U.S. Airline Trio Identify Subsidies for Gulf Carriers: Renew Calls for Open Skies Review

The three largest carriers in the U.S., Delta Air Lines, United Airlines and American Airlines, along with U.S. pilot and airline labour groups, have finally released details of their 55-page report, which took two years to put together and purportedly shows that three government-owned Persian Gulf competitors received US$42 billion in state subsidies.


The U.S. airlines claim that these subsidies have caused them to lose market share, distorts international trade and has created unfair competition.
The trio has asked Washington to revoke the "Open Skies" treaties with the United Arab Emirates and Qatar. All three Middle East carriers have categorically stated that they do not receive subsidies.

The U.S. Big 3 are intensifying their battle ….
The U.S. Big 3 are intensifying their battle ….



Reportedly, the subsidy overview has taken two years to finalize because of "non-transparency" of the Gulf carriers. However, investigators discovered that in certain jurisdictions, officials require airlines that fly there to file their financial statements. These countries included Australia, New Zealand and Singapore.

Multiple state benefits
More specifically, the carriers claim in their report that Qatar Airways benefits from billions of dollars in interest-free, unsecured loans from its state owner that it does not have to pay back. Etihad, they claim, has received $6.3 billion in direct equity infusions plus $4.6 billion in interest-free loans. Emirates removed $2.4 billion in 2014 oil hedging losses from its books, the U.S. carriers say, and has benefited from $2.3 billion in subsidies for Dubai airport expansions.

“Stop complaining, start competing”
Support for the report and demands by Delta, United and American to revoke Open Skies, is waning with notably cargo carriers, some smaller airlines, airports and tourism interests expressing strong opposition. FedEx Corp has asked the Obama administration not to alter the "Open Skies" agreements, from which FedEx has benefited. FedEx has also accused the U.S. airlines of having protectionist interests.

The latest to join the growing opposition is the U.S.-UAE Business Council, whose president, Danny Sebright called on the three U.S. carriers "to stop complaining and start competing.”

Sebright stated that with a US$19 billion trade surplus at stake, U.S. officials should stand with virtually every single stakeholder in U.S. commercial aviation, such as U.S. airports, travel and hospitality companies, business travelers and cargo airlines, and resist any efforts to limit free trade or restrict Open Skies agreements with the UAE.

 

Valuable contributors to the U.S. economy
In a 2014 Business Council report, the council detailed over $130 billion in purchases of Boeing aircraft by UAE carriers, while in a year-earlier report, it identified more than $16 billion in annual benefits to the U.S., supporting more than 100,000 jobs and generating over $1.6 billion in tax revenue. Both reports reflect that the U.A.E. has been the largest U.S. export destination in the broader Middle East for the last six years.

... against their Gulf opponents Emirates, Etihad, Qatar.
... against their Gulf opponents Emirates, Etihad, Qatar.


 

Sebright also noted that: "With 252 non-stop flights a week to the U.S., U.A.E. airlines are bringing millions of visitors a year to cities across America, filling local airports, hotels, attractions, and restaurants. Emirates and Etihad also feed hundreds of thousands of connecting passengers a year to U.S. airlines.” In addition, cargo volumes provided by the three Middle East operators, both main-deck and belly-hold, offers significant advantages for U.S. exporters and importers.


Unfair accusations and distorted facts?
“Before claiming government support for international competitors, the Big 3 may first want to check their own balance sheets. Since 2006, the three U.S. carriers transferred billions of dollars of pension liabilities directly to Uncle Sam while leaving creditors holding the bag for billions more through multiple bankruptcies.”

"They received billions in cash payments and guaranteed loans in a direct government bailout while enjoying the advantages of antitrust immunity to fix transatlantic fares with their European partners. If that weren’t enough, as a result of Fly America, the Big 3 also benefit from the exclusion of any international competition in the U.S. government market - the world’s largest,” Sebright noted.

“The Big 3 missed the biggest shift in global travel trends with the rapid growth of travel to, in, and between emerging markets in Asia, Africa, and the Middle East, and now, on account of mistakes of their own doing, the Big 3 are looking to blame Gulf carriers,” Sebright concluded.

Meanwhile, the editor of leading trade publication Air Transport World, Karen Walker in a recent editorial wondered why it had taken the three carriers two years to compile the report, if investigations into the Gulf carriers’ financials were the simple discovery that they could access the numbers via countries like New Zealand and Singapore.

Is Chapter 11 violating international competition?
"If the evidence is so damaging, why was this not made public much earlier, rather than shuffling secret documents around White House and government rooms? Unfair competition is a serious allegation: if you have the proof, show it and take it to Justice (the US Justice Department - ed)."

Referring to the claims by the U.S. carriers that "Chapter 11" is not a subsidy, Ms Walker responded that Chapter 11 is "a uniquely U.S. system that allows airlines in dire financial straits - for whatever reason - to hold off their creditors, wipe out debts and restructure." Outside the U.S., Chapter 11 is seen as a subsidy and in a global market that's what counts."

Gulf carriers continue fast growing their fleets
Pure coincidental or not, Etihad last week said it will start operating between Abu Dhabi and New York on December 1, 2015 with an Airbus A380, featuring its luxurious multi-room Residence suite, while Emirates announced it is looking at an order for 50 to 70 twin-aisle A350 or 787 aircraft. The airline is also eyeing Rolls-Royce engines for an order of 50 Airbus A380 aircraft. EK’s first 90 A380 aircraft are supplied by Engine Alliance, a joint venture between U.S.-based engine manufacturers, General Electric and Pratt & Whitney.

Nol van Fenema

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