US feud with Gulf airlines nears end with UAE agreement

UAE agrees to increase financial transparency in its airlines as part of a deal with the US to resolve long-running dispute
By Bloomberg
Sat 12 May 2018 10:14 AM

The United Arab Emirates has agreed to increase financial transparency in its airlines as part of a deal with the US to resolve allegations that two state-owned carriers have unfairly benefited from billions of dollars in government subsidies.

The US and UAE acknowledged that while government support of airlines isn’t unusual, it may “adversely impact competition,” according to a copy of the agreement, which was seen by Bloomberg News.

The Gulf country, home of Emirates and Etihad Airways, also committed to issue annual public financial reports under internationally recognized accounting standards.

While the agreement doesn’t freeze so-called fifth freedom flights, the UAE pledged that its carriers have no plans for additional such routes, a senior State Department official said.

Under commercial aviation protocols, those flights start in an airline’s home country and touch down in a different nation before continuing on to a third - in this case, the US Emirates makes such flights from Dubai to Athens and then on to Newark, New Jersey.

The agreement settles the final piece of a long-running dispute over government aid, which pitted the largest US airlines against rivals in the UAE and Qatar. American Airlines Group, Delta Air Lines and United Continental claimed in 2015 that the Gulf carriers were able to compete unfairly on flights into the US because of government subsidies.

US Secretary of State Mike Pompeo is expected to announce the agreement May 14, people familiar with the matter said, who asked to not be identified because the document hasn’t been made public. The US and Qatar reached a separate agreement in January, which would apply to Qatar Airways.

The State Department wanted to address concerns raised by the US carriers and ensure a level playing field, the official said.

The UAE deal bears out “what we have said all along – its government subsidies harm competition,” Scott Reed, campaign manager for the Partnership for Open and Fair Skies, said in a statement. The group represents American, Delta, United and several airline unions in the dispute.

“All the terms and provisions of the Air Transport agreement including fifth freedom rights remain fully in place, with the UAE and US airlines free to continue to add and adjust routes and services,” Yousef Al Otaiba, the UAE’s ambassador to the US, said in a statement.

The US carriers in the dispute claimed subsidies from the Gulf nation allowed Etihad and Emirates to continue operating flights on which they were losing money, giving them an advantage over domestic rivals.

An Emirates spokesperson said the airline welcomes the conclusion of informal technical discussions between delegations representing the Governments of the UAE and the United States.

"The Record of Discussion and related side letter fully preserves Open Skies as per the existing Air Transport Agreement between the US and the UAE, guaranteeing complete commercial flexibility that benefits consumers, communities, and the economies of both countries.

"Contrary to some media reports, there is no freeze on any of the operating rights prescribed in the Air Transport Agreement or any tacit undertakings to do so. The Record of Discussion also makes clear that the UAE and its designated carriers are, and have been at all times in full compliance with the Agreement, and that there were never any violations of the Agreement by UAE carriers.

"We are pleased to note that the Record of Discussion explicitly recognises Emirates’ longstanding practice of publicly releasing audited financials in full compliance with international standards, as well as engaging in arms-length market-based third party transactions, without recourse to government subsidies.

"The closure of this issue permits Emirates in the US to solely focus on providing our customers with greater competitive choice and the best travel experience possible with our world-leading product."

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Last Updated: Sat 12 May 2018 12:21 PM GST

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