NEW YORK ( TheStreet) -- A report compiled for the big three U.S. airlines presents a chilling picture of efforts by some Mideast governments to establish airlines funded by massive subsidies which, according to the report, have been systematically covered up in order to mask violations of Open Skies agreements that have enabled the three Gulf airlines' disproportionate growth.
The governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates, have provided about $39 billion in subsidies to the airlines -- Qatar Airways, the flag carrier of Qatar; and Etihad Airways and Emirates Airlines, flag carriers of the UAE -- according to extensively researched report, compiled over two years for American (AAL) , Delta (DAL) and United (UAL) and provided to TheStreet by an airline industry source who asked not to be identified.
The Gulf governments and airlines "have created vertically-integrated, wholly state-owned aviation sectors that include monopoly service providers and complex interrelationships between their government institutions, airlines, ground handlers, airports and state-owned banks," said the report, which is titled: "Restoring Open Skies: The Need to Address Subsidized Competition From State-Owned Airlines in Qatar and the UAE."
The subsidies come in forms including cash grants, interest-free loans and favorable contracts with airports, vendors and suppliers funded and generally owned by the governments, the report said. They inevitably reflect close relationships between governments and the airlines, which are often led by the same families and the same individuals.
The $39 billion is just the start. Governments in Dubai, Abu Dhabi and Qatar all plan to build huge new airports because they believe the large airports they already have are insufficient to accommodate the growth they expect.
Dubai is spending $7.8 billion to expand capacity at Dubai International Airport to 90 million passengers annually by 2018. It plans to spend $32 billion more to build the first phase of Dubai World Central Airport, 40 miles away, which could ultimate accommodate 240 million passengers annually.
Abu Dhabi is spending $7 billion to expand capacity at its airport to an annual capacity of 50 million passengers. Qatar is spending $17 billion on Hamad International Airport, which opened in May 2014 and also will have an annual capacity of 50 million passengers.
The report represents "the first time anyone has investigated these subsidies," said an airline industry spokesperson who asked not to be named. "It took a couple of years for the report to be put together" by a team of forensic accountants and investigators.
"We've begun a discussion with the Obama administration about these subsidies and what remedies there are," the spokesperson said. "The executive branch of government has the power to take a look at this. There is a process in place under Open Skies to address subsidies."