The UAE Finally Owns Up: Their State Subsidies to Airlines Distort Competition

Rob Britton
May 14, 2018 · 4 min read
WIKIMEDIA COMMONS | JULIAN HERZOG (L) AND MARK HARKIN

After years of denial and obfuscation, the UAE has finally acknowledged what U.S. network airlines and their employees have long contended and clearly proven: their government subsidies harm competition.

With Secretary of State Mike Pompeo announcing today that the United States has negotiated a deal with the UAE to enforce our Open Skies agreement, the Trump administration has sent a strong signal that foreign government subsidies that violate our international agreements and threaten American jobs will not be tolerated.

The agreement addresses the distorting effect of UAE government subsidies to their two state-owned carriers, Emirates and Etihad Airways. This breakthrough follows a similar agreement reached in January between the U.S. and Qatar over that country’s massive subsidies to its own state-owned airline, Qatar Airways. Aviation economists have documented clear evidence of more than $50 billion government in cash and other unfair benefits these Gulf airlines have received from their government owners, violating trade agreements and harming competition among investor-owned U.S. (and European) airlines. About 1.2 million U.S. jobs depend on a strong U.S. passenger-airline industry, jobs that the Gulf carrier trade cheating put at risk.

The biggest news here may well be that after years of claiming that they don’t give subsidies to their airlines, the UAE was forced to agree to unwind those very subsidies. The UAE and its paid U.S. apologists consistently and willfully mischaracterized the position of American Airlines, Delta Air Lines, and United Airlines as seeking “protection,” special favors, and an end to Open Skies aviation agreements. In truth the U.S. carriers and seven labor unions only sought a level, competitive playing field, as prescribed by Open Skies policy. Since 2015, the UAE and Qatar resisted high-level meetings, justified trade cheating by citing their massive purchases of made-in-America Boeing aircraft, and tried other distractions without offering any substantive information to disprove the clear evidence of their rule-breaking subsidies.

Under the newly announced agreement, the UAE has agreed to the following:

> A freeze on additional “Fifth Freedom” passenger flights to the United States, where the Gulf airlines would launch a service between the U.S. and a third country in Europe or Asia.

> Emirates and Etihad are committed to transactions based on commercial terms and to financial transparency. Much of this dispute has revolved around opaque accounting and “all-in-the-family” dealings with interconnected companies. Specifically, the UAE has promised that Emirates and Etihad will embrace market-consistent conditions in obtaining debt and equity financing, and operating each airline with transparency, including the use of international accounting and auditing standards (called IFRS).

> Adherence to new and vigorous standards for financial disclosure, including reporting significant new transactions, to show that the UAE government is ending subsidies to its state-owned airlines.

> Ensuring that transactions between Emirates or Etihad Airways and other state-owned companies take place on a commercial basis and that the terms are equivalent to those that prevail in arm’s-length transactions.

> Requiring Emirates and Etihad to pay the full and fair share of the all costs of operating out of their international airports in Dubai and Abu Dhabi, which have previously been subsidized by their governments.

> A meeting with the U.S. government in one year to review progress on terms of the agreement.

This agreement comes after a groundswell of support from elected officials. More than 310 members of Congress, ten governors, and scores of local business and political leaders stepped forward and took a stand in favor of U.S. workers, recognizing the massive harm that the Gulf carrier trade cheating could have on American jobs, and on vital air service to small and medium communities. That support propelled President Trump, the Department of State, and the Department of Transportation to act decisively.

These sorts of disputes do not just end, like time running out on a basketball game. Going forward, American, Delta, and United, and their stakeholders must remain vigilant to ensure that the Gulf governments follow the rules and abide by their commitments. And the European Union, which expressed concern about fair competition early on, must also finalize an agreement with the Gulf nations.

As a longtime airline hand — working in and near the business and teaching airline management for almost 35 years — I’ve had an “aisle seat” on many large, often painful, changes in the industry following the 1978 Airline Deregulation Act. In that law, Congress reversed 50 years of intrusive federal economic regulation and micromanagement of the airline business. Since then. American, Delta, United, and others have made huge adjustments and they have learned to compete in a global marketplace — as long as conditions are fair. These two agreements with the UAE and Qatar will help restore balance in many overseas markets. To the Trump administration, I say thank you.

Rob Britton
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