U.S. Airlines Face Tough Fight on Subsidies While Boeing Sits It Out

NEW YORK ( TheStreet) -- The big three U.S. airlines apparently face an uphill battle as they seek a review of whether Open Skies treaties have been violated, enabling rapid growth by three Gulf airlines financed by massive government subsidies.

Arrayed against American (AAL) , Delta (DAL) and United (UAL)  are not only the Gulf carriers and their wealthy governments, but also FedEx (FDX)  , consumer groups, and even another airline, JetBlue (JBLU) , which has a partnership with Emirates Airlines.

So far Boeing (BA) , which sits squarely in the middle of the conflict and also is one of the most influential U.S. companies, has chosen to sit it out, saying only that it is committed to "open and fair competition."

The governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates, have provided about $40 billion in subsidies to three airlines -- Qatar Airways, the flag carrier of Qatar; and Etihad Airways and Emirates, flag carriers of the UAE -- according to a report compiled over two years for the big three U.S. carriers and provided to TheStreet by an airline industry source who asked not to be identified.

The report paints a chilling picture of the Mideast governments' efforts to establish airlines funded by subsidies which have been systematically covered up in order to mask violations of Open Skies agreements.

"I would say this is the greatest set of facts on an issue that you would ever want to have on your side," said Lee Moak, who last month left a post as president of the Air Line Pilots Association to become president of a new organization, Americans for Fair Skies, which is dedicated to seeking fair treatment on Open Skies for the U.S. carriers.

"It's a matter of getting the facts out above the noise in Washington, given the amount of money the other side is spending" on lobbyists and public relations firms, Moak said.

Moak, who is on leave as a Delta pilot, said the three U.S. carriers want "to have the U.S. government enter into consultation and have a discussion under the construct of the Open Skies agreement," which requires that "competition is fair and the playing field is level."

Ultimately, the secretaries of transportation and state would determine whether Open Skies agreements are being violated.

Teal Group analyst Richard Aboulafia questioned whether the report will have any effect.

"There's no battle, it's just talking points," Aboulafia said. "There's nothing there. What are you going to do? Violate a treaty that we signed?"

On Tuesday, Sheik Tamim bin Hamad al-Thani, the emir of Qatar, met with President Obama. Yet, "I haven't heard about the three airline CEOs having a sit-down conversation with the president," said Moak.

It's not just the Gulf airlines and their governments who want things to stay as they are.

Kevin Mitchell, chairman of the Business Travel Coalition, questioned why the big three airlines' report on subsidies -- "Restoring Open Skies: The Need to Address Subsidized Competition from State-Owned Airlines in Qatar and the UAE" -- should be kept secret.

"It is a fundamental right of fairness to be able to confront one's accusers -- a right that the Gulf carriers should be allowed to exercise by being provided the report that the airlines have been sharing with the U.S. government," Mitchell said in an email.

He said the big three U.S. airlines want "protection from competition from aggressive, well-managed airlines with faster connections, more destinations and better service." That view, he said, "is very likely shared" by government officials, "which is why the (big three airlines) are unlikely to succeed in corrupting our Open Skies policy."

FedEx, which benefits immensely from Open Skies agreements that enable it to operate as a trans-border cargo carrier, said in a letter to government officials that 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."

JetBlue, which has a code-share agreement with Emirates, also said it is opposed to tampering with Open Skies.

Boeing has been more circumspect. In a prepared statement provided to Reuters, the company said that it "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."

Aboulafia said Boeing isn't likely to take sides. "Their dilemma is very simple," he said. "The airlines are all their customers. They have to be really careful. What's wrong with staying away from the whole issue?"

The three big U.S. airlines said they do not oppose Open Skies. They oppose violations of Open Skies treaties that enable unfair competition where subsidized airlines fly to multiple U.S. airports.

The question is whether anybody is going to listen to them.

-- Written by Ted Reed in Charlotte, N.C. 

To contact this writer, click here.

Follow @tedreednc

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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