What Happens When Canada’s Blue Sky Policy Cast Clouds Over the UAE’s Predatory Ambitions

In October of 2010, Canada’s Defense Minister was en route to Camp Mirage, a strategic Canadian military base in the United Arab Emirates (UAE) when his plane was suddenly denied access to Emirati airspace. Shortly thereafter, the UAE forced Canadian troops out of Camp Mirage completely, slapped a $1,000 transit fee on Canadian citizens traveling to or through the UAE, and actively lobbied against Canada’s temporary seat on the UN Security Council.

What was the impetus for such an aggressive series of actions? The Canadian government, acting wholly within the confines of its bilateral aviation agreement with the UAE, denied two UAE-owned airlines, Emirates and Etihad Airways, increased landing rights in Canadian cities, citing no correlating origin and destination (O&D) demand for new service. Hardly an international incident.

The Canadian’s decision was a rational judgement based on the fact that the existing and forecasted demand for O&D capacity between Canada and the UAE was already some 40% over-supplied through the access shared by the UAE carriers, themselves (i.e. discounting the capacity of other market participants). Thus, the Canadian government correctly assessed that demand did not warrant an expansion in service, at that time.

The Canadian government had every right to analyze and reject the proposed routes if they were deemed either unnecessary or harmful because, unlike the U.S., Canada does not have an “Open Skies” agreement with the UAE. Indeed, why would it? The UAE is a tiny nation of some 9.2M people, almost 8M of whom are expatriate. It has no domestic market behind Abu Dhabi or Dubai (neither Emirates nor Etihad operate domestic services). As it boasts in its latest “report,” Emirates airline, alone, has emerged as the largest international airline in the world in terms of capacity. How could this be? Operating out of Dubai – and sharing the tiny UAE market with its Abu Dhabi cohort Etihad – it (ostensibly) serves a market about the size of Chicago with no domestic network to support it.

In any normal relationship between trade partners – let alone those that are, at least ostensibly, diplomatic and military allies – a government acting within its rights under a bilateral trade agreement would not be subject to such a disproportionate response. However, the UAE is neither normal nor a good trade partner.


As a Canadian veteran of the Gulf War and Kuwait War, I was shocked that the UAE would prioritize its national carriers’ growth goals over regional security. Camp Mirage was a critical base for staging operations into various hot spots in the region and was filled with brave Canadians willing to risk their lives in pursuit of stability in the Middle East – stability from which the UAE would directly benefit far more than Canada. However, to the Emirati government, nothing is safe from being used as a bargaining chip to benefit their already wildly oversized carriers.


Of course, I don’t believe the UAE was upset that it might miss out on any potential profits on Canadian routes, per se; rather, I believe it was deeply concerned that any nation had adopted a sober perspective and, finally, stood up to its predatory growth practices. What if the governments of other, far more lucrative markets were to take notice? For years, Emirates, Etihad, and their neighbor Qatar Airways have exploited their positions as agencies of the state to fuel artificial growth and capacity dumping across the globe.

These three Gulf carriers do not compete on a level playing field with airlines from democratic jurisdictions. They enjoy extreme advantages in cost of capital, as they are able to finance at state rates of borrowing. Moreover, they pay the majority of their operational costs to other entities of their own corporate structure (in the case of Emirates, to other entities of the Emirates Group and, ultimately, to the parent Investment Corporation of Dubai (ICD) – all entirely owned by the Head of State, Sheikh Mohammed bin Rashid Al Maktoum. Emirates super-hub at Dubai was entirely state-financed and built by expatriate workers – operating in conditions and under terms which are unthinkable in our nations. There are no labour rights in the UAE and human rights, in general, are questionable at best.

In contrast, Canadian (and other western) airlines play by the rules. Our airlines pay corporate taxes, their employees pay personal tax, they employ tens of thousands of Canadian citizens who have rights enshrined in the constitution of the nation. No western carrier can compete with a vertically-integrated, wholly state-owned entity which pays no domestic tax, whose employees pay no personal taxes, which pays transfer prices to other entities of the same corporate structure (state) and which is, therefore, able to price-point virtually at will.

And you don’t have to take my word for it. A quick look back at the Emirates effect on the Australian aviation industry illustrates my point. Between 1996 and 2010, Emirates grew from 0 to 1.7 million annual passengers carried between Dubai and Australia (as of 2015/2016 the figure is 3.35M and growing). During the same period, no less than eleven Australian and European carriers abandoned the Australia-Europe market, and with those routes went thousands of Australian jobs. This decrease was a direct result of Emirates using sixth freedom rights to poach non O&D passengers and route them through its subsidized super-hub. In addition to driving competition out of the market, this has egregiously damaged Australia’s own industry and, in particular, its national airline – Qantas.

Fortunately, Canada operates on a “Blue Sky” policy that allows our government to address potential foreign abuses of our aviation agreements. While the “Open Skies” system has been undeniably beneficial, for the most part, to the American aviation industry, I would caution US officials against the sacrifice of American jobs and carriers – indeed the entire U.S. aviation industry – to unfair capacity dumping at the altar of unfettered liberalization. For trade to be free, it must first be fair. The U.S. airlines compete vigorously where playing fields are level.


Let Canada’s experience serve as a lesson to other countries having trade relationships with the UAE. Canada acted according to its rights and interests in reviewing, and subsequently denying, increased landing rights in Canadian cities. The denial was simply because the Canadian government saw no correlating increase in O&D passenger demand to justify increasing capacity on those particular routes. The right to such a decision is exactly the rationale for the type of aviation trade agreement Canada holds with the UAE (inter alia). It is not a measure of protectionism but, rather, a measure designed to preserve fairness in the international aviation marketplace.

This issue is a global one, and as a result of the access granted to the state-owned carriers of the UAE through the Open Skies Agreement the UAE holds with the U.S., their predatory expansion creates a significant threat to the U.S. economy, U.S. aviation workers, and U.S. national security.

Americans for Fair Skies is working hard to fight these illegal trade violations on the U.S. front. You can learn more at fairskies.org.

 

Captain Paul Strachan
Former President, Air Canada Pilots Association (ACPA)