(7:00pm update) In relation to the dnata allegation, Emirates says the ground-handling company provides no subsidies to the airline, and in fact earns a higher rate of profit on its services to Emirates than it does from other carriers that operate to and from Dubai International Airport.
Elsewhere, it’s also worth noting that despite US carrier claims that they have lost market share as a result of Emirates entering US markets, the Dubai operator’s own data says that entry has “been followed by a growth in bookings in every case."
As far as rebuttals go, Emirates’ response looks to have been pretty comprehensive. In short, Emirates is not subsidised by the government – if anything, it’s actually the other way round. There will be more news going online about this issue soon, but for now, we’ll wrap this blog up. Thanks very much for reading.
(6:50pm update) And that’s pretty much it. Questions from the floor have now ended. It may be worth taking a quick look at some of the specific points that the rebuttal covers. The biggest subsidy allegation stems from a few years ago, during the financial crisis. The white paper claims that parent company ICD stepped in to shield Emirates from huge losses on fuel-hedging contracts in 2009, which amounted to between $1.6 billion and $4 billion and prevented the carrier from going bust. Emirates says that while hedging contracts were assumed by ICD, the airline “voluntarily declared specific dividend amounts to ICD, matching the amount of all the losses imposed by the hedging contracts at maturity”. So neither the government nor ICD had to pay a cent over any hedging losses; in fact, ICD actually made a profit from the deal, by taking “net fuel hedging gains in excess of $100 million”. Emirates also helpfully points out that Delta itself excluded $1.4 billion of fuel hedging losses in 2009.
With regard to the related party transactions allegations, Emirates points out that its most recent financial results included an additional audit report from PwC which clearly states that all such transactions were conducted at arm’s length.
In addition, there’s some interesting information about how much Emirates pays for its fuel at Dubai International Airport – not just from ENOC, but from other suppliers like Chevron, BP and so on. The airline says that “rather than somehow subsidising Emirates, ENOC is actually the most expensive supplier in several comparisons”. It also points out that fuel bought in Dubai costs about the same – or in some cases, is even more expensive – than the fuel it buys at the nine US airports it serves. Emirates also says that it applies the same fees at Dubai airport to all carriers – including Delta and United – and that its other practices are consistent with the open skies agreement.
(6:30pm update) The questions are coming thick and fast now. With regard to expansion into the US, Clark says that Emirates has 10 destinations now, and is hoping to add another 10 in the near future, as per its original plan to fly to 20 destinations. With regard to fifth freedom rights (Emirates flies to New York-JFK) via Milan Malpensa - a source of particular concerns to the US carriers - Clark says that the Italian government actually invited Emirates to serve the route, as Singapore Airlines had been offered the opportunity and had not taken it up. As a result of that service, he says Emirates was approached by “10-15 countries or cities” in Europe, asking if the carrier could provide a similar service. While Clark says that Emirates may take up this opportunity – which, again, does not contravene open skies policy – he also points out that the airline’s strategy is based around hub traffic, and that Emirates is largely tied up with its own considerable expansion plans for the time being.
(6:20pm update) Clark is now talking about the capacity that American airlines have put into emerging markets, he claims they tend to be largely absent from locations like Africa and South Asia, where their partners operate. He is questioning why they are not taking the opportunity to move into those markets. “You don’t own market share – you don’t own customers,” Clark says. “You earn customers and you earn market share. I don’t say that these are ‘my customers’ – that’s a Jurassic way of thinking.”
Has the debate hurt Emirates’ business at all? “In the end, I’m an optimist – I like to think there’s no bad publicity – I hope with everything we have said and done and what we can do for the US, I hope that message is getting across,” Clark says. “So is it doing damage? Probably not. Actually might do us some benefit.”
(6:10pm update) Emirates HQ has issued a release just now, which quotes Clark (pictured below in Washington) as saying: “The methods employed by the US legacy carriers to discredit Emirates have been surprising and frankly, repugnant. We do not underestimate their lobbying prowess, but facts are facts. Unlike the Big 3’s white paper, which is riddled with inaccuracies, conjecture, and legal misinterpretations, Emirates’ response is comprehensive and based on hard facts. We clearly show why the Big 3 have no grounds to ask the US government to unilaterally freeze Emirates’ operations to the USA or pursue other action under the Open Skies agreement. It is because we are absolutely not subsidized, and our operations do not harm these legacy carriers, but instead benefit consumers, communities and America’s national economy.”
(6:00pm update) We've just seen a tweet through from @CapitolIntel that Clark has not ruled out a 25 percent stake in US carrier Jet Blue, saying "never say never".
(5:55pm update) Clark is now being asked about the reaction from policyholders over the last couple of days in the US. He has had separate meetings with three US government departments yesterday – they were “very receptive” and he was assured by each department that “they would examine this case on the facts, not influenced by theatre or tactics.
“This inter agency group will, I hope, come up with an assessment of facts and do the right thing,” he says.
In response to another question, Clark says he has no intention of taking an equity stake in a US carrier in the near term. Asked whether Emirates will take legal action with regard to some of these allegations, he responded: “I don’t believe that’s where this will end up – after all, this is a government issue. If they are going to address this, it will be in the government area where that goes.
“It’s got to a stage now where there must be a line drawn in the sand,” Clark replies. “We cannot go on forever arguing the toss about who’s right and who’s wrong... There may be questions from the US government departments, but in the end, enough is enough and we must move on. We have enormous work to do – all these aircraft to take from Boeing. Hundreds of them. Why would you put all those at risk?”
(5:50pm update) As the Q&A gets underway, it's worth remembering that Abu Dhabi carrier Etihad Airways has already issued its response to the subsidy claims, in the form of three independent reports.
The first was carried out by the Risk Advisory Group, published on May 15, consisting of an 18-page document that contains a review of the financial and other governmental benefits provided to American Airlines, Delta Air Lines and United Airlines. It concludes that US airlines have benefited to the tune of $70 billion from bankruptcy debt relief, pension termination, fuel subsidies and preferential financing since 2000.
The second report was drafted by Washington, DC-based Edgeworth Economics, which reviewed the economic claims made by the US airlines. It found that the air routes between the US and the Indian Subcontinent (ISC), on which over 65 percent of Etihad Airways’ US passengers fly, are highly competitive. The report also said that US airlines largely chose not to serve these ISC routes directly, and instead fly passengers to Europe and connect them onto non-US partner airlines.
The third report was research by the global consultancy Oxford Economics that outlined how Etihad will contribute $2.9 billion to the US economy and support 23,400 American jobs this year. It also projects that by 2020, the airline’s operating expenditure and capital investments will almost double to support 46,200 American jobs and deliver $6.2 billion a year.
The subsidies row has been ongoing for some time now. This time last year, Etihad Airways’ president and CEO James Hogan explained that the nature of its funding since it was founded in 2003.
“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 have also raised $9bn from 68 financial institutions, all without sovereign guarantees,” he said.
(5:45pm update) Clark is now discussing how Emirates has worked with Boeing to create a new variant of the 777 – the 777X. Despite the fact that Boeing was facing its own difficulties with the launch of the 787, the manufacturer went ahead with the plan – and that resulted in 400 aircraft being bought at the most recent Dubai Airshow. Those orders, according to the US Department of Commerce, created 470,000 jobs. With that Clark concludes his remarks, and we’re now onto questions from the floor.
On the debate over jobs, Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies, in her latest tweet, has reverted back to the white paper that, for every daily widebody frequency lost to Gulf competition, it results in a net loss of 800 American jobs...
(5:40pm update) Continuing to go through the document, Clark says that the three US airlines just want protection – “so they can continue to reduce flights, provide indifferent customer service and increase fees and fares”. “This is a go-nowhere policy,” he adds.
(5:35pm update) Clark says that the complaint from the US carriers is framed by their narrow corporate interests, and that they have not been able to prove that they have suffered any adverse effects from any alleged subsidies. In fact, they are hugely profitable – Delta is returning $7 billion to shareholders. “But why couldn’t they have spent that money on improving the product? By making better seats? Gentlemen, this isn’t difficult,” Clark says. “We invest – our money goes back into fleet, goes back into innovation – we’re known for that.”
He also says that the three US carriers have together received more than $100 billion in government support since 2002, and – with other US carriers – receive annual benefits potentially amounting to $24 billion. That's an interesting point - it amounts to almost half the sum American airlines claim the Gulf carriers have received in their entire existence.
(5:30pm update) The tweets are starting to come in thick and fast now
Al Jazeera presenter Kamahl Santamario had this to say...
While the Fair Skies twitter account was unsurprisingly a bit more critical:
(5:25pm update) Clark is now going through a summary of the rebuttal. He says Emirates is a financially transparent company with nothing to hide, and has over the course of the last 20 years paid out more than $3 billion in dividends to its shareholders, not to mention another $1 billion in staff payouts.
“How can we be subsidised if we can afford to give such sums to our shareholders and staff?” he asks. Clark says that the US white paper “consists of a series of demonstrably inaccurate assertions, outright distortions, and legal misinterpretations of the open skies agreement”.
When it comes to the document, there’s a large section on subsidies – as might be expected. As well as denying that Emirates has received any form of subsidy, what’s interesting is that the airline is saying that the US carriers’ entire case is built on the wrong legal standards.
The white paper suggests that the WTO’s anti-subsidy rules apply to international aviation or are incorporated into open skies agreements; however Emirates says that the relevant section of the WTO agreement namechecked by the US carriers only refers to goods and not services. The section of the WTO agreement that does refer to services explicitly rules out air transport services. Somewhat ironically, the move to exclude air transport services appears to have been supported by the US airlines, who would themselves come in for tighter restrictions under a heavier regulatory regime.
Emirates has also pointed out that the American carriers built their case for a unilateral freeze on Article 11 of the open skies agreement. It turns out that it’s actually Article 12 that deals with subsidies, and in any case, both articles do not allow for unilateral actions, except for in very limited cases (which do not include subsidies).
(5:15pm update) Right – Sir Tim Clark has now arrived and we’re under way. He says that Emirates has done a line-by-line rebuttal and has also set out to show how the airline has added value to the US economy via job creation. He also says that many American corporations have supported Emirates, even in the airline community. Clark is critical of the amount of time it took the US carriers to produce the white paper (presumably funded by shareholders) and the fact that Emirates wasn’t provided access to the full report and appendices until some time after it had been seen by US government agencies, and others.
He’s now praising America for its leadership on open skies agreements. “The world in my opinion is a better place for what the US did,” he says. Clark says that the agreement was a breath of fresh air – and its tenets did not prevent US carriers being bailed out by the government post 9/11, when the aviation industry faced perhaps its toughest time.
Emirates has also issued this new logo to get the point across:
(5:10pm update) Things have only just got going in Washington and we've already had a statement through from the Partnership for Open & Fair Skies. Here's what Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies, has to say: “Emirates can submit as many pages as it wants, but it still won’t paper over what has been well-documented: Emirates has received billions in subsidies and unfair benefits from the treasury of the UAE. Our investigation shows that these massive subsidies have allowed Emirates, Etihad and Qatar airlines to expand far beyond what market forces could ever support, distorting international competition and tilting the playing field to its advantage.
“With American jobs at stake, the time for action is increasingly urgent. We respectfully ask that the US government request consultations with Qatar and the UAE, and stand up against these unfair government subsidies that violate our Open Skies agreement.”
(5:00pm update) The press conference will shortly be getting underway. In the meantime, the press have been handed Emirates’ official response to the allegations – and it’s not for the faint-hearted. There are 193 pages of the response itself, together with another 130-odd pages of exhibits. It’s now also available online – you can take a look at it here. As we go along, I’ll try to summarise some of the key points Emirates is trying to make.
(4:55pm update) The Emirates president, Sir Tim Clark, is leading today’s press conference. He has been front and centre in the debate so far, and has even said that he will resign his position if there is any evidence of government subsidies being handed out to his airline.
But I doubt very much whether we’ll see Clark quitting today. In May, just after the white paper was published, the Emirates president said: “…you could drive a bulldozer through just about anything [in the report]…we will deal a sledgehammer to that report as far as Emirates is concerned”. So today’s rebuttal should prove interesting.
(4:50pm update) In addition, both Boeing (which has considerable orders from the Gulf carriers) and FedEx have said they disagree with the US carriers’ stance. General Electric vice chairman John Rice told Arabian Business last month that the industrial giant supported the Open Skies policy: “We like to see free flow of trade, people, air travel, if you will…and that’s what we advocate”.
The most recent intervention has come from a report jointly published by the European Travel Commission and Airports Council International Europe, which was released last week. Despite the fact that many European legacy carriers, such as Lufthansa and Air France-KLM are also accusing the Gulf carriers over alleged subsidies, it seems that the continent’s airports don’t feel the same way.
“Open Skies and fair competition need to go hand in hand,” said Arnaud Feist, the president of ACI Europe and the CEO of Brussels Airport. “But Europe’s airports and Tourism Organisations do not regard the public financing of airport infrastructure, start-up aid for airlines and more favourable fiscal regimes as necessarily involving unfair competition – but rather as legitimate economic development policy choices, made by the Gulf States.”
(4:45 update) It’s also important to point out that not all American airlines are backing the accusations led by the so-called ‘big three’. Alaska Airlines, Hawaiian Airlines and JetBlue Airways were among the heads of 21 major corporations who have said that they don’t want to see Open Skies agreements broken between the US and the two Gulf countries.
Roger Dow, the CEO of industry body US Travel has been particularly vehement in his condemnation. “Even if I tried hard I couldn’t think of a policy change that would be as utterly terrible for the economy, jobs and consumers,” he said last month. “We’d rather be working with airlines to enhance the flying experience for travellers and get more people booking trips, but instead we have to spend time and energy opposing them on this self-interested manoeuvre that just makes no sense at all.”
(4:40pm update) Open Skies is an issue that Arabian Business has reported on extensively. For a look at my colleague Anil Bhoyrul’s thoughts on the much-vaunted white paper (which he said could have been written by Mr Bean) click here. There’s also opinion pieces about Richard Anderson’s 9/11 comments here, and the debate over whether US jobs are being threatened in Chicago here.
There have, of course, been plenty of opinion and analysis pieces written elsewhere about this issue too. Writing in the Financial Times earlier this year (subscription required), columnist John Gapper described American airlines’ evidence of subsidies as flimsy, especially the alleged $2.3 billion gained by Emirates as a result of low airport charges. “Yes, it costs nearly 10 times as much to land a Boeing 777 at Heathrow as at Dubai, and nearly six times as much at Chicago O’Hare,” Gapper wrote. “But Dubai has a lot of desert, and can build a gigantic airport when it feels like it. This makes it cheaper, but so what? Does the rest of the world complain that the US has plenty of arable land and shale gas?”
And an analysis piece written in November last year by CAPA (Centre for Aviation) gives a good account of the changing viewpoints of the different US carriers, pointing out that “it should be noted one of the world’s largest airlines [United] is effectively asking for protectionism”.
(4:35 update) The debate certainly doesn't seem to have deterred American flyers. This week, Abu Dhabi International Airport reported a 14.9 percent rise in passenger traffic in May with 1,877,440 people passing through the airport. Looking closer at the data and it was revealed that the airport said passengers flying to and from the United States registered a big increase, with more than 106,000 passengers last month, translating into a 49 percent year-on-year surge in traffic from the country.
(4:30 update) Speaking of the American jobs angle, Saj Ahmad, the chief analyst at UK-based Strategic Aero Research, has just messaged us and pointed out that Emirates, Etihad and Qatar Airways have collectively bought more higher dollar value Boeing jets over the last 20 years, compared to US airlines like Delta and United. This has helped created jobs at Boeing and throughout the industry supply chain, he says. "In contrast, Delta has harmed US jobs by buying state-subsidised Airbus jets - as has American and United. Very two faced!"
(4:20pm update) The US airlines said that for every daily widebody frequency lost to Gulf competition, it results in a net loss of 800 American jobs. Delta’s Richard Anderson was back on that bandwagon again last week during a speech in Detroit, only the number of jobs lost seemed to have risen slightly (in just over two months) to 900-1,000 jobs per flight. You can read more about his claims that thousands of jobs in Detroit are under threat because of the Gulf carrriers (despite the fact that none of them actually fly there) here. It’s almost – almost – like he’s making it up as he goes along.
At times, the debate has descended into farce. Earlier this year, Richard Anderson, even brought 9/11 into the debate, when he inferred that the Gulf states were responsible for the US airline bankruptcies that took place after the terrorist attacks on the US in 2001. The airline later apologised, but the comments underlined the way in which the American operators seem to be trying to make this a political issue, rather than a commercial one.
(4:10pm update) The US carriers made a series of allegations in their dossier, both about Gulf airlines in general and Emirates in particular. The key accusation is that Emirates has received over $6 billion in subsidies from the Dubai government, and that $6 billion came from different sources:
- The US airlines say that Emirates’ parent company, Investment Corporation of Dubai (ICD) shielded the carrier from losses on fuel hedging contracts after the oil price plummeted in 2008 and 2009.
- They also say that the carrier benefits from cheaper prices for goods from ‘related party’ suppliers (such as cheaper services from aviation supplier dnata, cheaper fuel from ENOC, cheaper plane deals from DAE and cheaper fees at Dubai International Airport) and claim that international accounting standards “state that a company should not assert that it transacts with related parties on terms equivalent to those that prevail in arm’s length transactions unless it can substantiate that it does”. Their inference is that Emirates is not conducting those transactions at arm’s length.
- The American operators also say that the UAE’s labour laws amount to a subsidy.
In their white paper, the American carriers said that they used the World Trade Organization (WTO)’s Agreement on Subsidies and Countervailing Measures to define what they see as a subsidy – a financial contribution by a government that confers a benefit on its recipient.
(June 30, 4pm UAE time) Good afternoon, and welcome to Arabian Business’ live coverage of the Emirates press conference at the National Press Club in Washington DC. So what precisely is Emirates doing in the US capital? It’s the latest step in the ongoing war of words between the big three American carriers – United, American and Delta – who released a white paper in January claiming that Emirates, Etihad and Qatar Airways have received subsidies to the tune of $40 billion from their host governments. The American airlines are asking for the open skies aviation agreements with the UAE and Qatar to be renegotiated, claiming that the alleged subsidies distort the marketplace and undermine competition.
Emirates is today publishing its detailed rebuttal to those allegations, and some of the airline’s top executives briefed officials from the US Departments of State, Transportation and Commerce yesterday. The press conference gets underway at 5pm Dubai time (9am in Washington). Stay with us if you can – Emirates has previously promised “a sledgehammer” response to the open skies white paper.For all the latest transport news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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