Outlook stormy as U.S. open skies debate rages

Etihad 777 flightFROM THE PRINT EDITION:

What began as a slow-simmering disagreement over the use of government subsidies – one that has lasted for years – has recently mushroomed into a thunderhead of angry rhetoric, threats of lawsuits and proposed legislative action to roll back open skies agreements. The major U.S.-based carriers continue to accuse Middle Eastern airlines of exploiting the American market with an unfair advantage.

The debate is centered on six major airlines: the top three legacy carriers in the U.S. (American, Delta and United) vs. the three rapidly expanding Persian Gulf-based carriers (Emirates, Qatar Airways and Etihad). While most of the routes in question involve passen­ger aircraft, the amount of belly space being used to carry cargo is enough to have a profound impact on how airfreight is imported and exported throughout the rest of the world.

In February, representatives from the American carriers met with U.S. government officials to express their discontent with Emirates, Etihad and Qatar Airways, complaining that these “Big Three” Gulf carriers have received US$40 billion in interest-free loans from their home countries of United Arab Emirates and Qatar since 2004. On March 4, representatives from the Air Line Pilots Association Interna­tional, the Allied Pilots Association and the Association of Professional Flight Attendants, joined the U.S. carriers in Washington, D.C., to campaign against the Gulf carriers.

The U.S. carriers proposed action to alter the government’s current open skies agreements with the Gulf carriers to limit their ability to operate in the U.S. market. They claim Qatar Airways benefitted from billions of dollars in un­secured loans from the state that do not have to be repaid; that Eithad received $6.3 billion in direct equity, plus $4.6 billion in interest-free loans; and that Emirates was allowed to remove $2.4 billion in 2014 oil hedging losses from its books while it received $2.3 billion in subsidies for airport expansion in Dubai.

Emirates, Qatar and Etihad have repeatedly denied charges that they receive illegal subsidies, saying they are run as completely independent businesses despite the fact that they are state-owned.

The economy minister for the United Arab Emirates fired back on March 9. According to a Reuters report, Sul­tan bin Saeed al-Mansouri said “You cannot throw accusations without proof. The subsidy word is misused in many situations. Unless there’s proof and you put it there, you should not use the word subsidy.”

Mansouri said that the increasingly heated exchanges between airline ex­ecutives was not healthy and could af­fect relations between the various na­tions. “We shouldn’t underestimate the value of the aviation industry in terms of its contribution to nations – Ger-many, the U.S., Europe,” Mansouri said.

The actions of the U.S. airlines also raised the ire of FedEx Express and Boeing. The Gulf carriers’ orders from Boeing have been robust, mainly be­cause of the open skies agreements they have negotiated. FedEx pointed out to government officials that the air cargo industry is an essential compo­nent of a rebounding American econ­omy that would be impossible without the use of open skies agreements.

“The connectivity we provide for U.S. businesses, both small and large, is critical for their global expansion,” said David Bronczek, president and CEO of FedEx in a powerful letter sent to the U.S. secretaries of State, Trans­portation and Commerce.

He pointed out that the U.S. carri­ers that are complaining don’t fly as extensively between foreign points as FedEx, so they believe they have little to risk by limiting foreign carrier ac­cess to the U.S.

“Under the [open skies] agreement with the U.A.E., we have established a hub in Dubai, where FedEx flights from the U.S. criss-cross with our flights from India and Asia in order to move U.S. products into local mar­kets,” Bronczek continued. “Presently, FedEx alone operates almost two-thirds more flights to the Middle East than all the U.S. passenger carriers combined. Modifications to this agree­ment might spell the end of these op­portunities.”

What the carriers really want, Bron­czek said, is for the U.S. government to protect them from competition – to stop the Gulf carriers from adding any new flights to the U.S. until their allegations have been considered. “The U.S. should not capitulate to the interest of a few carriers who stand ready to put their narrow, protectionist interests ahead of the economic benefits that open skies provides to the people of the United States,” he wrote in the letter.

As reported in our sister publication, Cargo Facts, the U.S.-based carriers, while making these accusations, have also ignored the question of whether they are just as effectively subsidized through their access to Chapter 11 bankruptcy protection, which each of them has sought in the past.

At Air Cargo 2015 in New Orleans last month, the topic of open skies, came up during a session on regulatory and policy issues for air cargo develop­ment. Stephen Alterman, president of the Cargo Airline Association, said open skies are an absolute necessity, and keep more and more people flying where the freight needs to go.

Stan Wraight, executive director and co-founder of Strategic Aviation Solutions, said the Middle East carriers aren’t growing because of subsidies, but rather their growth is because of cargo.

No other major carriers have voiced an opinion on the matter as Air Cargo World went to press, but Jet Blue had expressed general opposition to any changes in open skies.

Reuters reported that Emirates Pres­ident Tim Clark has hinted at legal ac­tion over potential harm that could be done by the U.S. carriers’ complaints. Clark said the service provided by his American rivals is “shoddy,” suggesting that perhaps they should focus instead on improving their own product.

Speaking at an arts conference in Doha, Qatar Airways chief Akbar Al-Baker said, “I am delighted that Rich­ard Anderson of Delta is not here. First of all, we don’t fly crap airplanes that are 35 years old. The Qatar Airways fleet [average age] is only four years and one month. We have ultra-modern airplanes. We have invested – my country has invested – huge amounts to make sure we are the lowest CO2 contributor in the aviation industry.”

“As one of the newest national air­lines anywhere in the world, we’ve had to create everything from scratch,” said James Hogan, president and CEO of Etihad Airways, addressing the U.S. Chamber of Commerce Foundation in Washington, D.C. “In many cases, those [U.S.] established airlines were gifted amazing infrastructure – air­ports, terminals, slots, landing rights – over decades. To take them on we’ve had to work smarter. That’s called competition.”

Find opportunities in the Asia-Pacific region, the world’s most dynamic airfreight market, at Cargo Facts Asia, April 21-22 in Hong Kong. Get more information here.

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