U.S. aviation giants split on Gulf carrier subsidy row

A push by three U.S. airlines to curb competition from Gulf state carriers has exposed divisions over free trade with other powerful U.S. aviation players including Boeing Co and FedEx Corp, potentially complicating the airlines’ campaign for Obama administration support.

Delta Air Lines Inc, United and American Airlines have asked the White House to look into the financial statements of competitors from Qatar and the United Arab Emirates, which they accuse of receiving more than $40 billion in government subsidies since 2004.

But calls for the United States to tamper with Open Skies agreements with the Gulf nations are at odds with the stance of other major U.S. companies that benefit from the pacts.

The agreements eliminate barriers that would block some FedEx operations and slow the expansion of carriers like Emirates that have showered Boeing with orders.

Boeing, which like European rival Airbus has filled its order book with commitments from Gulf carriers, said it would continue to support pacts such as the more than 100 Open Skies agreements negotiated by the U.S. since the 1990s.

“Boeing supports a commercial-aviation industry based on open and fair competition, and Open Skies has long been a key factor in this, benefiting both U.S. and international airlines,” spokesman Jim Proulx said in an emailed statement.

Boeing later added that it was not jumping directly into the feud between some of its biggest airline customers.

“We are in no position to make judgments about the allegations, nor is it our role to do so,” spokesman Tim Neale said.

But experts say the groundswell of support for Open Skies from Boeing, FedEx and others could make it easier for the White House to resist renegotiating individual agreements.

“I think the entry into the fray of Boeing and the others as countervailing pressures to the airlines will make it easier politically for the administration to do what I believe the Department of Transportation wants to do, namely, to continue to pursue its successful Open Skies strategy,” said New York University law professor Michael E. Levine.

Other companies were more blunt.

“The U.S. should not capitulate to the interests of a few carriers who stand ready to put their narrow, protectionist interests ahead of the economic benefits that Open Skies provides,” David Bronczeck, chief executive of FedEx’s Express air cargo unit said in a Feb. 18 letter to the heads of the U.S. Departments of State, Transportation and Commerce.

JetBlue Airways Corp, which has a codeshare agreement with Emirates, wrote a similar letter.

Meanwhile, a group representing 200 North American airports said it had written to the Obama administration warning that the U.S. “leadership role” in international aviation could be threatened by any weakening of the Open Skies policy.

Liberalization disputes

Delta, United Continental Holdings Inc and American Airlines Group Inc say in the report - which has been reviewed by Reuters but not yet been made public - that they support Open Skies agreements but not their abuse through what they regard as trade-distorting Gulf subsidies.

Historically, however, analysts say the top U.S. carriers have been involved in frequent disputes about liberalization.

“The major U.S. carriers have opposed Open Skies and deregulation all along the way, even from the word go, and yet have been major beneficiaries due to domestic consolidation and also globally in terms of market access,” said Peter Harbison, a chairman of Sydney-based consultancy CAPA-Centre for Aviation.

Emirates, Qatar Airways and Etihad Airways deny receiving subsidies. So far, the Obama administration says it is reviewing the U.S. airlines’ claims but has made no decisions.

In an interview with Reuters Wednesday, Emirates President Tim Clark hinted at possible legal action over potential commercial harm done by the U.S. airlines’ campaign.

The clash between Delta and the Gulf airlines has taken a caustic turn, including remarks by Delta’s chief executive that were perceived as linking the Gulf carriers with the Sept. 11 attacks on the United States in 2001.. Delta later clarified its remarks and apologized.

Clark also called his U.S. rivals’ service “shoddy” and said they would do better to focus on improving their own product.

The Business Travel Coalition, a for-profit company whose clients include travel agents and corporate travel managers, agrees that the top U.S. airlines have only themselves to blame for the market share loss, a contention disputed by Delta.

Still, the U.S. airlines may have one trump card to play in the form of Americans for Fair Skies, an organization opposed to alleged Gulf subsidies that is the project of former Air Line Pilots Association President and former Delta captain, Lee Moak.