FedEx on Subsidized Rivals: Bad for Us, OK for American, Delta, United

NEW YORK ( TheStreet) -- As the big three U.S. airlines seek limits on the three subsidized Middle East carriers' aggressive expansion in the United States, they have encountered a powerful adversary with seemingly contradictory positions on subsidies for competitors.

FedEx (FDX), one of two members of the global oligopoly of overnight package deliverers, is a $46 billion (revenue) company that likes to play politics, particularly in support of reduced trade barriers and increased restrictions on labor unions.

Now it is playing both sides of the fence, supporting the subsidized Gulf carriers but opposing its own subsidized competitors.

FedEx backs the reduced trade barriers that are part of the Trans Pacific Partnership, a 12-country free trade agreement, but it has expressed concerns regarding "the Japanese government's owning and operating one of the world's largest, most powerful and wealthiest state-owned enterprises: Japan Post," according to a 2012 letter from a FedEx attorney to a top official in the U.S. government's Office of the Special Representative for Trade Negotiations.

The problem, the letter said, is that government-subsidized Japan Post competes with private companies.

"In addition to its basic mail delivery services, Japan Post provides a large variety of delivery and financial services that compete directly with services offered by the private sector," the letter said. "Little or nothing has been done to ensure that Japan Post does not use profits and resources obtained from its monopoly and dominant market position to subsidize competitive services."

FedEx has previously raised concerns related to state-owned competition in Australia, Malaysia, Korea, China and Germany.

FedEx takes a somewhat different position, however, when it comes to passenger airlines subsidized by the governments of Qatar, the United Arab Emirates, and Abu Dhabi and Dubai, the two largest emirates.

A report compiled for American (AAL), Delta (DAL) and United (UAL) detailed how the four governments have provided about $39 billion in subsidies to Qatar Airways, the flag carrier of Qatar; and Etihad Airways and Emirates Airlines, flag carriers of the UAE.


The report, released this year, contends that the subsidies violate conditions of the Open Skies agreements that have enabled the three airlines to expand rapidly in the U.S. Open Skies agreements require fair competition and a level playing field, conditions that would disqualify heavily subsidized airlines.

Shortly after the CEOs of American, Delta and United met with senior Obama administration officials to discuss their concerns about the three Middle East carriers, FedEx CEO David Bronczek sent the same officials a letter advocating for Open Skies and FedEx lobbyists began visiting offices on Capitol Hill to make their case.

"Recently, several U.S. passenger carriers have questioned Open Skies, specifically as it relates to the Middle Eastern carriers," Bronczek wrote in the letter. "What they want is for the U.S. government to protect them from competition from able, attractive new entrants.

"U.S. passenger carriers do not fly extensively between foreign points like FedEx does," so they don't rely as heavily on Open Skies agreements, Bronczek wrote. FedEx, by contrast, has a hub in Dubai. There, Bronczek wrote: "Flights from the U.S. criss-cross with our flights from India and Asia in order to move U.S. products into local markets. This hub also operates as our gateway into Africa."

Modifications to Open Skies agreements "might spell the end of these opportunities," he said. "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 to the people of the United States."

But if it is true in the Open Skies debate, shouldn't it also be true in the Trans Pacific Partnership debate?

"We agree with FedEx that a level playing field free of market distortions from government subsidies benefits U.S. employees and economic growth," said Jill Zuckman, spokesperson for the Partnership for Open & Fair Skies, which represents the big three U.S. carriers and their unions. A FedEx spokesperson declined to comment for this story.

 

 

 

 

 

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

More from Stocks

Quick Read: 3 Things for Investors to Know Before Wednesday's Trading Session

Quick Read: 3 Things for Investors to Know Before Wednesday's Trading Session

Replay: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron

Replay: Jim Cramer on the Markets, Oil, General Electric, Zillow and Micron

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Micron Shares Soar; Chipmaker Is 'Managing for Profitability' Now, Says Analyst

Micron Shares Soar; Chipmaker Is 'Managing for Profitability' Now, Says Analyst

Dow Slips 178 Points; S&P 500 and Nasdaq Also Decline

Dow Slips 178 Points; S&P 500 and Nasdaq Also Decline