Our big three airlines‚??United, American and Delta‚??say they are being undermined by three airlines from the Middle East‚??Qatar Airlines from Qatar and Eltihad and Emirates airlines from the United Arab Emirates.
They say the Middle Eastern bullies of the airways are vacuuming up market share from them on some international routes because of help both from their own governments in the form of subsidies and ours in the form of loans from the Export-Import Bank.
Such government favoritism distorts the market and creates unfair conditions, they say. So they have asked Washington for ‚?? wait for it ‚?? government favoritism. The good kind, you know.
According to The Daily Signal (a news website operated by The Heritage Foundation) American, Delta and United have been lobbying the Obama administration through an organization they created known as Americans for Fair Skies to renegotiate their Open Skies agreements with Qatar and the UAE.
These agreements‚??the U.S. has more than 100, dating back 20 years or more‚??set the terms for how airlines can operate within the signatory countries in an effort to ‚??eliminate government interference,‚?Ě according to the State Department.
Americans for Fair Skies claims Emirates Airline, Etihad Airways and Qatar Airways have benefited from more than $42.3 billion in subsidies from their governments, which gives them a leg up on contested international routes.
‚??In carrying out their dramatic and subsidized expansion, the UAE and Qatar have turned Open Skies on its head and violated both its letter and spirit,‚?Ě wrote Capt. Lee Moak, the former pilot and union leader who heads Americans for Fair Skies.
First of all, Sir Tim Clark, president of Emirates Airlines, said it was made clear to him from Day 1 there would be no government subsidies, that the company was to turn a profit. Losses from fuel trades in 2008 and 2009 were paid entirely from the company‚??s reserves with no government help, he said.
Second, U.S. airlines are fine ones to complain about government subsidies. According to the Congressional Research Service, U.S. airlines received $155 billion in federal subsidies from 1918 to 1998, and Forbes reports Delta and other airlines received $18.6 billion in bailouts from the federal government in 2001.
Delta and Northwest also received $3 billion from the Pension Guarantee Benefit Corporation when it underfunded its pensions and went bankrupt.
And that‚??s not to mention the anti-trust exemptions and other government-bestowed benefits.
Adam Smith said in ‚??The Wealth of Nations,‚?Ě that ‚??people of the same trade seldom meet together ‚?¶ but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.‚?Ě
That appears to be the case here. The U.S. Big Three, which already controls 36 percent of the market going to and from the United States across the North Atlantic, supported Open Skies agreements that covered all three of the Middle East airlines right up to the point those airlines became true competitors. Now, they want to keep out these younger, tougher competitors with newer aircraft, faster connections and better customer service.
And rhetoric aside, they‚??re not doing it for us. Air fares on Open Skies routes are 32 percent lower than on regulated routes. They‚??re doing it to cover the cost of older planes because they refuse to modernize. They‚??re doing it to remain viable despite charging the same fares they did when oil was $100 per barrel, even though it‚??s now at $55. They‚??re doing it to cover the cost of bloated union contracts that included a whopping 23 percent raise for some pilots this year.
It is true the Middle East Big Three has taken advantage of Ex-Im Bank financing to update its fleet. It does so by buying those planes from Boeing, an American manufacturer, as well as parts and other equipment from a wide array of American firms. The three Gulf carriers supported more than 15,000 American jobs in 2014 and have supported more than 200,000 over the past decade.
But so has Delta, to the tune of $84.8 million in loan guarantees in April 2012.
Moak says a failure to address this runs the risk of ‚??rendering U.S. airlines and their employees a mere regional jet service for the Gulf carriers‚?? massive global network.‚?Ě He says these airlines ‚??compete unfairly‚?Ě because of the subsidies.
In truth, if these airlines are relying on subsidies, they are doing so to level the playing field against the American firms. If the American firms want to stay ahead, it is they who need to quit seeking government protection and improve their product.