Escalating open skies dispute begs resolution

30 June 2015

Dispute distracts and divides aviation industry players

For three years, the Gulf’s Big Three airlines - Emirates, Etihad and Qatar Airways - have been forced to deny allegations by their US and European rivals that that they have benefitted unfairly from government subsidies.

The dispute shows no sign of easing as Emirates issued a live, public rebuttal of the latest accusations on 30 June on Twitter @Emirates.

US carriers have alleged that Emirates Airline, along with Abu Dhabi’s Etihad Airways and Qatar Airways, received secret subsidies worth $42bn from their governments to boost their fiscal standing.

Such subsidies would violate the bilateral Open Skies agreement and the US airlines have made a collective bid to investigate the Gulf airlines’ conduct of business.

Emirates says its financial reports, published annually for 20 years now and audited by the Dubai arm of global firm PWC, provides complete transparency and that it has nothing to hide.

The airline is also adamant that none of the $26bn in funding that it has obtained over a 15-year period to expand its operations came from either the Investment Corporation of Dubai (ICD) or the Government of Dubai.

The funding, Emirates says, came from operating leases (43 per cent), commercial banks (19 per cent), Export-Import Bank (12 per cent), bonds (9 per cent), export credit agencies (13 per cent) and Islamic finance (4 per cent).

Winning the PR battle

It has also openly debunked the allegation that it has an access to cheap oil stating that they buy fuel from BP, Shell and Chevron in Dubai at prevailing market prices.

For his part, Qatar Airways’ chief executive Akbar al-Baker has threatened more than once to leave the OneWorld alliance due to the ongoing dispute as well as the perceived deliberate blocking of their request for a gate access at New York’s JFK airport.

Al-Baker sees no option but to retaliate by exiting the alliance if they are being “cornered” by the American airlines.

Meanwhile, the US airlines have presented evidence that the cumulative $42bn subsidies include, among others, free land and airport fee exemptions and rebates for Qatar Airways, $6.6bn in government loans with no repayment obligation for Etihad Airways, and $2.4bn from government assumption of fuel hedging losses for Emirates.

It is one thing for the ongoing dispute to force certain carriers to take sides - the Gulf has acquired significant stakes in major European airlines while the rest have to align with US airlines in fear of the Gulf airlines’ rising global influence that could impinge on their markets.

But it is another for the multi-billion dollar industry to fail to agree about the universal meaning of subsidy, and to trade allegations and counter-allegations that do nothing to resolve the issue.

As market competition toughens and the regional carriers continue to benefit from heavy investment in modern infrastructure, fleet development and low taxation, the ‘old world’ carriers will continue to protest, ensuring that there will be no let up in the spat.

Crucial, however is the need to secure landing rights in order to develop new routes. This is often as much about politics and diplomacy as it is about business.

The Gulf carriers must continue to defend themselves robustly but must also make sure they do not lose allies in the process.

 

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