When Etihad Airways chief executive James Hogan accepted an invitation months ago to speak at a high-level aviation event in Washington DC, he was not expecting to end up defending his airline's business strategy to hundreds of people in a packed ballroom.

"The world has changed," he remarked wryly towards the end of his keynote speech on 17 March at the US Chamber of Commerce aviation summit. "We hoped these facts have helped clarify our position."

Hogan, outlining what he called "10 facts" about Etihad, sought to persuade the audience that the Abu Dhabi government's involvement in Etihad was similar to the role that other states play in their hometown carriers. "Our shareholder has provided equity and investment, they've invested and seen success," he says. "That's business."

The USA's three biggest airlines do not agree. Weeks before the event, Delta Air Lines, United Airlines and American Airlines made public a 55-page report alleging that Etihad and two other Gulf carriers - Emirates Airline and Qatar Airways - have benefited from more than $40 billion of state subsidies since 2004. These alleged subsidies have tipped the playing field to the advantage of the Gulf carriers, say the three US legacy airlines, who are calling on their government to take action.

Supported by some of their unions, the three US carriers are asking Obama administration officials to begin talks with their counterparts in the UAE and Qatar. The US airlines, which say that the alleged subsidies have distorted the marketplace in an open-skies environment, believe that the Gulf carriers had flouted fair competition clauses in the open-skies agreements.

"We're just asking our government to give us some support as well, not in subsidies but at least that the playing field is level," said American chief executive Doug Parker at the summit, hours after Hogan's speech.

Rumours of the report and the three US carriers' lobbying effort - first reported by Flightglobal - have swirled around Washington DC for months before the report was unveiled at a press conference in early March. Chief executives from the three carriers had initially planned to take their case to US government officials as early as October 2014, but put off the meeting, apparently due to concerns over timing as the UAE and Qatar are US allies in the fight against Islamic State.

A meeting finally took place in late January. While the issue brewed silently among industry watchers in the weeks afterwards, it burst into mainstream consciousness when Delta chief executive Richard Anderson appeared on CNN charging that the Gulf carriers had received unfair state subsidies. During the segment, Anderson drew a relation between the Gulf carriers and the 9/11 terrorist attacks, citing "the great irony" that the terrorists originated from the same region as Emirates and the like.

The comment - which Delta subsequently apologised for - drew a harsh comeback from the vocal chief executive of Qatar Airways, Akbar Al Baker. "Quite frankly, I think Mr Richard Anderson needs to go and study in a university to find out what the difference is between equity and subsidy," Al Baker told CNN.

Both Anderson and Al Baker were notably absent from the US Chamber of Commerce's aviation summit this week, but it was clear that the issue would dominate the agenda. So much so, that Carol Hallett, counsellor to the Chamber, reminded summit delegates at the start of the day to be "respectful" of one another's views, even if there were differences.


Across town from the summit, Emirates president Tim Clark met with reporters at the National Press Club as part of a whirlwind trip to the US capital to meet with officials to defend the airline against the US carriers' allegations.

Clark would not say how the talks went, aside from characterising them as "very constructive". Hogan, speaking with Flightglobal, says Etihad plans to hold its own talks with US officials in Washington this week.

Both Clark and Hogan say their airlines will respond to the allegations in full, but would not be drawn on committing to when. "We will do it in a methodical manner," says Clark. "Goodness me, it took them two years to produce it, so give us a bit of time." Calling the accusations "low hanging fruit", he adds: "I don't intend to spend a lot of time on this.... It could be quicker than people expect."

"We will take our time to respond," says Hogan. "We will work through it and understand and consult people."

Both airline chiefs strongly deny the subsidies allegations. "Tosh" was Clark's response when asked if Emirates had billions of dollars in fuel hedging losses assumed by the Dubai government. The carrier says the losses were paid for by its own cash reserves.

Asked to comment on the timing of the campaign against the Gulf carriers, Clark appeared frustrated. "I wish we knew... I struggle with their allegations."

Most perplexing to Emirates, says Clark, is the US carriers' claim that the Gulf airlines have taken away passengers and market share. "We are already feeding the big three anyway," says Clark, referring to Delta, American and United. "If we are seeking multiple fifth freedoms across the Atlantic, then maybe they will have a concern or two, but we don't do that.... What's driving this? I don't know."

US airlines and Italian flag carrier Alitalia were irked when Emirates launched flights from Milan to New York John F Kennedy. Clark says the airline had started the route after being approached by the Italian government when Alitalia was going through financial troubles. "If you look at our business model... we have very little fifth freedom operations," says Clark. "The essence of our model is to connect multiple city pairs. So the notion that we will 'plunder' the north Atlantic market, I struggle to get to the bottom of that one."


While the Gulf carriers have vehemently denied that they receive state subsidies, the three legacy US carriers and their supporters are not relenting in making sure they are heard. The US airlines and four unions have banded together under a coalition called Partnership For Open and Fair Skies, formalising their lobbying efforts in Washington.

Former president of the Air Line Pilots Association, Lee Moak, now heads an organisation called Americans For Fair Skies which is supporting the three US carriers in their push.

Immediately after Hogan's speech at the US Chamber summit, representatives from the coalition rebutted the Etihad chief's comments. "We are not against a national airline," ALPA executive administrator Rick Dominguez told reporters in a media scrum outside the summit. "There is compelling evidence that these loans [to the Gulf carriers] are not required to be repaid."

The report alleging the subsidies was unveiled after about two years in the making. The US carriers say they obtained the Gulf carriers' financial statements after trawling through accounts in several countries that they operate and are required to file financial figures with.

Asked why it took the coalition so long to unveil the report, Dominguez says the numbers were difficult to obtain. Allied Pilots Association president Keith Wilson says: "It's like a jigsaw puzzle."

The US carriers and their supporters now await a decision from US officials, after presenting to them the findings. "We are still waiting on the DOT to make an announcement on their findings," says Dominguez. But this could be a while, acknowledge the two pilots.

"You know how our fellow government works," says Wilson. "Hopefully they will engage soon, It will take some time."


Since the US carriers' report was made public, they have faced backlash, may it be from players in the industry, consumer organisations or the consumers themselves - many of whom have taken to the Internet to voice their opinions.

The US airlines have taken pains in the recent month to draw a distinction between their opposition against the Gulf carriers and their support for open-skies agreements. They say that the Gulf carriers deserve to be looked at based on the magnitude of the alleged $40 billion in subsidies.

"We are not attacking open skies, in fact open skies have been wonderful," United chief executive Jeff Smisek told reporters on the sidelines of the US Chamber summit. "There have been 114 open-skies treaties, [only] two of them are being abused and they're being abused by governments."

Delta, United and American have found a tentative show of support from Southwest Airlines. While Southwest - one of the big four US carriers with the legacies - has not joined the coalition, its chief executive Gary Kelly said in February that he believes the allegations should be investigated.

"We certainly do not want to be faced with subsidised competition," said Kelly, noting that Southwest had just begun international flights.

Among the other US carriers, JetBlue Airways and FedEx have opposed the US legacy airlines' campaign. JetBlue has codeshare relationships with all three Gulf carriers, and none with any of the three US mainline carriers.

The existence of open-skies agreements is essential in helping smaller carriers like JetBlue succeed, its newly minted chief executive Robin Hayes told Flightglobal on the sidelines of the US Chamber summit. "You have the four large airlines [in the USA], and there is a huge gap between number four and number five," he says. Open-skies deals are vital in helping JetBlue grow into new markets, he adds.

Smaller US airports, particularly those that do not have hub status with any of the big three US carriers, have come out in support of the Gulf airlines. Attracting service from foreign airlines is key to their connectivity, these airports have told Flightglobal.

Trade association Airports Council International-North America (ACI-NA) voiced its support for open skies in a February letter to senior Obama administration officials.

"If the United States were to weaken its open skies policy generally or with respect to targeted countries, ACI-NA believes that many of the benefits enjoyed today could be decreased," says the group's chief executive Kevin Burke in the letter. "Each country has its own approach to governance of the aviation industry and to subsidies and incentives for a variety of historical, political and other reasons. What some consider to be subsidies, others consider to be legitimate business practices."

Echoing the Gulf carriers, Burke pointed out that the Chapter 11 bankruptcy protection process in the USA could be considered "a form of subsidy because US airlines are able to reduce their labour and creditor obligations as a result".

Delta, United and American have all restructured through Chapter 11.


Allegations of the Gulf carriers benefiting from state subsidies are not new. In recent years, US and European carriers have taken aim at Emirates, Qatar Airways and Etihad. But until recently, these comments have largely been kept to panels at industry conferences and one-off media interviews.

With the three US carriers formalising their efforts to persuade the US government to take a second look at its open-skies deals with the UAE and Qatar, other parties that have long opposed the Gulf carriers have upped their criticism.

Lufthansa Group chief executive and chairman Carsten Spohr - who stepped into the top job in May 2014 - has thrown his support behind the three US legacy carriers. "We do support the campaign by the leading US carriers against state aid and fully share their concerns," he said at the US Chamber summit.

It appears that Germany has listened to its flag carrier. EU transport commissioner Violeta Bulc said earlier this month that France and Germany had raised concerns on unfair competition from the Gulf carriers. These concerns are slated to be addressed as part of new European aviation policies that will be outlined later this year, she said.

Ahead of Bulc's comments, the French and German transport ministers had issued a joint statement in which they said European carriers are losing market share because of "unfair competitive practices" of the Gulf airlines.

Emirates' Clark brushed off Lufthansa's backing of the US carriers, saying: "Everybody is entitled to their own opinion. Good luck to them, I cannot say or make a judgement about what the carriers outside the three may or may not think about us."

Elsewhere in the world, Qantas Airways has called on the Australian government to be restrained when negotiating air services agreements with Middle Eastern countries, warning that liberalisation could hurt Qantas and Australian consumers.

Clark and Hogan would not comment further on how talks with US government officials are going, or the reactions they have received from their respective governments. "I am here as an airline manager," says Clark when pressed. "I don't want to cross over into governmental affairs. They will decide how to respond to that."

Both men have expressed confidence that their airlines will emerge with their reputations intact from the subsidies row, but the fact that both are holding talks with US officials to defend their carriers underlines that neither airline is laughing off the US legacy carriers' campaign.

The Gulf carriers need to look no further than the impasse faced by Norwegian, who has yet to receive US governmental approval for its Irish subsidiary to take over long-haul flights to the USA more than a year after filing for the permit. The big three US carriers, and unions including Southwest's pilots, have vehemently opposed Norwegian's plan and there is no inkling when US officials will make a decision.

The hold on Norwegian's application, while infuriating the airline and aggravating EU officials, has shown how powerful the US airline lobbying force can be.

As Eithad's Hogan has acknowledged, the world has changed.

Additional reporting by Edward Russell

Source: Cirium Dashboard