The open skies agreement - US airlines at odds with Gulf carriers

The biggest three US carriers - American Airlines, Delta Air Lines, United Airlines and other US aviation industry organisations are unhappy with Gulf carriers, bq magazine has reported.

The US airlines recently made public a 55-page white paper containing what they say is proof Emirates, Etihad Airways, and Qatar Airways have "received USD 42 billion in quantifiable subsidies and other unfair benefits from their respective governments in the last decade".

The 'big three' claim the alleged subsidies are "in violation of Open Skies policy and put thousands of US airline jobs at risk".

They are demanding that the Obama administration alter commercial flying agreements with Qatar and the United Arab Emirates, and freeze new passenger service during the consultations.

The report titled ‘Restoring Open Skies: The Need to Address Subsidized Competition from State-owned Airliness in Qatar and the UAE', is the pinnacle of a year-long and escalating campaign against the three carriers from the Gulf.

It claims: "Fuelled by massive government subsidies, state-owned Qatar Airways, Etihad Airways and Emirates are aiming to dominate global aviation by exploiting open skies policy...

"These three airlines, wholly owned by their governments, are using unprecedented subsidies to exploit their open and unfettered access to the US market. This threatens our US airline industry, airline jobs and the US economy."

The report breaks down the subsidies as follows:

-Etihad allegedly received USD 6.3 bn in capital injections from its owner, the Abu Dhabi government, USD 6.6b n in interest-free loans with no repayment obligation, and USD 4.2 bn in “additional committed subsidies”.

-With Qatar, the report claims, the biggest chunks of government leg up was given in the form of USD 8.4 bn in subsidised loans and shareholder advances and USD 6.8 bn in reduced interest costs due to government loan guarantees.

-For Emirates the biggest alleged subsidies are the government’s assumption of between USD 1.6 bn and USD 4 bn of fuel hedging losses, and USD 2.3 bn in artificially low airport charges at its Dubai hub.

In addition to the governmental subsidies, the report claims that the three airlines save several billion dollars annually because of their governments’ ban on labour unions and even goes as far as saying:

"The available public information provides compelling evidence that without subsidies and government guarantees, Etihad would not be in existence."

"These massive subsidies have enabled Qatar, Etihad and Emirates to rapidly expand their fleets and international routes, distorting the commercial aviation marketplace and diverting global traffic to their hubs,” the report states.

Richard Anderson, chief executive of Delta, says: "The subsidies provided by the governments of Qatar and the United Arab Emirates undermine the true spirit of open skies and distort the international aviation market.”

The relative fairness of subsidies

The Gulf carriers have, on their part, resolutely denied receiving any kind of subsidies and say they will respond to the allegation in more detail once they have the opportunity to look into the paper thoroughly.

Emirates Airlines is putting together a top team from its legal, strategic and financial departments to respond to allegations made by the US airlines.

Sir Tim Clark, CEO and president of the United Arab Emirates-based airline even hinted at legal action, saying:

"If we establish there has been commercial damage as a result of what has been said about us… all options are on the table".

James Hogan, president and CEO of Etihad Airways, says Etihad was a David who’s been facing Goliaths since 2003, when they started.

"In virtually every market we’ve entered, we’ve had to face existing competitors, with established businesses, established infrastructure, established sales and marketing, established brands, and established customer bases. In many cases, those established airlines were gifted amazing infrastructure – airports, terminals, slots, landing rights – over decades."

For more visit bq magazine's website