MIAMI — At Friday’s National Press Club luncheon, the Big Three U.S. airline CEOs were the guest speakers, and almost the entire talk and Q&A session was focused on Open Skies and the Big Three Gulf airlines. Not a lot of new information came out of the the talk, but the timing was a bit ironic as it closes what has been two weeks of many words and actions between both sides being exchanged.
Plus, it is a very rare occurrence to have the Big Three U.S. airline CEOs sitting side by side, but all three said that it is necessary in order to help voice that there is a big problem with competition when it comes to the The Big Three Gulf Airlines and The Big Three U.S. Airlines.
The Last Two Weeks
Last week, Qatar Airways announced plans to launch flights to three new U.S. destinations–Atlanta, Boston, and Los Angeles–next year. A few days later, there was an Open Skies debate at the Phoenix International Aviation Symposium in which representatives from both American and Delta as well as two consultants talked about the debate; Additionally, a FedEx executive in the audience was asked to speak on behalf of the cargo company, and he explained that FedEx and UPS have more overlap than the Big Three U.S. airlines. Although, he later said that the company will be making official comments at some point soon.
This week has been another busy one. Qatar’s CEO Akbar Al Baker held a press conference in Washington D.C. where he stated Qatar’s stance on the issue, and Thursday night, Etihad posted a press release in which it says that the airline has conducted research that states that the Big Three U.S. airlines as well as airlines they have merged with have received subsidies through benefits valued at $71.48 billion (with $70 billion being since 2000).
Etihad’s press release states: “The international consultancy The Risk Advisory Group, which conducted the research for Etihad Airways, identified that the majority of benefits which accrued to Delta, United and American came from restructuring under Chapter 11 of the US Federal Bankruptcy Code, yielding them at least US$35.46 billion, and additional pension fund bailouts totaling US$29.4 billion from the US Government’s Pension Benefit Guaranty Corporation.”
Meanwhile releasing the findings by The Risk Advisory Group, the General Counsel and Company Secretary of Etihad Airways, Jim Callaghan, said: “We do not question the legitimacy of benefits provided to US carriers by the US government and the bankruptcy courts. We simply wish to highlight the fact that US carriers have been benefitting and continue to benefit from a highly favorable legal regime, such as bankruptcy protection and pension guarantees, exemptions from certain taxes, and various other benefits. These benefits, which are generally only available to US carriers, have created a highly distorted market in which carriers such as Etihad Airways have to compete.”
The Big Three U.S. Airlines Address Etihad’s Comments
Towards the beginning of the talk, Richard Anderson stated that they have direct evidence that the Gulf carriers have been receiving government subsidies. All three agreed that calling bankruptcy a subsidy is not right.
Richard Anderson was quick to address Etihad’s latest comments when it came up. He explained that “Chapter 11 was not a subsidy nor were there any subsidies,” and he asked all of the airline employees who have lost pensions when working for an airline during bankruptcy in attendance to stand up; many stood up and even made booing noises.
After the booing noises, Anderson stated: “There were no government subsidies in Chapter 11, and it was the employees, the creditors, and a legal process that went through a reorganization which is just simply not a subsidy under WTO law or U.S. Law.”
Doug Parker jumped in saying: “It’s not a subsidy under WTO law because it is not a subsidy; it’s just nonsense to suggest this as Richard just mentioned. There was no government support that provided support to [the bankrupt carriers] that needed to meet their obligations. The people who made commitments to those airlines like creditors and employees had found that airlines could not meet those commitments, and they ended up with pensions and jobs being lost. That is what bankruptcy is, but if this is their defense, fantastic because we disagree. Let’s sit down and talk about it to help them understand bankruptcy and the subsidies they are receiving. It’s a conversation we want to have with them.”
Jeff Smisek also made some comments and tied in some of his financial and accounting background. He stated: “In fact two of the three carriers–Etihad and Qatar–in their audited financial statements that we were able to uncover in some fairly obscure jurisdictions have going concern footnotes. For those of you who were not schooled in the wonders of accounting, this means that the auditors are basically saying that this is not a going concern; this entity does not have sufficient cash flow and profitability to survive, and therefore, it needs to be liquidated. But the government stepped in and shoveled in more subsidies to keep these carriers afloat…it’s absurd that bankruptcy serves as a subsidy for American carriers because the people that pay for those are the employees, creditors, and shareholders; it’s a difficult thing to go through for everybody.”
Anderson: “We Do Not Receive Subsidies”
When the moderator moved on to clarify if the U.S. airlines are arguing that they don’t receive any government subsidies like with the air traffic control system in the United States.
Anderson quickly jumped in saying: “We pay a 21% national sales tax when you add up the 15-17 takes we have to pay. Our airport systems are self funded. We do not receive subsidies from the United States, and this was part of the Airline Deregulation Act of 1978. We do not receive subsidies, and that is just false.”
The moderator then said “So tax cuts and loan guarantees, you would not call them subsidies?” Anderson replied: “If you look at our book tax rate is on our finanicals, we are a full tax payer at the highest corporate tax rate.”
Will U.S. Government Do Something
Earlier this week, the Washington Post cited an unnamed government officials that the government is hesitant to address this issue, but last week, a representative from the U.S. DOT at the Phoenix Aviation Symposium stated that they are taking their time to figure out how to best address the issue. However, the government administration is remaining quiet on its stance on the issue.
Smisek believes: “yes, I believe the government will take action, and it has taken action in other major trade disputes, and it has enforced consistently the trade policy of the United States…it is very important that this administration take action on a significant trade dispute, a clear violation of the underlying trade agreement with the Open Skies agreement. We are confident that they will take action, but should they not take action for some reason, they are other avenues we will have to pursue.”
Parker also believes that the government will take action because “the evidence is so compelling, and it cannot be ignored. We have provided the information, and they asked us some questions in which we gave answers to…the government will have to act. We are concerned about urgency. From the time we presented the information until now, they are at 25% more capacity.” Parker also stated: I know they are going to act because we are not going to let them go away without acting because our people are not going to let the government do this. The people at our companies in this room have given a lot and worked hard.”
Anderson said: “We have been at it for more than two years, and we are not going to stop. So, the investigation is just going to continue, and it’s not going to stop. We have a huge support in Congress, and we just circulated on letter with more than 260 members signing it. We have avenues of relief through congress, but we are going to continue the battle because it is about the future of the industry that is vital to our country. It is our responsibility as the stewards and the leaders of these organizations to do what is in the best interest of the U.S. aviation industry, and we are not going to give up.”