$17 Billion in government subsidies fuels Etihad’s market distortion
Washington, DC- After accumulating more than $700 million in operating losses over the past two years, Thai Airways has announced that they will be entering a period of major restructuring that will include everything from significantly reducing the size of their fleet, to redistributing some routes to their LCC, Thai Smile, while doing away with other long haul routes altogether. They have cancelled plans to expand further into Germany, and will be suspending service to Madrid, Spain, and pulling out of Moscow, Russia and Johannesburg, South Africa, with other reductions planned.
Meanwhile, in the United Arab Emirates, after recording significant operating losses every year since it’s founding, Etihad Airways is doing the opposite. Etihad has recently retrofitted it’s A380 with a 3 bedroom “residence suite,” has 169 wide-body aircraft on order with another 56 in the works , and has scheduled new routes to Baku, Tbilisi and Dar es Salaam in the second half of 2015, expanding its destinations to 110 .
Etihad has received over $17 billion in subsidies from its home government allowing the airline to not only stay in business – the airline would not be commercially viable without the government subsidies – but also to growth at unprecedented and unwarranted rates. Etihad’s subsidies – which includes $6.3 billion in direct government cash and another $4.6 billion in zero-interest “loans” with no repayment terms or obligations – run counter to the Open Skies agreement the UAE holds with the US.
If Etihad were truly a commercial enterprise, continuously recording operational losses, especially ones as large as those recorded would require significant organizational restructuring with the aim to avoid going out of business. That is precisely what Thai Air is doing, restructuring and re-approaching their business model with the aim of ultimately reporting a profit- the goal of any company that competes in a private, open marketplace. Etihad, because it is merely an arm of the government, cannot go bankrupt, and can instead continue to dump seat capacity at sub-market rates in their quest to steal market-share (and ultimately jobs) from U.S. airlines and their workers.
The Open Skies Agreement that the United States entered into with the UAE (before Etihad Airways even existed) clearly stipulates that companies competing under such an agreement will do so with the understanding of competing in a private, open marketplace based on fair competition free from subsidies. The UAE has chosen not to abide by their agreement, and as such the U.S. Department of Transportation has clearly stated, “if aviation partners fail to observe existing U.S. bilateral rights, or discriminate against U.S. airlines, we will act vigorously, through all appropriate means, to defend our rights and protect our airlines.”
The time for action to restore fairness to our Open Skies and safeguard the American aviation sector and American aviation jobs is now. Captain Moak, President of Americans for Fair Skies shared this, “The UAE and Qatar have failed to observe their bilateral agreements, and they have discriminated against U.S. airlines. Therefore, the U.S. government needs to show real leadership in the fight against unfair subsidies, like many European nations and the EU Transport Minister are now doing, and stand up to the Gulf subsidies by freezing new routes into the U.S. and calling for consultations with the UAE and Qatar.”
For more information visit fairskies.wpengine.com.thestreet.com/story/13051277/1/report-says-gulf-airlines-got-39b-with-more-to-come-in-illegal-subsidies.html
US Federal Register / Vol. 60, No. 85 / Wednesday, May 3, 1995 / Notices 21845