While Delta, American and United argue that Gulf carriers have benefitted from billions of dollars in direct government subsidies, Etihad, for one says it hasn’t received any subsidies and counters that the U.S. carriers have repeatedly wiped out debt and slashed employee pay through bankruptcies, which are another form of subsidy.

Is this rancorous Open Skies debate, much of the argument revolves around the definitions of subsidies versus bankruptcies, pension guarantees, appropriate governmental aid or local ways of doing business.

Some of the key adversaries in the Open Skies debate, including Delta and American on one side, and Etihad and the U.S. Travel Association on the other, debated subsidies, bankruptcies and the harm or benefits of the growth of Gulf carriers at a forum in Las Vegas.

Speaking on a panel at the CAPA Americas Aviation Summit April 28, Jim Callaghan, general counsel for Etihad, said the airline receives no government subsidies, although it carries debt on its books, and called the allegation from Delta, American and United that Emirates, Qatar and Etihad recieved $42 billion in government subsidies a “smear campaign.”

Callaghan, who ran regulatory affairs at Ryanair for nearly nine years before signing on with Etihad in 2009, said flag carriers in Europe used exactly the same playbook against Ryanair. “Carriers who are dominant in their respective markets who don’t want competition will do anything to block competition,” he said.

Callaghan acknowledged that Etihad indeed carries debt on the books but argued that bankruptcies and pension guarantees that the U.S. carriers have benefited from might be considered forms of subsidies, as well.

Delta and Etihad

He argued that there is no evidence that U.S. carriers have been hurt by Open Skies agreements and in fact they have benefitted from them because the Gulf carriers carry their passenger feed. When Gulf carriers enter new markets by definition they take market share, Callaghan said, but U.S. airlines  have benefitted from increased numbers of passengers in these markets nonetheless.

“This is a game of smoke and mirrors, a smear campaign against the Gulf carriers,” Callaghan said.

American: Bankruptcies are Not Subsidies

Will Ris, senior vice president of government affairs for the American Airlines Group, countered that American has no argument with the Gulf airlines — it actually has a codeshare with Etihad — but the U.S. airlines are opposed to airlines getting massive government subsidies and getting “unfettered access to the United States.”

AA Ris

“We end up competing with the governments and not the airlines,” Ris said.

Calling a bankruptcy a subsidy “is a totally spurious argument,” Ris said, adding that the U.S. government doesn’t invest in airlines and doesn’t provide no-interest loans.

Other than post-911 funding, which amounted to compensation after the federal government shut down the aviation system for several days, “not a dime of federal money has come into the airlines,” Ris said.

Ris contended that U.S. airlines have indeed seen “concrete harm” from the policies of the United Arab Emirates and Qatar, adding that any astute observer would agree that there would be “considerable harm” in the long run if the subsidy policies continue unabated. He said American, Delta and United were trying to get out front of the issue.

Job Creation

Roger Dow, CEO of the U.S. Travel Association, referred to the dispute as “potentially a slippery slope that opens a trade war of epic proportions.”

Dow, who opposes the stance by the three U.S. airlines, said the expansion of the Gulf carriers into the U.S. would create jobs for pilots, flight attendants and others, and “feed the economy.”

Even if Gulf carriers increased their flights 5 percent in the U.S. they’d still only command 1 or 2 percent of U.S. traffic, Dow said.

Delta Thinks Feds Will Do the Right Thing

Ben Hirst, Delta’s chief legal officer, said U.A.E. and Qatar governmental subsidies to Gulf airlines are “out of scale and unprecedented in aviation.” He called for the U.S. government, which is conducting a comment period on the issue, to start consultations with the Gulf governments.

In the interim, the three U.S. airlines are calling on the federal government to freeze Gulf carrier routes in the U.S., similar to what has been done in France and Germany.

Hirst said the U.S. government has been taking the U.S. airlines’ arguments seriously. “It will reach the right conclusion,” he said.

Fear of Competition?

When asked whether the demand from the three U.S. airlines to freeze Gulf carrier flights in the U.S. is a stalling tactic until the U.S. carriers can increase the quality of their service, Ris of American Airlines said it is “simplistic” to contend that U.S. airlines have not met passenger needs.

The issue, Ris said, is when a carrier comes into a market with a seemingly better business plan but it’s one that is based on the airline competing unfairly by receiving state aid.

Delta’s Hirst noted that Delta’s business class actually rated higher than Etihad’s in a recent IATA passenger survey while Emirates’ and Qatar’s business class were scored “slightly higher.”

Delta also rated higher in metrics such as on-time performance, Hirst said.

What’s Next?

Where is all this heading?

Delta’s Hirst predicted that after the review by the U.S. Transportation, Commerce and State departments, the U.S. government will enter into consultations with the U.A.E. and Qatar and there will be “pragmatic” agreements that all parties can live with.

Another panel member, David Scowsill, CEO of the World Travel & Tourism Council, predicted there will be compromise agreements but in the interim he said the “vitriolic  level” of the debate has been “not helpful.”

Meanwhile, the U.S. is at-risk over the long term of no longer being competitive because of infrastructure issues such as outdated airports, Scowsill said.

Photo Credit: Delta, United and American are calling for the U.S. government to freeze Gulf carriers' flights because of allegedly unfair government subsidies, but Etihad, for one, says it doesn't receive any. Partnership For Open & Fair Skies