EU Transport Chief to Battle Airline Subsidies in Persian Gulf

  • Bulc wins mandate to negotiate aviation deals with UAE, Qatar
  • European ministers also endorse mandates for Turkey, Asean

European Union governments gave EU transport chief Violeta Bulc the go-ahead to negotiate aviation agreements with the United Arab Emirates and Qatar, setting up a potential clash over alleged unfair subsidies to airlines based in the two Persian Gulf nations.

European transport ministers meeting on Tuesday in Luxembourg included a provision on financial transparency in the negotiating mandates for Bulc, targeting any market-distorting aid to Emirates, Etihad Airways PJSC and Qatar Airways Ltd. The ministers also approved similar mandates for accords with Turkey and the Association of Southeast Asian Nations.

“These agreements will offer new business opportunities to the whole aviation sector, new routes and better fares to passengers, while guaranteeing a level playing field to our companies,” Bulc said in a statement after receiving the ministerial green light.

The air-transport deals being sought with the UAE and Qatar are a priority because those nations have fast-growing aviation markets and the issue of subsidies in the Persian Gulf states has become politically sensitive in Europe. Bulc, who’s in charge of transport at the European Commission, aims to reach agreements by the end of 2019.

The commission, the EU’s executive arm in Brussels, has been gearing up for a bigger battle over state aid to Gulf-based airlines after national governments in Europe joined European carriers such as Air France-KLM Group and Deutsche Lufthansa AG in raising the issue.

France and Germany voiced concerns about foreign subsidies last year at an EU meeting where transport ministers debated global aviation competition. The chief executive officers of several European airlines, including Air France-KLM and Lufthansa, sent a letter to Bulc in December 2014 urging her to step up efforts to tackle government support for Gulf rivals.

Total seats on scheduled flights between the EU and the six nations of the Gulf Cooperation Council, which also includes Saudi Arabia, Kuwait, Oman and Bahrain, have more than tripled over the past decade to 39 million last year, according to the commission. The UAE has more direct traffic with the EU than China, India and Japan combined, according to the commission.

The targeted deals are “comprehensive” because, in addition to provisions on “fair competition,” they would cover such areas as market access, investment and technologies for air-traffic management. Any overall agreements struck by Bulc would need to be approved by EU national capitals.

Bulc’s leverage in tackling subsidies during the negotiations may ultimately depend on the unity of EU governments, which in the run-up to Tuesday’s meeting in Luxembourg showed differing degrees of enthusiasm for the provisions on fair competition. Germany and France led a group that was keener than were nations including the U.K. and Italy.

As part of any accords, Bulc is prepared to ease the EU’s 49 percent limit on foreign ownership of airlines based in the bloc in return for reciprocal rights abroad for European companies. Etihad Airways has a 49 percent stake in Alitalia SpA and a 29 percent holding in Air Berlin Plc, while Qatar Airways owns 15 percent of British Airways owner IAG SA.

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