Open Skies

Describe the US-UAE Open Skies Agreement. List and describe two long-haul carriers that are a part of this agreement that also receive government subsidies.

The Open Skies Agreement is a deal between the governments of the US and the UAE to create an “international aviation system based on competition among airlines in the marketplace with minimum government interference and regulation” (U.S. Department of State, 2002). The agreement, signed by the U.S. Department of State, permits the other country’s airlines to “establish offices in the territory of the other Party for the promotion and sale of air transportation” (p. 6).

“Delta, along with American and United through the Partnership for Open & Fair Skies, have asked the U.S. government to open consultations with Qatar and the UAE to address the issue of $42 billion in government subsidies given to the Gulf carriers, which violate the Open Skies agreements between the U.S. and those nations” (Modolo, 2015). Emirates and Etihad are two Gulf airlines that are a part of the agreement and government subsidized.

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

In the past, the Contract Mail Act of 1925 provided “agreements and subsidies that pioneered what would eventually become the carrier’s domestic route maps” (McGee, 2015). USA Today added that the Essential Air Service program and Fly America Act are evidence of US airline subsidies. The Essential Air Service program “currently provides subsidies for airlines serving 163 rural communities nationwide” (McGee, 2015). Since 1974, the Fly America Act has “required federal agencies to use U.S. air carriers to transport passengers and cargo when such travel is funded by the government” (McGee, 2015). After 9/11, “Congress and President Bush put forth the Air Transportation Safety and Stabilization Act. Washington so quickly assisted the airlines that virtually nothing was asked in return, not even the quid pro quo of implementing the many passenger rights proposals put forth during that time” (McGee, 2015). It is apparent the U.S. government, like any other nation, does assist its aviation businesses.

Another complaint is that long-haul foreign carriers have made aircraft purchases at "below market interest rates" that are unavailable to US carriers. How is this possible? Please discuss the Export-Import Bank.

The Export-Import Bank’s purpose is to “help American businesses sell their goods and services abroad” (Lipton & Weisman, 2015). Boeing claims that “the Ex-Im Bank is crucial in allowing the company to compete against export credit agencies in France and Germany, which are only too happy to offer guarantees for the purchase of jets from Airbus, Boeing’s sole competitor in the wide-body market” (Lipton & Weisman, 2015). Delta Airlines has claimed that competitors, including Emirates, have “used the Ex-Im guarantees to lower their borrowing costs, and then used the savings to cut ticket prices on international routes that compete with Delta or buy still more new jets” (Lipton & Weisman, 2015). American companies are not able to use the Ex-Im Bank to secure these low interest rates for purchasing Boeing aircraft.

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

U.S. carriers take issue with Norwegian in a similar way to Gulf carriers. Norwegian uses a crew-leasing scheme by employing staff from a firm called OSM Aviation (Lazare, 2017). Norwegian Air uses the crew leasing scheme “to sharply undercut pilot pay scales at the U.S.-based carriers. According to the data provided by U.S.-based pilots, a typical Norwegian Air captain flying the Boeing 787 Dreamliner earns approximately $115,000 yearly, while a captain flying a Dreamliner for United or American would earn approximately $270,000 annually” (Lazare, 2017). The issue U.S. carriers have with foreign carriers is that they are subsidized by foreign governments and they don’t have unionized work forces.

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

Based on the information that I found, the international aviation industry is not a level playing field. In a sense, it is a pay-to-win structure where the airlines that get the most government assistance are able to offer the lowest rates and obtain the most customers. I do not think it is right for the U.S. to essentially ‘tear up’ the Open Skies Agreement because foreign carriers are subsidized. It is not on Etihad, or any other airline, to not accept government subsidies or take advantage of the Export-Import Bank offered. It is on the U.S. government to ramp up assistance to domestic carriers and compete on the global level.

Sources:

U.S. Department of State. (March, 2002). Air Transport Agreement between the government of

the United States of America and the government of the United Arab Emirates. US Department of State. Retrieved from https://www.state.gov/documents/organization/1 25743.pdf

Modolo, K. (October 2015). Subsidized Gulf carrier competition forces Delta to cancel ATL-

Dubai. Delta News Hub. Retrieved from https://news.delta.com/subsidized-gulf-carrier-competition-forces-delta-cancel-atl-dubai

McGee, B. (September 2015). How much do taxpayers support airlines? USA Today. Retrieved

From https://www.usatoday.com/story/travel/columnist/mcgee/2015/09/02/how-much-do-taxpayers-support-airlines/71568226/

Lipton, E. & Weisman, J. (April 2015) Boeing and Delta spend millions in fight over Export-

Import Bank’s existence. New York Times. Retrieved from https://www.nytimes.com/20 15/04/07/business/boeing-delta-air-lines-export-import-bank.html

Lazare, L. (February 2017) Why United, Delta and American pilots are still calling out Norwegian

Air. Chicago Business Journal. Retrieved from https://www.bizjournals.com/chicago/ne ws/2017/02/15/united-delta-american-pilots-take-on-norwegian-air.html