Did Mr Bean compile the US airlines report into subsidies?

The much-vaunted ‘Restoring Open Skies’ revealed little that wasn’t already in the public domain.

It starts off as a blockbuster. “Evidence gathered during a global, two-year investigation – including newly obtained financial statements and other records – shows that those three state-owned carriers have received $42bn in quantifiable subsidies and other unfair benefits from their respective governments in the last decade alone,” says last week’s “Restoring Open Skies” report.

Put together by American Airlines, Delta and United, this mega long publication was meant to be proof beyond any doubt that Etihad, Emirates and Qatar Airways are all government funded. This is all grossly unfair, and they should be prevented from expanding in the lucrative US markets once and for all. Let’s be fair, let’s protect US jobs.

Really? I think the most telling part of the report is in the “Endnotes” – the sources of all this incredible information. Point 4 of Slide 14 refers to Qatar Airways boss Akbar Al Baker’s dramatic quote in which he says “We have already shown a desire to open up new destinations in the US.”

Proof - surely - of the airline’s hidden agenda. This, the report tells us, came from an Arabian Business story published on June 17 2013, headlined “Qatar Airways signs  $2.8bn deal to buy Boeing 777s.”

Now I would love to claim this story and quote was the product of our own two-year investigation, but in fact it was from a press release sent out by, erm, Qatar Airways.

In fact, the more you read the “Endnotes”, you soon get the full picture: this report is not an investigation, but instead a cut-and-paste job of epic proportions. It stinks of sour grapes trapped inside a dodgy dossier. Half the information has come from financial reports actually produced by Emirates and Etihad themselves.

Even more absurd are some of the claims as to how this $42bn figure is reached. Etihad Airways, we are informed, received $18bn of government subsidies. A huge chunk of this - $6.3bn – the report claims is from “equity infusions” and $4.63bn from “interest-free loans with no repayment obligation.”

It’s a shame the US airlines didn’t read Etihad boss James Hogan’s interview in Arabian Business last year, when he was asked exactly this question. He replied: “Our shareholder is the Abu Dhabi government, and as a shareholder, they have invested in their airline via equity and start-up loans. Let’s be clear. These are loans/seed capital.  We have used that money to place fleet orders and build the infrastructure of the airline. And there is a repayment schedule for the loans…We are not subsidised. This is not a subsidy, these are shareholder loans, and the shareholder loans will be paid back in time. It has a fixed repayment schedule.”

As for Emirates, the report is even vaguer. No claims of government loans, but for example “If Emirates’ home hub were Chicago O’Hare its costs would be $1.4bn more per year.”

Well, guys, this is a UAE airline, that’s why the hub is in Dubai and not Chicago.

The report also states that Emirates has benefited by nearly $2bn because of a “union ban resulting in below market labour costs.” How can this possibly be classified as a subsidy?

The fact that US airline workers are always on strike is not because they have unions, it is because they are fed up with poor working conditions. Emirates and Etihad staff can’t go on strike. But they can quit – and they choose not to.

Both Emirates and Etihad have provided a far better service than US competitors, and far greater choice. They should be applauded for that, and looking at the capacity on their US routes, the consumer is doing exactly that.

This the issue the US carriers need to face up to: how to better their product. Not how to derail the competition. If they were smart, they would hire both James Hogan and Sir Tim Clark for advice on how to build and run a great airline. Because the US airline bosses clearly have no idea, and are starting to look desperate.

As for the much-vaunted report published last week, and the results of this two-year investigation, we were expecting a supergrass of Edward Snowden proportions. What we got was Mr Bean.

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

NOTE: Comments posted on arabianbusiness.com may be printed in the magazine Arabian Business

Please post responsibly. Commenter Rules

Posted by: Geoffrey Riddell

"The fact that US airline workers are always on strike..."
Sorry, Anil Bhoyrul, but that is nonsense. I agree with most of the article and US airlines are awful. I flew them in the 1960s and 1970s and they were excellent. However, since PanAm and Lockerbie, they have started along the road to oblivion. I predict that US airlines will not be able to compete internationally and will only retain a domestic market, unless they get management who want to run an airline and NOT another business entity.

Posted by: European Aviator

It's a good job that the (already loss making) US carriers didn't get a multi-billion dollar bailout after 9-11, isn't it? Oh hang on, they DID, didn't they? $5 billion in cash and $10 billion in loan guarantees.

Luckily, they're not allowed to pass their debts off to creditors by repeatedly using Chapter 11 bankruptcy protection - oh, hang on, they do that too. (eg. US Airways 2002, 2004, AA 2011, United 2002, Delta 2005, Northwest 2005 etc)

Still, there won't be any government subsidies for non-viable routes and airports under some sort of trumped Essential Air Services subsidy. Oh, they do that too? http://en.wikipedia.org/wiki/American_Airlines#U.S._Federal_Government_Subsidies

Still, it's good to see that they play fair - unlike those nasty foreign airlines

Posted by: MT3

This is a poor effort. This debate revolves around some fundamental principles as to how world trade should be conducted and how differing political ideologies and agendas shape each sides view. For example, do equity transferrals, interest-free loans and debt guarantees from a shareholder constitute subsidies when that shareholder is a government or any entity with a disproportionate amount of wealth that effectively changes the intrinsic nature of that transaction due to the very different attitude to risk that, that wealth allows the investor to have? When does a government have an ethical responsibility to actively discourage trade with companies' operating in jurisdictions that deny what its own electorate believe are fundamental rights i.e. collective bargaining and union membership. Both sides positions have some merit but are founded in very different views of how capitalism and world trade should work and that would be fascinating to explore.

Posted by: Jezinho

MT3 makes a very good point. In the US and the EU, if a Govt shareholder were to pump cash into an airline and not expect dividends/interest/repayment for a long period of time, if ever, it would be deemed to be a subsidy. The terms of the repayment of Etihad's interest-free shareholder loans are that repayment won't start before 2027. So yes, Mr Hogan is correct that there is a repayment schedule, but it's not any time soon. It is a subsidy, but then the US airlines benefit from protective legislation themselves (e.g. lessors have to be US domiciled, slots are carefully controlled and Chapter 11 anyone?)

Posted by: John Harte

Gulf airline staff would love to have a union, but it is forbidden.

That says it all really.

Posted by: SSS

agreed, very disappointing to see such a big deal made of such poor quality and public domain information.
I fully support the idea that the Gulf airlines offer a far superior service and it has been a driving factor in their astounding growth.
I cannot however agree with your statements regarding labor unions. The strength of the unions has always been accepted as holding back efficiency of Western airlines (and other industries). You're not comparing apples to apples by saying that Gulf airline staff can quit whereas Western airline staff can negotiate collectively and strike. I have no doubt that given the choice, Gulf airline staff would chose to have the right to form labor unions, to negotiate collectively and to strike...rather than just "Take it or leave it" as you state they are happy with.

Posted by: Irfan

Fine article and I appreciate SSS's observation as well.

All comments are subject to approval before appearing

Further reading

Features & Analysis
The cost of the US laptop ban

The cost of the US laptop ban

Aviation analysts and airline bosses are warning of significant...

Q&A: The laptop ban and what it means when flying from Dubai and Abu Dhabi

Q&A: The laptop ban and what it means when flying from Dubai and Abu Dhabi

Couldn't a laptop with a bomb inside still pose a danger within...

After all the hype, what's the future for Hyperloop One

After all the hype, what's the future for Hyperloop One

Los Angeles-based Hyperloop One may have struck a deal this month...

Most Discussed