The ongoing mud-flinging between carriers in the US and Europe and those in the Middle East over accusations that the region’s big three carriers – Emirates, Etihad Airways and Qatar Airways have been recieving government subsidies, creating an unlevel playing field.
The back and forth has been going on for some years, with the Middle East carriers denying they are subsidised by their governments and producing independent research reports touting the positive economic benefits their services have on the markets they serve.
A big part of the problem of this whole debate has been the lack of hard evidence of these subsidies. But that apparently changed recently when a group including American Airlines, Delta Airlines and United Airlines, along with US pilot and labour groups, disclosed the details of what they said were “obvious and massive” Gulf-carrier subsidies totalling US$42 billion since 2004. The group has submitted a 55-page document to the US government urging a re-think of Washingtons’ open-skies treaty with Qatar and the United Arab Emirates (UAE).
Among the accusations supposedly detailed in this report are Dubai’s assumption of fuel-hedging losses, savings from artificially low aiport charges and savings from non-unionised labour force. Qatar on the other hand is accussed of giving interestfree loans to its carrier and reduced debt-interest charges, while Abu Dhabi is accused of giving capital injections to its home carrier, interest-free loans with no repayment obligation and additional subsidies.
The issue may not be as clear as it seems though – do equity transfers, interest-free loans and debt guarantees constitute subsidies? For Qatar Airway’s Akbar Al Baker the answer is a resounding ‘no’, argueing that the government is free to provide financial support to its carrier like any other shareholder.
Of course the scale of the equity involved is massive and likely far more than any privately-owned airline would be able to raise for start-up capital. And of course debt guarantees in the private and public sector are clearly very different because of the differing risk profiles of each.
The Middle East carriers on the other hand, contend that US carriers benefited from Chapter 11 bankruptcy protection in the wake of the 9/11 terror attacks which they say is really a back-door subsidy, propping up US carriers while its debts and costs were trimmed.
Meanwhile, the European Union has also recently said it will act on the subsidy claims by member states led by Germany and France. The EU’s transport commissioner has said she plans to formally ask EU members for authorisation to open dialogue with Gulf states in addition to other countries including Brazil and China.
While the ongoing issue rests more squarely on the shoulders of the passenger divisions of these carriers, any dramatic outcome would also reverberate through to the cargo divisions and clearly not a positive thing for the air cargo industry, never mind global trade. That this could lead to some form of trade war is a very real possibilty and certainly not one that is healthy for business.
