Arab Gulf airlines resolve dispute with major US carriers

Otaiba praised the pact and said it lets the Emirati airlines add routes to and from the lucrative US air-travel market.
Sunday 03/06/2018
An Etihad Airways plane prepares to land at the Abu Dhabi airport. (AP)
Mixed outcome. An Etihad Airways plane prepares to land at the Abu Dhabi airport. (AP)

WASHINGTON - Arab Gulf airlines have resolved a long-running dispute with major US airlines by signing agreements with the US State Department requiring them to disclose financial information regarding government subsidies.

The agreements address complaints by US-based American Airlines, Delta Air Lines and United Airlines that the United Arab Emirates and Qatar unfairly subsidised their state-owned airlines. The US airlines and labour unions have said for three years that they have lost international passengers to Emirates airline and Etihad Airways — both owned by the UAE government — and Qatar-owned Qatar Airways because the Gulf carriers sold subsidised international flights at below actual costs.

The agreements are “a big win for American workers and businesses,” Peter Navarro, a trade adviser for US President Donald Trump, said at a panel discussion at the Hudson Institute on May 21, a week after the agreement was reached with the UAE. A deal had been reached with Qatar in January.

Navarro said the “oil-rich governments of the UAE and Qatar provided over $50 billion in subsidies since 2004” to their airlines, an assertion the Gulf countries disputed.

The subsidies “nearly eliminated” flights by US airlines from the United States to the Middle East and India, Navarro said. “The result of this unfair competition is that the three [Gulf] airlines became the fastest-growing carriers in the world. The Dubai airport is one of the world’s busiest.”

In the May 14 agreement between the UAE and the United States, both sides “acknowledge that government subsidies adversely affect free and fair international competition,” Navarro said. “Gulf carriers should pay the full and fair cost of operations out of international airports.”

The agreement requires the Emirati airlines to be “transparent” about their finances and “not operate behind an opaque accounting wall,” Navarro added. The agreement with Qatar has a similar requirement.

The US airlines have said that blurry accounting has allowed Gulf-based airlines to hide billions of dollars in government subsidies.

The Gulf airlines dispute that they were receiving subsidies, which would violate bilateral aviation agreements the UAE and Qatar have with the United States. The Open Skies Agreements let airlines fly freely into and out of other countries if they don’t offer fares that are kept artificially low through government subsidies.

Yousef al-Otaiba, the Emirati ambassador to the United States, said, in an official record of discussion released by the US State Department, that the “UAE and its designated carriers are and have been at all times in full compliance with the [Open Skies] Agreement.”

In a statement after he signed the agreement with a State Department official, Otaiba praised the pact and said it lets the Emirati airlines add routes to and from the lucrative US air-travel market. The Emirati airlines fly into 12 US cities.

It’s not clear which side won from the deals, as both the United States and the Gulf countries claimed victory.

Ashley Nunes, a researcher at the Centre for Transportation Logistics at the Massachusetts Institute of Technology, said in a recent Washington Post column that it was “debatable” whether the US airlines won and they did not prove that Gulf airlines were being subsidised.

“It’s a mixed outcome,” Nunes wrote, noting that the agreement lets the Gulf airlines expand into more US markets.

A coalition of US airlines and labour unions said the UAE’s acknowledgment in the agreement that government subsidies hurt competition is “a significant concession after years of denials.” The agreement “marks a truly significant moment in a years-long pursuit of a level playing field,” Delta Air Lines CEO Ed Bastian said in a statement.

James Burnley, a former US transportation secretary and now a consultant to American Airlines, said during the May panel discussion that the agreements reflect the Trump administration’s push to advocate for US businesses in trade disputes.

“President Trump took the complaints and concerns seriously. President Obama did not,” Burnley said. “The subsidies are going to have to be wound down, to a different order of magnitude at least.”