business

U.S. Feud With Gulf Airlines Nears End With U.A.E. Agreement

Updated on
  • Persian Gulf nation commits to greater financial transparency
  • Carriers retain right to operate multi-country routes

The United Arab Emirates agreed to increase financial transparency in its airlines as part of a deal with the U.S. to resolve allegations that two state-owned carriers have unfairly benefited from billions of dollars in government subsidies.

The U.S. and U.A.E. acknowledged that while government support of airlines isn’t unusual, it may “adversely impact competition,” according to a copy of the agreement, which was seen by Bloomberg News. The Persian Gulf country, home of Emirates and Etihad Airways, also committed to issue annual public financial reports under internationally recognized accounting standards.

While the accord doesn’t freeze so-called fifth-freedom flights, the U.A.E. pledged that its carriers have no plans for more of these routes, a senior State Department official said. Such flights have proved controversial in the past because of the indirect market access they provide. Under commercial aviation protocols, the flights start in an airline’s home country and touch down in a different nation before continuing on to a third. Emirates makes such flights from Dubai to Athens and then on to Newark, New Jersey.

The agreement settles the final piece of a long-running dispute over government aid, which pitted the largest U.S. airlines against rivals in the U.A.E. and Qatar. American Airlines Group Inc., Delta Air Lines Inc. and United Continental Holdings Inc. claimed in 2015 that the Persian Gulf carriers were able to compete unfairly on flights into the U.S. because of government subsidies.

Pompeo Announcement

U.S. Secretary of State Mike Pompeo is expected to announce the agreement May 14, people familiar with the matter said, who asked to not be identified because the document hasn’t been made public. The U.S. and Qatar reached a separate agreement in January, which would apply to Qatar Airways.

The State Department wanted to address concerns raised by the U.S. carriers and ensure a level playing field, the official said.

The U.A.E. deal bears out “what we have said all along – its government subsidies harm competition,” Scott Reed, campaign manager for the Partnership for Open and Fair Skies, said in a statement. The group represents American, Delta, United and several airline unions in the dispute.

“All the terms and provisions of the Air Transport agreement including fifth freedom rights remain fully in place, with the U.A.E. and U.S. airlines free to continue to add and adjust routes and services,” Yousef Al Otaiba, the U.A.E.’s ambassador to the U.S., said in a statement.

Competitive Advantage

The U.S. carriers in the dispute claimed subsidies from the Gulf nation allowed Etihad and Emirates to continue operating flights on which they were losing money, giving them an advantage over domestic rivals.

Emirates said it welcomed the conclusion of the talks.

“The record of discussion and related side letter fully preserves Open Skies as per the existing Air Transport Agreement between the U.S. and the U.A.E., guaranteeing complete commercial flexibility that benefits consumers, communities, and the economies of both countries,” it said in an emailed statement.

Etihad couldn’t be reached for comment.

— With assistance by Justin Bachman

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE