U.S. Airlines Have Paid the Government $250 Billion — Amazingly, Some Claim They Are Subsidized

By: Ted Reed

Of all misguided statements that have been in the debate regarding the $39 billion government subsidies of the three Middle East carriers, the most misguided ones suggest that it’s fine because U.S. airlines are also heavily subsidized.

A government report that surfaced recently shows that U.S. airlines received $155 billion in federal subsidies between 1919 and 1998. The report was unearthed by Kevin Mitchell, chairman of the Business Travel Coalition, who found it online after he saw it mentioned in The National, a UAE publication.

The report makes for fascinating reading. It briefly and accurately relates the history of government spending on the airline industry over the 79 years ending in 1998. It was compiled by the Congressional Research Office, which answers questions for members of Congress.

But it is overstatement to call it a “bombshell report,” as the U.S. Travel Association — which represents travel agents and supports the status quo for Mid-East carriers — has done.

Of the $155 billion in spending through 1988 outlined in the report, the vast majority, $140 billion, was spent by the aviation trust fund that supports Federal Aviation Administration spending.

The report does not mention that since 1971, U.S. airlines and their passengers have contributed about $247 billion to the fund, according to Federal Aviation Administration historical data.

The airlines and their passengers today contribute about $10 billion annually to the fund, which currently holds a surplus of about $13 billion. The rest has been spent.

In other words, the U.S. airline industry generally pays for what it gets from the government.
In general, this is not what happens in Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest Emirates. A report compiled for American, Delta and United demonstrates that the governments of the four entities have provided about $39 billion in subsidies to three airlines — Qatar Airways, the flag carrier of Qatar; and Etihad Airways and Emirates, flag carriers of the UAE.

To be fair, these airlines have a valid argument when they say that many countries subsidize airlines, particularly start-up airlines. That is exactly what happened in the U.S, where the commercial aviation industry began with contracts to mail carriers.

“The irrefutable and germane point of the {Congressional} report is that countries around the world have spent substantial sums of money to establish their commercial aviation industries and, in doing so, they follow the best-practice model of the U.S,” Mitchell said. “The Middle East 3, and their home countries, are no different in this practice.”

But it’s not at all clear that the startup of the U.S. airline industry and the startup of the Gulf airline industry are parallel events.

The book “American Airlines, US Airways and the Creation of the World’s Largest Airlines,” which I wrote with Dan Reed, tells how US Airways and American got started.

American’s earliest predecessors included Robertson Aircraft. One day in 1926, a young aviator named Charles Lindberg “loaded mail into a DH-4 biplane operated by Robertson and flew it from St. Louis to Chicago,” the book says.

US Airways began in 1939 as All American Aviation. Its “unique, cutting- edge concept involved airborne airplanes picking up mailbags suspended from cables in isolated sites in the Allegheny Mountains of western Pennsylvania,” the book says. “It seemed like a good idea at the time.”

In 1925, the Congressional Research Report noted, Congress passed the Kelly Act, which enabled the Post Office to contract with airlines to provide air mail service. The 1930 Watres Act changed the formula a bit. A key was that “the Post Office began requiring that air mail contractors carry passengers {in the hope that} passenger traffic could eventually lead to a reduction in the need for air mail subsidies.”

Once airlines got going, the government provided more subsidies during the ensuing half-century. From 1925 to 1970, the subsidies to airlines totaled about $9 billion. Additionally, from 1926 to 1970, the federal government spent about $1.5 billion to build airports.

Government spending on Mid-East airlines has followed a somewhat different pattern since the founding of Emirates in 1985, Qatar in 1993 and Etihad in 2003.

Rather than gradually building a system to provide the benefits of a new technology to their citizens, the Mid-East governments in question rapidly spent billions of dollars to build three subsidized airlines and gigantic airports and to fill them with the world’s most expensive aircraft, following business models that involve taking advantage of treaties that never envisioned such a thing in order to siphon passengers from the world’s established airlines, which must make money to survive.

Please don’t try to tell me that’s the same thing as helping to fund a risky start-up venture that used tiny aircraft to pick up mailbags suspended from cables at isolated sites in the Allegheny Mountains.

Originally published on Forbes.Com: http://www.forbes.com/sites/tedreed/2015/04/14/u-s-airlines-have-paid-the-government-250-billion-amazingly-some-claim-they-are-subsidized/