Global Airlines

The Open Skies Agreement is an air transportation agreement between US and European airline companies that allows for any member of the agreement to fly between US and European airports without worrying about the conflicting rules and regulations of each country involved. With regards to a global airline, the US Department of State (“Open Skies Agreements”, 2016) claims that with over 100 partners, including several US airlines, that

“America’s Open Skies policy has gone hand-in-hand with airline globalization. By allowing air carriers unlimited market access to our partners' markets and the right to fly to all intermediate and beyond points, Open Skies agreements provide maximum operational flexibility for airline alliances.”

As of today, there are several members of the Open Skies Agreement that have received government subsidies. Jill Zuckman who spoke on behalf of the Partnership for Open and Fair Skies claimed that Gulf air carriers such as Emirates, Qatar, and Etihad airlines “combined have received more than $42 billion in government subsidies since 2004” (Sumers, 2016, para. 7). Receiving government subsidies a violates the Open Skies Agreements made by these Gulf carriers. Zuckman further stated that the amendment is in place to keep airlines from charging “prices that are artificially low due to direct or indirect government subsidiary or support” (Sumers, 2016, para. 7). All of the Gulf carriers listed above are either fully owned, or owned through a subsidiary of their respective governments.

On the flip side of the argument, foreign carriers such as Emirates claim that “it had not depended on government subsidies, bail-outs, and bankruptcy laws, as some US carriers did” Sumers, 2016, para. 15). This led to another argument on who considers what a federal subsidy. While the claims made by Emirates aren’t all necessarily monetary ones, several US airlines have received help in the past from the US government. Bill McGee (2015) highlights that

“Bankruptcy reorganization laws afford US carriers advantages many foreign airlines don’t enjoy, particularly when Chapter 11 is used to dismiss debts and freeze wages. American, Delta and United – and most of the carriers they merged with recently – have all filed for bankruptcy” (para. 15).

Along with the topic of subsidies comes the argument of the Export-Import (Ex-Im) Bank and wide-bodied aircraft purchases. The Ex-Im Bank is a government agency in place to help US businesses sell goods into oversea markets and “assumes credit and country risks that the private sector is unable or unwilling to accept” (“About Us,” 2016). In other words, the Bank may help foreign customers by offering a lower credit risk and better rates. The complaint brought up by US carriers, more specifically by Delta Air Lines, is that “rivals like Air India and Emirates have used Ex-Im guarantees to lower their borrowing costs, then used the savings to cut ticket prices on international routes that compete with Delta or buy still more new jets” (Weisman & Lipton, 2016, Para. 9).

It's clear that the credit break given to foreign carriers purchasing aircraft does pose an unfair advantage to US carriers purchasing similar aircraft at a higher rate. However, there is another side to the coin that should be considered. The purchases of American manufactured aircraft, from domestic or foreign carriers is good news to those of us who work for US aircraft manufactures such as Boeing. Aircraft sales mean the aircraft must be built, which yields good, American jobs for those of us qualified to work in that sector of the industry.

From the prospective of US carriers, I understand how the reduced loan credit, which leads to cheaper foreign air carrier fares, can be viewed as unfair. It makes life hard on US airlines trying to compete against foreign carriers. On top of that, US airlines must compete with government owned and funded foreign airlines who can tap into their government’s resources if need be. When viewing both arguments, I would have to say that US airlines are on an uneven playing field with foreign carriers.

References

Export-Import Bank of the United States. (2016). About US. Retrieved from http://www.exim.gov/about/?gclid=CjwKEAjwwOvABRC08aedoZ_lnTMSJACs_cbutYUNROY-hPlNk9375PZ0Pp4n2_CILXykOwJl4ClhTRoCsd_w_wcB

U.S. Department of State. (2016). Open Skies Agreements. Retrieved from http://www.state.gov/e/eb/tra/ata/

Weisman, J., & Lipton E. (2015, April 6). Boeing and Delta Spend Millions in Fight Over Export-Import Bank’s Existence. Retrieved from http://www.nytimes.com/2015/04/07/business/boeing-delta-air-lines-export-import-bank.html?_r=0

Sumers, B. (2016, June 28). U.S. Airlines set to Lose Major Battle Against Gulf Carriers in Open Skies Debate. Retrieved from https://skift.com/2016/06/28/u-s-airlines-set-to-lose-major-battle-against-gulf-carriers-in-open-skies-debate/

McGee, B. (2015, Sept. 2). How Much do Taxpayers Support Airlines? Retrieved from http://www.usatoday.com/story/travel/columnist/mcgee/2015/09/02/how-much-do-taxpayers-support-airlines/71568226/