Emirates Counters U.S. Airlines’ Persian Gulf Complaints

Updated on

First, chief executive officers of the three largest U.S. airlines sought to limit the expansion of Persian Gulf carriers in the domestic market because of government subsidies they said provide an unfair competitive advantage.

Now the head of Emirates has struck back, arguing that American Airlines Group Inc., United Continental Holdings Inc. and Delta Air Lines Inc. all benefited from U.S. bankruptcy laws that let them shed debt and cut operating costs to continue flying.

The request to the Obama administration from Doug Parker of American, Jeff Smisek of United and Delta’s Richard Anderson followed more than a year of investigation they said disclosed $40 billion in government subsidies that give Emirates, Etihad Airways and Qatar Airways Ltd. a competitive advantage. Emirates President Tim Clark denied receiving subsidies or bailouts.

“We are very interested to see how the figure of ‘$40 billion in government subsidies and benefits’ was calculated,” Clark said in a statement. His airline has “always embraced and advocated fair and open competition.”

Dubai-based Emirates received $10 million in startup capital in 1985 and a one-time $88 million investment for two Boeing Co. 727s and a training building, amounts that have been repaid through dividends totaling more than $2.8 billion, he said.

Parker, Anderson and Smisek presented a 55-page document to administration officials in late January, asking for a review of U.S. air treaties with the Persian Gulf nations that sponsor the carriers.

Squeaky Wheel

U.S. airlines have seen the way quickly growing Gulf carriers have affected the European industry and are being proactive in confronting the issue, said Savanthi Syth, a Raymond James Financial Inc. analyst in St. Petersburg, Florida.

“They obviously feel the Middle Eastern carriers have an advantage they don’t,” she said in an interview. “If they are feeling disadvantaged, they are going to call it out. The squeaky wheel gets the oil and you need to make that noise. That’s what industry is supposed to do.”

Emirates, Qatar Air and Etihad have all exploited the Gulf’s position as a crossroads for global flight paths to funnel more traffic between the West, Asia and Australasia through their hubs. Dubai International airport last year toppled London’s Heathrow as the No. 1 airport by international traffic.

Market Share

The U.S. airlines contend the three Gulf carriers are expanding to capture far more passenger traffic than their home populations need, Trebor Banstetter, a Delta spokesman, said today. Their growth already has hurt European carriers, he said.

“They are planning to take market share from international carriers outside of their home countries, and this is all being done in a subsidized manner,” Banstetter said in a statement. American and United didn’t immediately comment.

Emirates operates in New York, Dallas/Fort Worth, Houston, Los Angeles, Boston, San Francisco, Seattle and Chicago, generating more than $2.8 billion a year in economic value, Clark said. Qatar and Etihad also have been expanding in the U.S.

Clark urged the U.S. airlines to examine Emirates’ audited and published annual financial reports.

(Updates with analyst comment in eighth paragraph.)
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