Norwegian Air Poses No Threat To ‘Open And Fair’ Skies — Unlike Etihad And Qatar Airways

The Partnership for Open and Fair Skies, a lobby group representing three major U.S. airlines and other industry groups, chose its name well when it entered the scene last year.

By incorporating a variant of the term “open-skies” into its brand, the Partnership explicitly affirmed its support for aero-political deregulation – the removal of bilateral traffic rights and the expansion of cross-border competition between airlines.

To do anything less would be foolhardy given the overwhelming body of evidence that open-skies accords – of which America has signed more than 100 – create vast economic benefits.

Yet, interposing this widely-acclaimed term, the lobbyists snuck in the most subjective and malleable of conditions: “fair”.

What is “fair”? Defining the concept at an abstract level is easy enough – “equitable treatment,” let’s say – but how do we apply an abstract idea in the real world? To be truly “fair” to several parties, we have to understand, quantify and counter-balance the “benefits” and “opportunities” that each has been afforded. That is an impossible task with any degree of mathematical precision.

Regulators, in truth, are no more capable of being “fair” than journalists are capable of being “objective”. The best that any of us can do is muddle along with noble intentions and a sincere commitment to impartiality.

Which brings me, in a roundabout way, to the subject of Norwegian Air and its long overdue green-light for transatlantic expansion.

The Partnership for Open and Fair Skies, a lobby group representing three major U.S. airlines and other industry groups, chose its name well when it entered the scene last year.

By incorporating a variant of the term “open-skies” into its brand, the Partnership explicitly affirmed its support for aero-political deregulation – the removal of bilateral traffic rights and the expansion of cross-border competition between airlines.

To do anything less would be foolhardy given the overwhelming body of evidence that open-skies accords – of which America has signed more than 100 – create vast economic benefits.

Yet, interposing this widely-acclaimed term, the lobbyists snuck in the most subjective and malleable of conditions: “fair”.

What is “fair”? Defining the concept at an abstract level is easy enough – “equitable treatment,” let’s say – but how do we apply an abstract idea in the real world? To be truly “fair” to several parties, we have to understand, quantify and counter-balance the “benefits” and “opportunities” that each has been afforded. That is an impossible task with any degree of mathematical precision.

Regulators, in truth, are no more capable of being “fair” than journalists are capable of being “objective”. The best that any of us can do is muddle along with noble intentions and a sincere commitment to impartiality.

Which brings me, in a roundabout way, to the subject of Norwegian Air and its long overdue green-light for transatlantic expansion.

Norwegian’s flag of convenience

America’s Department of Transportation (DoT) announced on Friday that Norwegian, one of Europe’s largest low-cost carriers, has at long last received tentative approval for a foreign-air-carrier permit. Norwegian waited more than two years for this provisional nod, which will allow it to operate more transatlantic flights under the open-skies treaty between the European Union and the United States.

The promise of cheaper transatlantic fares will be music to the ears of the travelling public. But the DoT had to weigh up their lot with the competing interests of all involved parties.

Let’s follow in its footsteps, starting with Norwegian itself.

The airline currently provides less than 2% of scheduled transatlantic seats between Europe and America. That compares with 17% for Delta Air Lines DAL -2.00%; 16% for American Airlines; and 12% for United Airlines. Norwegian has long wanted to grow operations across the Atlantic, but has been hamstrung by Norway’s high labor costs and limited traffic rights (the country is a member of the European Economic Area, but not the E.U.). Its solution was to create an Irish subsidiary, Norwegian Air International.

In considering the airline’s Irish application, the DoT took stock of lobbying by the U.S. majors and their myriad related trade unions – all of which, understandably, would rather keep Norwegian out of the market.

“DoT is proposing to allow a foreign airline to compete directly with U.S. airlines on long-haul international routes with unfair economic advantages,” the Air Line Pilots Association (ALPA) complained after the ruling, describing the Irish license a “flag-of-convenience”. Unions had previously warned that Norwegian would hire Asian employees at a fraction of the cost of western staff, although the airline is promising not to do this.

While acknowledging that the case presents “novel and complex issues,” the DoT ultimately concluded that there is “no legal basis to deny” Norwegian’s application. It reached its decision after consulting with both the Department of Justice and the Department of State .

Though undeniably a victory for Norwegian, the ruling should not necessarily be considered a defeat for U.S. aviation interests.

To the contrary, it could spur the Partnership’s members to refocus their energies toward more justifiable lobbying efforts. Instead of haranguing a European competitor with an impressive cost-base and a transparent balance-sheet, Delta, American and United can now double-down their focus on two of the fast-expanding Persian Gulf carriers: Etihad and Qatar Airways.

Gulf-carrier state subsidies

The U.S. majors began lobbying against three Gulf carriers – Dubai’s Emirates Airline, Abu Dhabi’s Etihad, and Qatar Airways – last year, accusing them of receiving $42 billion of “unfair benefits” over the past decade.

Acting through the Partnership, the airlines and their related trade unions are urging Washington to curtail or revoke America’s open-skies treaties with the United Arab Emirates and Qatar. They contend that subsidies enable the Gulf carriers to operate loss-leading flights, in turn stealing market share from commercially-constrained U.S. competitors. “We are not competing against air carriers,” says United. “We are competing with governments.”

Proponents on both sides of the fence have been quick to rally around their cause, flinging accusations of protectionism and subsidization back and forth to no avail.

Dismiss the naïve notion that either side is really concerned with “fairness,” though, and the path forward is clear.

Emirates, the largest and oldest of the Gulf three, is a futile target. The bulk of the evidence against Emirates relates to lax labor laws, non-arms-length contracts, and benign governmental policies. These benefits – which even the Partnership avoids calling subsidies – occupy a grey area in the debate. Much like Norwegian’s employment practices, they are too abstract and subjective an advantage to compel Washington to act.

As Dubai’s flag-carrier correctly notes, bilateral agreements “do not attempt to harmonize company establishment laws, labor rules or other domestic legislation, since these are outside the competency of aeronautical authorities”.

Lobbying against Emirates – like lobbying against Norwegian – is doomed to fail because rectifying these kinds of ”unfair advantages” falls beyond the DoT’s remit.

When it comes to Etihad and Qatar Airways, however, the financial mandate for regulatory intervention is clear-cut. Filings unearthed by the Partnership show that Etihad has received $4.6 billion of interest-free loans – liabilities which the airline has “no contractual obligations to repay” – plus $6.3 billion of capital injections. Qatar Airways has received $7.8 billion in interest-free loans and $6.8 billion in government loan guarantees, with repayment “neither planned nor likely”.

These are cold hard figures – tacitly acknowledged by the airlines themselves – which contravene both the letter and the spirit of America’s open-skies treaties.

If the Partnership is serious about living up to its name, its members need to pick their fights carefully. Going after a commercially successful, state-owned airline like Emirates that happens to enjoy benign government policies is pointless. Going after an innovative, privately-owned airline like Norwegian is downright unjustified.

Etihad and Qatar Airways are the two airlines with a serious case to answer. It’s time to turn up the heat on them.

Originally Published on Forbes.