The Trump administration is reviewing two bilateral agreements with the United Arab Emirates (UAE) and Qatar after complaints from the major U.S. airlines that the two Gulf states are unfairly subsidizing their government-run airlines.
Delta Air Lines, United Airlines, American Airlines and its unions, through the Partnership for Open & Fair Skies, have been appealing to President Donald Trump to enforce Open Skies agreements since he took office. The three legacy carriers asked him in an open letter to enforce the agreements with the UAE and Qatar.
“Trade cheating by the UAE and Qatar puts over 1.2 million American jobs at risk and threatens the entire U.S. aviation industry. We are encouraged that the Trump administration is poised to take on this important matter,” Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies, told The Daily Caller News Foundation Wednesday.
The three largest U.S. airlines say that Emirates Air Lines, Etihad Airways and Qatar Airways operate with an unfair advantage by receiving large government subsidies. They argue that while they must react to supply and demand when deciding routes, the Middle Eastern carriers are not beholden to market forces and can simply dip into an unlimited pool of government subsidies when determining where to set their routes.
U.S. airlines’ efforts to bring this issue to the president’s attention appear to be paying off. National Economic Council Director Gary Cohn, White House trade adviser Peter Navarro, and White House Chief of Staff Reince Priebus have been discussing the issue, according to Politico.
TheDCNF has learned that Navarro has chaired at least two Policy Coordinating Committee meetings, one the first week of June and the other during the first week of July.
America has 120 Open Skies agreements with countries from around the world. The agreements are meant to expand international passenger and cargo flights to and from the U.S. (RELATED: Pilots Meet With White House To Discuss Repeal Of Obama-Era Rule)
The Partnership released a report in January 2015 that alleges the governments of Qatar and the UAE have granted close to $40 billion in subsidies and “other unfair benefits” to its state-owned carriers. Since then, they say, another $10 billion has been identified as government subsidies.
“1.2 million American jobs are at risk because foreign subsidies are undermining the U.S. aviation industry,” Andrea Newman, senior vice president at Delta Air Lines, told TheDCNF in March.
Asking the president to intervene in order to protect American jobs and competitiveness in the face of an unfair trade agreement may seem like a slam-dunk for Trump, but it isn’t that simple.
The U.S. Airlines for Open Skies Coalition (not to be confused with the Partnership) is made up of four U.S.-based passenger and cargo airlines who disagree with the big three legacy carriers that the UAE and Qatar are violating Open Skies.
“Multiple passenger and cargo airlines, including Atlas Worldwide, FedEx, Hawaiian Airlines and JetBlue Airways disagree with the claims and demands of the legacy carriers,” the coalition explains on its website.
The legacy carriers claim that the U.S. Airlines for Open Skies Coalition is nothing more than a front for Emirates and Etihad Airways. Atlas flies cargo for Etihad, and JetBlue is a codeshare to Emirates, meaning that the two airlines share the same routes and market the flights under their own brand on a set number of international routes.
“When the U.S. government asked the legacy carriers to name a specific breach of Open Skies, they failed to identify a single provision,” the coalition says. “The only part of the Open Skies agreement that provides any remedy against subsidies is one that allows a government to intervene if a foreign airline is charging artificially low fares,” the coalition adds, saying that the Partnership for Fair and Open Skies ignores this in its appeal to the White House.
The Coalition argues that the American carriers have a way to address their concerns. They point to the International Air Transportation Fair Competitive Practices Act (IATFCPA) of 1974, which authorizes the Department of Transportation (DOT) to take action in response to anti-competitive, discriminatory, predatory or unjustifiable activities by a foreign government or foreign airlines against a U.S. airline.
An industry insider speaking on the condition on anonymity surmised that U.S. airlines didn’t take that route because they know they don’t have a case.
“For over 40 decades when U.S. carriers, including American, Delta and United, had concerns about foreign competitive practices, they filed a formal IATFCPA complaint with the Department of Transportation,” the person said. “Why is this any different now?”
The Partnership asserts that a specific breach exists, and points to article 11 of the Open Skies bilateral agreement between the U.S. and the UAE, which states that, “each Party shall allow a fair and equal opportunity to compete.”
“The pricing provision is not relevant,” according to an industry insider who spoke on the condition of anonymity. “The United States government has long recognized that a fair competition provision is relevant for subsidies.”
Emirates Airlines debuted a new flight March 13 from Newark to Athens to Dubai, which marks the first new flight added under the Trump administration. The new route, which U.S. carriers fervently opposed, was also the subject of a bipartisan letter from 25 members of Congress in New York and New Jersey.
The congressional delegation asked the Trump administration to cancel the route until the UAE stops subsidizing its largest airline. Lawmakers recognized that a fight over Open Skies could complicate U.S. relations with a critical strategic counter-terrorism ally, but they insist that U.S. workers are under attack due to the subsidies, and they must be protected.
Some industry insiders view the new Emirates route as a test.
“We kind of see that as a poke in the eye at the Trump administration, just to see how they react,” Chip Hancock, governmental affairs chairman of the Southwest Airlines Pilots’ Association, told TheDCNF shortly after the new route was announced. “They want to see if he [Trump] responds or if he is just going to let them keep on expanding.”
“Our position on Open Skies has remained consistent for years. Our president Sir Tim Clark has been very vocal on the subject,” an Emirates spokesperson told TheDCNF in March. Emirates asserts that it is contributing to the goals of Open Skies, which is greater competition, increased flight frequency, promotion of travel and tourism, improved service, customer-centric innovation and consumer choice.
Those who disagree with the big three airline’s claims hope to convince the president that the Open Skies agreements with the UAE and Qatar are operating as intended, and that intervention is unnecessary.
U.S. airline pilots have already made inroads in their multi-faceted lobbying campaign to overhaul Open Skies agreements. The pilots successfully lobbied key lawmakers to include an amendment in the Federal Aviation Administration’s (FAA) reauthorization bill that they say will protect labor standards in the airline industry.
The amendment to the FAA reauthorization bill, introduced by New Jersey Republican Rep. Frank LoBiondo, directs DOT to ensure that airlines applying for foreign carrier permits under the U.S.-EU Open Skies agreement “do not undermine labor standards or the labor-related rights and principles.”
The full reauthorization bill, passed 32-15 by the House Transportation and Infrastructure Committee in late June, would reauthorize the FAA for six years and create an independent, non-profit organization to run the nation’s air traffic control system. The amendment, championed by American-based airline pilots, addresses a concern with what they’ve described as a “flag of convenience” scheme employed by foreign carriers.
International aviation regulations have traditionally required aircraft to be registered — “flagged” — in the home country of its owners and regulators. Several new airlines are currently attempting to evade the national flag-based system in favor of a “flag of convenience” based model.
The flag of convenience model allows airlines to set up subsidiaries outside of their home countries in an attempt to increase profit, a practice used by Norwegian Air. Norwegian Air’s desire to operate in the U.S. faced objections from airline carriers and unions, who claimed that it undercut labor costs, safety regulations and domestic-airline ticket prices by operating in Ireland.
Under former President Barack Obama, DOT finalized approval of new routes that would allow Norwegian to service inside the U.S. The pilots argued that the decision threatened American jobs and undermined a culture that promotes safety first.
Pilots were encouraged by the news that Trump may intervene.
“We’re encouraged by the news that the White House is considering taking action to stop Gulf carriers from violating open skies agreements,” Hancock said.
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