The Open Skies Conflict

The airline industry provides services to almost every part of the globe. It has a key role for reaching a world fully globalized, in which geographical limits no longer represent an impassable obstacle. The development of this industry has also contributed to the growth of many sectors such as the production of aircraft, the provision of flight services and tourism. The strategic role of airports and flag carriers has always interested the various governments. In a dynamic market like this one, the competition is strongly influenced from the ability of the airlines to keep up with the competitors, in a means of cost reduction and level of services provided. Competition in the market increases when new airlines enter the business and seem more competitive. This competition however for the nations that have signed the open skies agreement with the USA, should be fair.

The air transportation liberalization agreement between the United States of America and the United Arab Emirates, called the Open Skies agreement was signed in 1999 (Mouawad, 2015). The content of the agreement discussed the liberalization of the transportation of goods and people between the two parties, allowing air carriers of both sides to operate freely. Its purpose was to expand the opportunities of international air transport by opening markets and maximizing the benefits for consumers, airlines and workers. This agreement allowed the US airlines to make connections from any airport in the UAE to any city in the United States of America and vice versa without restrictions and the assignment of traffic rights to fly beyond the territory of the other contractor, to third countries. The rights granted to each of the party are (Current Model Open Skies Agreement Text, 2012):

1. Each Party grants to the other Party the following rights for the conduct of international air  
transportation by the airlines of the other Party:

a. the right to fly across its territory without landing;

b. the right to make stops in its territory for non-traffic purposes;

c. the rights otherwise specified in this Agreement.

2. Each airline of a Party may, on any or all flights and at its option:

a. operate flights in either or both directions;

b. combine different flight numbers within one aircraft operation;

c. serve behind, intermediate, and beyond points and points in the territories of the Parties in
any combination and in any order;

d. omit stops at any point or points;

e. transfer traffic from any of its aircraft to any of its other aircraft at any point;

f. serve points behind any point in its territory with or without change of aircraft or flight
number and hold out and advertise such services to the public as through services;

g. make stopovers at any points whether within or outside the territory of either Party;

h. carry transit traffic through the other Party’s territory; and

i. combine traffic on the same aircraft regardless of where such traffic originates;

Delta, America & United airlines, are pushing the government to take action against limiting the Open Skies agreement to three specific Gulf airlines: Qatar, Emirate and Etihad airlines. The three big USA airlines are pushing for actions due to their thought of the unfair competition brought out from the Middles East Carriers. In fact, the Gulf airlines previously cited, in the eyes of the US carriers, are not playing a fair and level game due to the enormous amount of subsidies that they are receiving from their governments, roughly $40 billion (Banstetter, 2015). Emirates is based in Dubai. It is part of The Emirates Group which is owned by the government of Dubai. In recent years both the fleet and the destination to which Emirates provide service too, have expanded in an unrestrainable way. Etihad Airways immediately follows after Emirates in terms of size within the United Arab Emirates. Etihad is based in Abu Dhabi.

The true fact is that no airline has truly clean hands when it comes down to government subsites. We must remember that the airline transportation industry started thanks to the subsidies of the federal government. In fact, in 1918 the USA government started giving grants to aviation companies. More than $150 billion dollars, from 1918 to 1975, where pumped from the government into the pockets of the aviation industry including the airlines (Big Airlines Benefit from Bailout Bill, 2002). After the tragic terrorist attack of September 11 the USA aviation industry suffered enormous lost from an economical point of view. On January 2002 the Congress passed the $15 billion airline bailout bill (Big Airlines Benefit from Bailout Bill, 2002). This bill authorized the federal government to give to the airlines $5 billion in direct compensation and other $10 billion in the form of grants (Big Airlines Benefit from Bailout Bill, 2002). This money compensation to airlines from the government were given because of the losses suffered after the terrorist attack. Obviously the big airlines walked away with the biggest share of the pie, over 80% of the funds were given to 9 airlines (Big Airlines Benefit from Bailout Bill, 2002). The airline that gained the most out of this bill was United Airlines that received over $ 644 million from the federal government (Big Airlines Benefit from Bailout Bill, 2002). We need to point out two things here. The first is that most of the airlines were already having economic difficulties far before 9/11. The second is that it was estimated that the real impact of the terrorist attack on the airlines assets was of about $1.36 billion instead they received more than $5 billion, a difference that is quite impressive. “If the bailout wasn’t enough to quench the airlines’ thirst for taxpayer-financed subsidies, the economic stimulus bill passed by Congress in March also allowed companies to file amended tax returns and receive refunds on taxes paid in past years for losses incurred in 2002 and 2001” (Big Airlines Benefit from Bailout Bill, 2002). Not only United Airlines took this opportunity to gain refunds but also American Airlines and Delta.

The Export-Import Bank also known as Boeing’s Bank, in a sarcastic way, is a self-sustained agency that provides financial support to foreign buyers interested in buying commercial and GA aircraft produced in the United States (Aircraft Exports, n.d.). This Bank does not provide loans for military aircraft purchases. The EXIM provides low interest loans in order to facilitate US exports in the world. Boeing customers receive the largest slice of the loans, but we must also remember that Boeing is the largest export business within the USA in terms of dollar value. In 2014 Delta sought that a possible solution to the unfair competition of the Gulf carriers would had been to deny them from receiving loans through the EXIM (Mouawad, 2015). In my opinion this thought that Delta had, its not of the most beneficial, since it would had made the Gulf carriers seek their airplanes from other aircraft manufacturers such as Airbus.

Currently there are some issues concerning both with Norwegian Air shuttle and the US-UAE open skies agreement. Due to the Open Skies agreement Norwegian Air Shuttle should have the opportunity to conduct flights between Europe and the USA. However due to some opposition it took years to get the approval and now it is facing oppositions from pilot unions (Mouawad, 2015). As to the Gulf air carriers the big 3 US airlines are challenging them for the fact that by receiving government substitutes they are violating the bilateral agreement. Technically speaking they are not violating any rule, because the agreement does not state anything regarding not receiving subsidies but they only state that the airlines of each nation should compete in a fair and equal way and so they do not explicitly prohibit them.

More than 100 open Skies Agreements have been signed be the USA (Zhang, 2015). For so many years, American air carriers sustained the freedom of the skies, primarily because they held the monopoly over them. Now US carriers are starting to point fingers to those airlines that they consider to be subsidized by their governments and that represent a significant threat to them, such as Qatar, Emirates and Etihad. To be completely fare those US air carriers should not only expand the number of airlines to which point fingers at, since there are many more out there that receive government subsidizes, such as airlines based in China, Thailand and India. Furthermore they should also look at their skeletons in their closet, because years prior they all received substantial sum of money from the federal government.

-Nenne747-

References:

Aircraft Exports. (n.d.). Retrieved from https://www.exim.gov/what-we-do/loan-

guarantee/transportation/aircraft-exports

Banstetter, T. (2015, June 15). What are 'Open Skies,' anyway? Retrieved from

https://news.delta.com/what-are-open-skies-anyway

Big Airlines Benefit from Bailout Bill. (2002, June 7). Retrieved from

https://www.taxpayer.net/budget-appropriations-tax/big-airlines-benefit-from-bailout-bill/

Current Model Open Skies Agreement Text. (2012, January 12). Retrieved from

https://www.state.gov/e/eb/rls/othr/ata/114866.htm

Mouawad, J. (2015, February 06). Open-Skies Agreements Challenged. Retrieved from

https://www.nytimes.com/2015/02/07/business/us-airlines-challenge-open-skies-

agreements.html

Zhang, B. (2015, July 28). The Middle East's 3 best airlines have infuriated their US competitors.

Retrieved from http://www.businessinsider.com/middle-eastern-us-airlines-dispute-future-

of-air-travel-2015-7