Global Airlines

One of the greatest modern documents to the aviation for long haul travel, i.e. transoceanic flight, has been the “Open Skies Agreement” otherwise known as Air Transport Agreement between the United States and the United Arab Emirates.  According to the document, there is a grant of rights in the second article that states “Each Party grants to the other Party the following rights for the conduct of international air transportation by the airlines of the other Party: the right to fly across its territory without landing; the right to make stops in its territory for non-traffic purposes; and the rights otherwise specified in this Agreement” (U.S. Department of State, 2002). One of the only things not allowed is in the immediate preceding paragraph which goes on to say that the foreign carrier may not “the rights to take on board, in the territory of the other Party, passengers, their baggage, cargo, or mail carried for compensation and destined for another point in the territory of that other Party” (U.S. Department of State, 2002). Airlines of the United States, including Delta, United, and American Airlines, are all protesting for limiting the ability of UAE airlines, such as Qatar, Emirates, and Etihad, to be able to get routes to and from the United States. Since both Emirates and Etihad are owned by the UAE government, the US carriers don’t feel that it would be fair because of the heavily reduced prices that airlines such as Emirates and Etihad could give. The truth, however, is a little more complicated.

2) Do any long-haul US carriers receive subsidies or have received subsidies in the past? If so, which airlines? Why?

In truth, the US carriers are being a little biased in their argument against the UAE. The United States civil aviation industry first started off of an immensely corrupt government. According to an article by Gary Leff, “the very start of the industry in the US was shaped by (corrupt) postal service contracts. The Postmaster General effectively dictated which airlines succeeded and which ones failed” (Leff, 2015). This was one of the greatest scandals in the aviation industry and allowed the government to pick and choose which airlines it wanted to keep. Another argument is that the United States are not going after other partners in the “Open Skies Agreement” that they freely partner with but haven’t lost major routes or revenue to. According to Ashley Nunes, “Delta and its counterparts freely partner with carriers that are subsidized, particularly in China. A report from aviation think tank Centre for Aviation (CAPA) report notes that Chinese carriers—unlike their Gulf counterparts—have documented government subsidies that are labeled as such in their own books” (Nunes, 2016). This is a huge issue as it states that as long as the partnership is suitable for the US carriers, it isn’t a problem.

The Export-Import bank is a medium to bring goods into and out of other countries. Multiple countries have their own export-import bank. According to the export-import bank’s website for the United States, “The Export-Import Bank of the United States (EXIM) is the official export credit agency of the United States. EXIM is an independent, self-sustaining Executive Branch agency with a mission of supporting American jobs by facilitating the export of U.S. goods and services” (Export-Import Bank of the United States, n.d.). One of the US carrier’s biggest complaints are the low prices that Gulf carriers such as emirates can secure loans from the Export-Import bank which they say is not fair for completive purposes. According to an article by Terry Reed, “May noted that during the past decade, the Export-Import Bank provided guarantees backing $46 billion in financing for more than 800 Boeing aircraft. In fact, Boeing is the bank's principal beneficiary” (Reed, 2010). Because of Boeings involvement in the Export-Import Bank, many of the aircraft that are now being purchased from the corporation have dealings with this bank, making it easier for Gulf airlines to purchase aircraft at lower rates then the American counterparts.

4) Are there any current issues with Norwegian International Airlines and the Open Skies Agreement? What about with carriers such as Emirates or Qatar?

The current issues that the US carriers have with the UAE are that they get subsidized by the government which allows them to get aircraft and air routes at below market prices and offer reduced wages to get more business. As previously stated, there are many holes in this argument. US carriers partner with government subsidized airlines such as China without any problems and have also received government aid themselves. Norwegian Airlines has been a supposed “problem” for the US carriers as well lately, due to the extremely low cost of air fare that they can provide. In an article by Benjamin Zhang, it was stated that “the DOT said in its final ruling on the matter. "Regardless of our appreciation of the public policy arguments raised by opponents, we have been advised that the law and our bilateral obligations leave us no avenue to reject this application" (Zhang, 2017). This controversy has led the US carriers to promote government action against the Norwegian Airlines, but so far has come to no avail. Although they fly under a Norwegian banner, they are based elsewhere to allow for cheaper training and overhead costs.

5) Finally, critically analyzing the above information, do you feel that the global "playing field" of long-haul carriers is fair?

I believe that as the facts are presented, there is a very big tangle of facts that has to be unwoven. There can never be a “winner” without a “loser” and based on that aspect there will never be a fair “playing field”. There can’t be blame, however, associated by an airline to another for receiving government aid, and not attack all the other subsidized airlines. That is a wrongful and spiteful approach to what could be a very delicate situation. That being said, there are a lot of overhead costs and incentives that could be bargained from the Export-Import Bank and many other avenues to cut costs to better compete with a subsidized airline. Possible partnerships and renewal of contracts could also expand the market into new heights and helping other nations to become part of the “Open Skies” agreement. There are defiantly more ways to expand revenue for all, without destroying the bonds that have already been made.

References

Export-Import Bank of the United States. (n.d.) About us. https://www.exim.gov/about

Leff, G. (2015, April 8). US Airlines Have Received More Subsidies than Middle East Ones. Retrieved from https://viewfromthewing.boardingarea.com/2015/04/08/us-airlines-have-received-more-subsidies-than-middle-east-ones/

Nunes, A. (2016, November 17). Government Airline Subsidies... So What? Retrieved from https://www.forbes.com/sites/realspin/2016/11/17/government-airline-subsidies-so-what/#55e496911f5f

Reed, T. (2010, September 13). Why U.S. Airlines Pay More to Finance Jets. Retrieved from

U.S. Department of State. (2002, March 11). AIR TRANSPORT AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE UNITED ARAB EMIRATES. Retrieved from https://www.state.gov/documents/organization/125743.pdf. Retrieved from https://www.state.gov

Zhang, B. (2017, February 9). Europe's best low-cost airline could be an issue for the Trump administration. Retrieved from http://www.businessinsider.com/norwegian-air-international-america-trump-2017-2