Global Airlines Issues

     Emirates, Etihad, and Qatar are some foreign long-haul carriers that received government subsidies. “The issue is the $42 billion in subsidies and other unfair advantages that Qatar and the UAE have provided to their state-owned airlines. The three Middle Eastern carriers are said to have received $12 billion in interest-free loans and shareholder advances — and $8.8 billion in interest savings from government loan guarantees and interest free loans.” (Zhang, 2015). Emirates started operations in 1985 and is based in Dubai, United Arab Emirates; Etihad started operations in 2003 and is based in United Arab Emirates; and Qatar started operating in 1994 and is based out of Doha, Qatar. These airlines “are configured for long-haul international flying only” (Zhang, 2015). The US is part of the Open Skies agreement that basically allows the skies to be open and free to other nations that have signed this agreement without the government intervening. The problem is that Emirates, Etihad, and Qatar have government subsidies that help them out and they are taking on “flights coming from outside the carrier's home market” (Zhang, 2015). These foreign carriers would be making a lot of money if they are allowed to fly transatlantic routes from other places that are not from their home base. If these foreign carriers start taking international routes, the United States major airlines such as American, Delta, and United could lose a lot of money which would then could lead to personnel cuts. The help these carriers get from the government allows them to expand their fleet and grow as a company a lot faster.

     Although US carriers are not really subsidized by the government, that doesn’t mean they haven’t been at one point. “The US could subsidize its airlines, as it partially does through Essential Air Services and as it did after 9/11, delivering USD 5 billion in direct grants and USD 10 billion in loan guarantees” (CAPA, 2014). Also the three Legacy Airlines: American, United, and Delta, are said to have been subsidized because they have all filed for Chapter 11 bankruptcy and the government helps them get rid of their debts. The issue is that the United States airlines use this money to help themselves get out of debt to be able to provide service to their customers. “Although United, Delta, and American are now profitable, they've achieved it by scrimping, making do with old equipment and being highly disciplined in the way they spend money” (Zhang, 2015). Emirates, Etihad, and Qatar use their money they receive from the government to expand their fleet and provide new and lavish aircraft and airports for their customers.

     Long-haul foreign carriers have been able to purchase aircraft at below market interest rates that are unavailable to the US carriers because the US Export-Import Bank allows foreign airlines to get cheaper financing when buying wide-bodied aircraft. Boeing is one of the major companies that uses the Export-Import Bank. “The bank now guarantees about 15 percent of Boeing's commercial aircraft sales -- basically it backs loans to customers outside the U.S.” (Crawford, 2015). The Export-Import Bank is used to help provide funding to foreign carriers that may not be able to get a private fund so they can buy aircraft. “In one specific example, the Ex-Im financing for one airline was nearly 3 percent lower than the market rate. That adds up to a subsidy of $20 million per plane. Those subsidized jets are then used on international routes directly against U.S. airlines, which purchase their planes at market rates” (Simon, 2014). The US carriers such as American, Delta, and United have to buy their aircraft at market rates which costs them more money. The foreign carriers buy these aircraft for cheaper prices which allows them to sell their tickets for cheaper prices and then compete against US carriers. This provides an unfair advantage especially because they are receiving government subsidies to help fund them.

     After looking at everything, I feel that the global playing field is unfair. The three Gulf carriers are being funded by their government to buy new and nicer aircraft that allow them to take on more international flights. Because they have a bigger and nicer fleet and cheaper prices, they are taking away business from other carriers who are using older equipment. “At Dulles International here in Washington, the three U.S. airlines have seen a 14.3% decrease in passengers since Emirates entered the market” (Britton, 2015). Since Emirates, Etihad, and Qatar received government funding, they do not need to make a profit in order to stay in service like United, American, and Delta have to do. When times get tough and the business slows down due to the economy, the United States carriers still need to make money to pay their bills and keep their business from going into debt. They still have the opportunity to fly people around because they offer cheaper flights. Not only are these Gulf carriers taking away business from US and other carriers, they also are not following the Open Skies Agreement. “This state-driven aviation mercantilism is wholly contrary to U.S. Open Skies policy and the agreements themselves and demands a vigorous response from the U.S. government” (Britton, 2015). 

References

Britton, R. (2015, October 14). Subsidized Gulf Airlines Are Damaging Airlines Globally, Not Just in the U.S. Retrieved from Huffpost Business: http://www.huffingtonpost.com/rob-britton/subsidized-gulf-airlines-_1_b_8294892.html

CAPA. (2014, November 5). US Airline Attacks on Gulf Carriers: More Rhetoric Than Consistency - But It Makes For Good Politics. Retrieved from CAPA Centre For Aviation: http://centreforaviation.com/analysis/us-airline-attacks-on-gulf-carriers-more-rhetoric-than-consistency---but-it-makes-for-good-politics-192138

Crawford, J. (2015, October 26). ​Boeing CEO: Losing Export-Import Bank "Means Loss of Jobs". Retrieved from CBS News: http://www.cbsnews.com/news/boeing-ceo-losing-export-import-bank-means-loss-of-jobs/

Simon, M. (2014, August 8). The Ex-Im Bank is Hurting My Business. Retrieved from Chicago Business: http://www.chicagobusiness.com/article/20140808/OPINION/140809833/the-ex-im-bank-is-hurting-my-business

Zhang, B. (2015, July 28). The Middle East's 3 Best Airlines Have Infuriated Their US Competitors . Retrieved from Business Insider: http://www.businessinsider.com/middle-eastern-us-airlines-dispute-future-of-air-travel-2015-7