Airlines and Government: Together or Separate?

A quickly growing conflict between foreign airlines and domestic carriers has been in the aviation spotlight for some time now. The argument on whether some foreign carriers receiving government subsidies under the Open Skies policy is in fact allowed under Open Skies. It is no secret that foreign carriers are receiving government aid as Qatar Airways has confirmed that it has received free land worth $452 million from the government while Emirates has allowed the Investment Corporation of Dubai to acquire their fuel hedging contracts (Emirates Confirms, 2015). They have also reported that the government has subsidized the cost of the terminal building that are exclusive use for Emirates. The U.S. airlines state that they are happy to compete with other companies, but not when their countries' agreements are being broken (Emirates Confirms, 2015).

These government assistance projects are in no way fair to the U.S. carriers trying to compete in the same market. Especially when foreign carriers are moving into the U.S. with rates that no domestic carrier can compete at. Some examples of U.S. carriers receiving governmental subsidies would be Transcontinental and Western Air and United, flying airmail routes in the 1920's and 30's. Although they received government aid, which was needed at the time to start and grow aviation, was a long time ago and well before large international flights were available and before countries came together and decided that airlines would have a free market and not be aided by a government. That is largely different than foreign governments quickly spending billions of dollars and starting up three major international airlines with the largest and most modern aircraft as well as airports to go with them.

The Open Skies agreement was signed by the U.S. and Qatar in 2001 and the United Arab Emirates in 2002 (Laing, 2015). It only took a couple of years to see that those airlines were quickly receiving government aid. There are many groups that claim the U.S. is only accusing the foreign airlines of breaching the agreement out of fear of competing with them. The gulf airlines even stated that the U.S. airlines need to do a better job of competing (Not a fair, 2015).

On top of government assistance it is also possible that foreign airlines are receiving large discounts on aircraft that domestic carriers cannot receive. This is possible through the Export-Import Bank. Foreign airlines need a governmental guarantee when purchasing an aircraft because they are such large loans. These loans will then have a lower interest rate in turn saving them money which can be put forward to purchasing more aircraft or lowing ticket prices while domestic carriers are out of luck (Weisman, 2015). Boeing says that the Export-Import Bank is crucial to foreign sales because of the competition with Airbus. Without the Export-Import Bank many carriers may move on to Airbus and leave Boeing behind.

I don't believe that the international air carrier operations are fair across the board. With so much aid from their governments, foreign carriers are at such an advantage to the U.S.'s counterparts. That on top of the Export-Import savings for foreign carriers is completely unfair. It will be interesting to see where these conflicts take the aviation industry in the next few years and whether or not the U.S. airlines will stay or leave international routes if the foreign carriers and their governmental assistance remain intact. As well as the foreign carriers growth to domestic U.S. routes.

References

Emirates Confirms Billions in Government Subsidy for Airport Terminal (2015, August 27). In Pr Newswire. Retrieved from http://www.prnewswire.com/news-releases/emirates-confirms-billions-in-government-subsidy-for-airport-terminal-300134208.html

Laing, K. (2015, March 12). Airlines: Foreign subsidies are destroying flight competition. In The Hill. Retrieved from http://thehill.com/policy/transportation/235543-airlines-foreign-subsidies-destroying-flight-competition

Not a fair flight: Why U.S. airlines are upset over Gulf States' subsidies (2015, April 21). In Chicago Tribune. Retrieved from http://www.chicagotribune.com/news/opinion/editorials/ct-openskies-airlines-united-delta-american-edit-0422-jm-20150421-story.html

Weisman, J., & Lipton, E. (2015, April 6). Boeing and Delta Spend Millions in Fight Over Export-Import Bank’s Existence. InThe New York Times. Retrieved from http://www.nytimes.com/2015/04/07/business/boeing-delta-air-lines-export-import-bank.html?_r=0