Recently, Delta, United and American got the attention of federal regulators by alleging that Emirates, Etihad Airways and Qatar Airways receive unfair subsidies from their governments which puts them in violation of the open skies agreement.
The U.S. Open Skies Agreement asks that foreign airlines establish a level playing field with domestic carriers in exchange for the benefit of flying into the United States. On April 10, the Transportation Department started taking comments regarding the subsidies granted to Middle Eastern airlines. It is expected to start reviewing the submissions at the end of May in concert with the Commerce and State departments.
On April 30, 262 members of Congress signed a letter to Secretary of State John Kerry and Transportation Secretary Anthony Foxx calling for an examination of the subsidy issue. The congressmen claimed that governments in Qatar and the United Arab Emirates have given their airlines more than $40 billion in subsidies. These benefits include interest-free loans that don’t have to be repaid, direct cash payments, and other perks.
Of the subsidies, more that $12 billion has come in the form of interest-free loans and advances, with $11 billion coming in the form of grants, according to the Partnership for Open and Fair Skies. The airlines have saved $9 billion on loan guarantees, $2 billion from the governments making up for fuel hedging losses, and $2 billion in reduced airport charges.
“We are concerned that Qatar and the U.A.E. are using these subsidies and other unfair practices to distort the market in favor of their state-owned airlines,” the congressmen’s letter stated. The authors then asked U.S. regulators to use bilateral aviation agreements to open up a dialogue with the two countries.
“According to available research,” the letter continued, “each daily international roundtrip frequency lost/forgone by U.S. airlines because of subsidized Gulf carrier competition results in a loss of hundreds of U.S. jobs.”
These lawmakers pointed out that the U.S. government has been confronting unfair subsidies in other industries for years, and so it should fully embrace the role of regulator in this instance. They accused the Middle Eastern airlines of violating “the spirit of liberalization and free competition,” leading to market distortion and unfair practices.
Earlier this year, Delta, United, American and a handful of unions presented the case against these Middle Eastern carriers in the whitepaper, “Restoring Open Skies: The Need to Address Subsidized Competition from State-Owned Airlines in Qatar and the UAE.” The result of a two-year investigation, the paper argued that the offending carriers have plans to focus more intently on the United States.
“Shifting their attention to the U.S. is a natural progression for Emirates, Etihad and Qatar as the Americas are the least served regions in each carrier’s network. Now that those carriers have a well-established and firm footing in other key global markets, and as they bolster their fleets with more efficient long-haul aircraft, opportunities are emerging for expansion beyond their traditional growth patterns,” the whitepaper said.
In a press release announcing the whitepaper, American Airlines CEO Doug Parker said the airline supports fair competition. “We welcome an open global marketplace that drives innovation and service. But the playing field must be level, or U.S. airline jobs will be lost to airlines that are subsidized by their governments,” he said.
United CEO Jeff Smisek mirrored Parker’s comments. “To ensure open and fair competition, we have started a discussion with U.S. government officials about these subsidies and their effect,” he said. “Each of these carriers have repeatedly denied they receive subsidies. We invite them to come into a consultation process with a full and transparent review of their financial statements.”
According to the latest figures by the International Air Transport Association, Middle Eastern carriers saw robust growth in March, as they expanded both capacity and network. Compared to March 2014, tonnage carried internationally by Middle Eastern airlines rose 10.7 percent, as capacity expanded 17.4 percent. So far this year, international tonnage is up 13.9 percent with 17.5 percent more capacity than in the first three months of 2014.
“Trade has been increasing with Middle East economies but a large part of the airlines’ business success is owed to network and capacity expansion that has encouraged air freight to go through Middle East hubs,” IATA noted.
According to the U.S. airlines’ whitepaper, Middle Eastern airlines need to acknowledge the benefits granted to them by the United States and to start playing by the rules.
“The open skies agreements conferred enormous benefits on Qatar and the U.A.E. by opening the most lucrative market in the world to their airlines even though they provide essentially no benefits to U.S. carriers in return,” according to the whitepaper. “But the governments of Qatar and the U.A.E. must accept the obligations that come with those benefits: in this case, a willingness to reach agreement with the United States on measures to address the flow of subsidized Gulf carrier capacity to the United States.”
Only one of the Middle Eastern airlines has addressed the subsidy claims. When the whitepaper was released, Emirates representatives requested documentation to back up the subsidy claims.
In a filing reported by several outlets, the airline referred to “pernicious falsehoods that have wrongly been advanced against it.”
The airline continued, “It would be fundamentally unfair for Emirates to be asked to respond to specific allegations when it continues to be denied full access to all of the materials the coalition claims support those allegations.”
Since then, the airlines have released all the information compiled during the investigation. Qatar has said it will discuss the allegations soon, and Etihad representatives were apparently waiting to review the material before crafting a response.
Ross, a former American Shipper editor, writes about air transport and freight issues. He can be reached by email.
This column was published in the June 2015 issue of American Shipper.