, quoted by the Journal, states that Air India's "long-running financial losses and widely reported management problems should disqualify it for US support."
ATA also criticised Exim Bank for not being sufficiently open about its decision making.
US carriers believe that "foreign airlines are starting to flood international routes, including routes to the United States, with excess capacity, subsidised by the US government," Delta Air Lines chief executive and ATA Chairman Richard Anderson said in a written statement supporting ATA.
Subsidised competition "is crowding US carriers out of these markets and costing American jobs," he said.
"The fight boils down to a dispute over which creates more high-value American jobs: airlines or Boeing and its suppliers," the Wall Street Journal report said.
Boeing is America's biggest exporter and relies on a vast industrial base, majority of which is in the US.