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Wednesday, July 28, 2021

US airlines offer evidence claiming Qatar Airways ‘not commercially viable’

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Boeing 787 Dreamliner
Boeing 787 Dreamliner

For the first time, a trio of US airlines has offered detailed figures to support claims that Qatar Airways, Emirates and Etihad receive government funding that allows them to unfairly compete against American carriers.

In the case of Qatar Airways, those state subsidies are alleged to have added up to more than US$16.5 billion since 2004.

“While Qatar Airways claims it is not subsidized, the truth is the exact opposite: without the subsidies, the airline would not be commercially viable,” the airlines’ critics charge in a report released late Thursday.

A380 Qatar Airways
A380 Qatar Airways

The report was submitted to US government officials last month, but not released to the public until a few days ago.

US airlines have long argued that they face unfair competition from the Gulf. Those claims have been consistently denied by Qatar Airways CEO Akbar Al Baker and his counterparts in Dubai and Abu Dhabi.

Earlier this year, the three largest US carriers – American, Delta and United – renewed those allegations with claims that the Gulf carriers have received billions of dollars in government subsidies.

Saying this violates the spirit of the country’s Open Skies agreements with Qatar and the UAE, the carriers are calling on American politicians to renegotiate those deals.

As they stand, airlines – rather than governments – decide on the frequency, capacity and fares of flights between the two countries.

Up until late last week, the US carriers had failed to provide any details to support their allegations. However, an advocacy group called Americans for Fair Skies has since released a 55-page report that forms the basis of the airlines’ most recent accusations.

Government benefits

Qatar Airways is owned by the government and does not disclose its financial results.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

However, its critics say they obtained summaries of the airline’s annual account filings from “certain third country jurisdictions” that they claim show the Qatar government has provided financial assistance to the carrier “since its inception” in 1993.

“The subsidies – over $16 billion in the past decade alone – have enabled Qatar to expand at a rate that would have been impossible otherwise and to remain in business in spite of its poor financial performance,” the report states.

The specific allegations include:

  • $8.4 billion in loans that were “unsecured and interest-free with no fixed repayment schedule,” many of which were ultimately forgiven;
  • $6.8 billion in loan guarantees. By promising other lenders that it would bail out Qatar Airways if it ran into financial difficulties, the government enabled the carrier to continue raising money despite being otherwise uncreditworthy by US standards;
  • $452 million in free land. A 2011 financial report is said to show that the airline was given three plots of land by the government that it sold off two years later;
  • $616 million in airport fee exemptions and rebates. Passengers transiting through Doha are exempt from a QR40 fee levied on other departing passengers, which disproportionately benefits Qatar Airways, the only carrier that has such passengers. Additionally, financial statements are said to show various rebates that appear to be refunds to Qatar Airways of the passenger fees assessed on airlines using the airport;
  • $215 million in airport revenues. Qatar Airways apparently receives the proceeds of various airport operations such as parking and facility rentals without shouldering any of the associated expenses; and
  • $22 million in grants for “incentives and route subsidies.”

Additionally, Qatar Airways is accused of receiving “unquantifiable benefits” from its monopoly on alcohol sales in the country through its Qatar Distribution Co. division.

Hamad International Airport

The report also asserts that the landing fees at Hamad International Airport “are among the lowest in the world, and far too low to cover the airport’s capital expenditures.”

In other words, Qatar Airways’ rapid growth was helped by the government’s multi-billion dollar financial support of HIA’s construction.

The national carrier has not yet specifically commented on the report that was released Thursday.

However, questions have been raised over what exactly constitutes an unfair “subsidy.” For example, some aviation observers have pointed out that some US carriers have benefited from American bankruptcy protection laws that allow companies to continue operating as they restructure.

Last month, Al Baker didn’t deny that Qatar Airways received money from the government, but characterized it differently:

“We don’t receive any subsidy. What the government has given us is equity into an airline which it owns.”

Implications

The US carriers disagree with Al Baker’s interpretation and, citing the World Trade Organization’s definition, argue that the financial infusions amount to subsidies that violate the spirit on the Open Skies agreements.

For illustrative purposes only

This, critics charge, runs counter to US aviation policy, which seeks to “(e)nsure that competition is fair and the playing field is level by eliminating marketplace distortions, such as government subsidies…”

Furthermore, the Open Skies agreement between the US and Qatar states that airlines in both countries should have “a fair and equal opportunity” to compete.

If the US airlines are successful in convincing American lawmakers to renegotiate the agreements with Qatar and the UAE, the Gulf carriers could face restrictions on the number of US flights they’re allowed to operate.

That’s currently the case with other countries such as Canada, which limits Qatar Airways to three weekly flights to Montreal despite the airline’s interest in expanding service to the country.

Boeing 777-8X & 777-9X
Boeing 777-8X & 777-9X

However, it’s not clear how much popular support the American carriers have in the US in their fight against the Gulf carriers.

They are among the largest customers of US plane manufacturer Boeing, which has benefited from the airlines’ rapid expansion.

Meanwhile, the success of the Gulf carriers in the US has shown that many American passengers prefer the service offered by Qatar Airways, Emirates and Etihad over their own country’s carriers.

Thoughts?

81 COMMENTS

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AEC
AEC
6 years ago

Of course it’s not commercially viable. Got to do something with all that gas money though.

Amber
Amber
6 years ago

The jealously is just oozing out of US airlines. They need to focus on their service and not nickel and dime their customers then maybe Gulf carriers wouldn’t have such an advantage.

I remember when US airlines like TWA were still in business. Fantastic service and flights were always pleasant. Even American Airlines was pretty decent. Now flying US airlines is worse than a subway ride.

If Emirates and QA wasn’t so popular they’d wouldn’t give a hoot if it was government funded or not.

Peter Pickle
Peter Pickle
6 years ago
Reply to  Amber

You call it jealousy; A capitalist economy would term it as an unfair trade practice…

Spirit
Spirit
6 years ago
Reply to  Peter Pickle

Just in case you missed this comment from “Guest”: “Yes – but the United States has been doing this for years with farm
subsidies – to the detriment of poor African farmers. Why isn’t it ok
for other countries to do this to the United States? They just learned
how to play the game from the best: http://www.ifpri.org/blog/hidd..”

Official
Official
6 years ago
Reply to  Spirit

You speak wisdom my friend. Same thing applied in EU’s subsidies in agriculture.

Cerebus
Cerebus
6 years ago
Reply to  Spirit

The wisdom of blogs….

Abdulrahman
Abdulrahman
6 years ago
Reply to  Peter Pickle

“unfair trade practice” Which the U.S. has been guilty of many times over the years. So what’s the problem then?

Cerebus
Cerebus
6 years ago
Reply to  Abdulrahman

When two countries sign trade agreements, it does matter. Despite any other internal policy or subsidies that the country implements. Yes the US government subsidizes the farming industry. It maintains the farms so that the country is able to feed itself when needed. Not sure that is the same as an airline. Qatar also subsidizes its farming industry, and buys up gobs of land in Africa to exploit under food security. However, the US signs trade agreements, and these will account for things such as value added taxation, subsidization, etc. with the countries in which they sign the agreements. Africa loses out from the US farm policies along with Europe. It prevents them from engaging in an agrarian society. It is also true that Africa is ripe with corruption and brutal dictatorships that exploit both the food programs and the potential farmers, so using this as the basis of an argument to support a global airline that subsidizes the use of First Class seats and flying falcons around is really in two different hemispheres of thought. So the argument loses any logic or sound reasoning. If, for example you used this as an academic argument, it would be flatly rejected. Same for a simple news story. You can’t just cherry pick things out and say….well….the do this here, so its only fair I do this over here….

Spirit
Spirit
6 years ago
Reply to  Cerebus

The reality is that the US is no utopia. Money and special interests of every hue and colour hold its congress in a never ending chokehold.

Cerebus
Cerebus
6 years ago
Reply to  Spirit

Not implying that it is a utopia and its riddled with its own problems with money and special interests and government intervention and regulatory environments that most countries outside of Europe would revolt if implemented. But, from a business standpoint it is both stable and safer for investment because of the regulatory environment and adherence to standards and practices. Attempts at comparing government transparency and corruption between the two is rather pointless. What is at the heart of this, is that one side has to play by the rules that were agreed and the other side is not being held accountable to either the spirit of the agreement or its literal language. This is a legitimate complaint. Its not about winning or losing or have the “best” or all the other superfluous comments on the page. These are global airlines that have to compete for business along the same routes. If a US airline is charged more by the other country than its home airline or receives a subsidy, then it violates the agreement which clearly defines the rules. Its actually quite straight forward. It has nothing to do with class of service or perceptions on quality. The dirty truth is airlines make their money on coach seats. They manage their operations on something called a per seat cost. Not a per perspective of awesomeness or other marketing crap. Its butts in seats. If one has a lower cost per seat because of fuel subsidies, landing fees being disproportionate, getting interest free loans cancelled by the government to pay for aircraft, and adding in revenues from the airports (US Airlines don’t own the airports), then it violates the agreements that both countries signed. Not the US Airlines, but the governments. The issue is being taken to the US Congress by the airlines for action. It could result in nullification of the agreement and limitations on landing in the US for the ME3. That is not great for consumers, but it will really hit the ME3 more than the US Carriers, which have lots of other options to bypass the region if they want, as it is really just a transit hub.

Abdulrahman
Abdulrahman
6 years ago
Reply to  Cerebus

“If, for example you used this as an academic argument, it would be flatly rejected. Same for a simple news story.” Comments on a news story are the same as an academic argument? Really, professor?!!

By the by, I wasn’t the one who brought up the farming example; someone else did. I was thinking more of the steel tariff from some years ago.

You should work on your understanding of “cherry picking” because it’s safe to say that if you consider my comment to be an example of such, then you don’t really understand the concept. You could describe my comment as being comparing apples to oranges, but that’s another story.

Oh, and last but not least, do keep in mind that Qatar Airways is fully owned by the state of Qatar, and as such, unless you can prove that the owners are not allowed to pump money into their own company, your argument has no legs to stand on.

Cerebus
Cerebus
6 years ago
Reply to  Abdulrahman

The farming discussion became a thread of justification for this, which we should not do. No offence being offered, sorry if it came through that way. To the main topic:

Ok, this is obviously needing to be simplified so that people understand the difference. Lets use basic definitions and then you can decide what it means.

Subsidy – a form of financial aid or support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from Government, the term subsidy can relate to any type of support – for example from NGOs or implicit subsidies. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates).

Equity Investment – generally refers to the buying and holding of shares of stock on a stock market by individuals and firms in anticipation of income from dividends and capital gains, as the value of the stock rises.

So look at the issue from the perspective of the definitions above. Did the Government subsidize or did they buy shares of stock? Its really that simple. They did not buy an equity stake in the company. Basic economic principles and general accounting do not allow for direct cash payments into a company. These are allocated as equity on the balance sheet. In this case, that is not what is happening. The government is doing the very definition of subsidizing. See the definition above – direct cash grants, interest free loans, tax breaks, low interest loans, write-offs, rebates on the use of the airport. So looking at it from the defined economic and accounting terms – these are generally accepted world-wide, it is by all definitions, a subsidy. Its not up for dispute, despite Al Baker’s comments. Which is my point and is what addresses your last comment, this is the legs on which the argument stands. Now, you are right that owners can put money into a company, in this case they are doing it with subsidies, but that is not, and never will be an equity investment, as they are not purchasing shares in the company. On a balance sheet, if they put in cash, real estate, planes, etc on the Asset side of the sheet, there must be an Equity on the Liabilities and Equity side. The indirect transfer does not qualify this as an equity investment, as it is literally indirect and done by the government, making it a subsidy. There is a reason that teams of lawyers and economists and journalists are all calling it a subsidy, because by literal definition it is exactly that.

Spirit
Spirit
6 years ago
Reply to  Cerebus

We could all write treatises calling protectionism different names it doesn’t change the fact that the U.S. practices it too and these airlines are only complaining because they are feeling the pinch.

Anonymouse
Anonymouse
6 years ago
Reply to  Spirit

Yep, and at the end of the day, the US will ban or allow Qatar Airways as they feel fit, simple as that.

Anonymouse
Anonymouse
6 years ago
Reply to  Abdulrahman

Yes, but at the end of the day it QA wanted the privilege of working in the US. The US gov’t will decide how much of that privilege to grant either way, and QA will just be happy with what they get.

Abdulrahman
Abdulrahman
6 years ago
Reply to  Anonymouse

Not sure why you’re addressing this point to me as I didn’t say anything to the contrary. Indeed, the U.S. government has the right to deny QA or any other airline for that matter to be able operate flights in the U.S. So let them 😉

Peter Pickle
Peter Pickle
6 years ago
Reply to  Abdulrahman

guilty of what exactly? there’s always the arab standard then there is the international standard…so wht are u referring to?

Abdulrahman
Abdulrahman
6 years ago
Reply to  Peter Pickle

There many who consider your capitalist economy to be unfair to begin with, as the rich seem to be getting richer, while the rest keep sliding closer to poverty.

What I was referring to are the many examples where the U.S. has offered assistance in form or the other to U.S. businesses that gave these businesses an “unfair” advantage in the international market. Feel free to check the other comments on this thread for examples of this.

Michael Fryer
Michael Fryer
6 years ago
Reply to  Amber

Did you read the article, or just the headline?

Noman
Noman
6 years ago
Reply to  Amber

In capital markets, there’s no such thing as jealousy, it’s just figures and bottom lines

Yacine
Yacine
6 years ago

To be honest, American airlines are absolutely right here. By American standards, and I’d say even by international standards, only a handful of Qatari companies are economically viable. All of them, absolutely all of them, receive regularly some government support and subsidies, and flourish on the use of low-paid employees. In a normal world, 1000 riyal salaries should not exist in a country that is the richest in the world, not even for part-time work. The same also applies to all the other GCC countries.

MIMH
MIMH
6 years ago
Reply to  Yacine

Good point, outside of QP, RG, QG and a few others which companies in Qatar that are Qatari owned genuinely turn a profit. Maybe Al Fardan, Al Mana, Al Mannai but then again they are guaranteed monopolies in which to operate. Again as real competition, they would all be destroyed within a year. Take away their cheap labour and it would be six months.

A.D.A.M
A.D.A.M
6 years ago
Reply to  Yacine

Why should the US care about which companies in Qatar are economically viable?!!! Are they funding them? have you flown lately on any of the TATA buses in the US, which they conveniently call Airlines?!!! A American-based Airlines are among the worst in the world! This is all about trying to divert attention from their failures as airlines …

Cerebus
Cerebus
6 years ago
Reply to  A.D.A.M

That is really not the case in your characterization of the US airlines. Frankly, I am tired of hearing this false argument that the ME3 are better because of international first class service. Trying to compare a US route versus a US international route is like apples and oranges. If you fly Qatar Airways A320 in business class it is really no different that the first class on US airlines. I have more than million air miles around the globe, so I do speak from experience on this one. Then there is the entire poor quality of the ground services and customer service operations of Qatar Airways. While many of the carriers in the US do fly older planes, the are generally well maintained and clean. Clean on Qatar Airways? That’s a joke. I flew to Dubai a few days back and the bathrooms on the plane had not even been wiped down and there was urine on the floor….yeah….stellar first class experience. So, before you label them the worst in the world, I would say take full stock of what a functioning competitive airline looks like from the ground operations to the flight experience and use that as a real measure, not Al Baker’s thoughts on cabin décor an weather there is a chef to serve the 4 people in the subsidized seats in first class.

leila
leila
6 years ago
Reply to  Cerebus

Well it was just a bad experience that u mY find everywhere but we have to admit they are the brand airlines.

Anonymouse
Anonymouse
6 years ago
Reply to  leila

Except that Canada and Germany have already denied Qatar Airways and Emirates greater landing privileges based on the same argument. It isn’t only the Americans.

fzk
fzk
6 years ago
Reply to  Cerebus

I disagree with this comment. I have lived in US for 10 years and have traveled in almost all major US airlines. Their service is pathetic and is frankly a disgrace to the industry. You could argue the availability of cheap labor and lack of minimum wage in ME3 but even the European airlines have much much better service than the American ones. It was also quite some time back revealed that pilots and even cabin crew were only being paid minimum wages. Your arguments about subsidy could be justified but in terms of service you have to be delusional if you claim US airlines provide better service.

Edward
Edward
6 years ago
Reply to  A.D.A.M

I agree. Of course Qatar Airways is subsidized, and this benefits the millions of passengers who fly them. Sounds pretty good to me — a massive wealth transfer from the government of Qatar to passengers from around the world who buy their products.

The only losers are competing airlines, but given their union-bloat and general inefficiency, I don’t have much sympathy for them. Let the U.S. airlines go out of business, and have players like Emirates provide domestic service in the U.S. (with a change in U.S. law). Even better.

Leila
Leila
6 years ago
Reply to  Yacine

It depends on positions for Flight Attendants and Oulits or managers for example they are well paid, for ground staff it’s fair enough for their payment but true what u said some positions give even less than 1000, but not mostly in the airline industry.

leila
leila
6 years ago
Reply to  Leila

Oops, I mean pilots instead of outilsnot.

Yacine
Yacine
6 years ago
Reply to  Leila

I am pretty sure they have also thousands of janitors, cleaners, security people, and others who are paid 1000 or less, whether directly by them or through a subcontractor

MIMH
MIMH
6 years ago

There is two points to this. It is not possible for a country to launch a major airline without lavish subsidies, planes alone cost 100s millions each and that is before you talk about airports, support services and running costs. So I have no problem with that sort of funding.

What I do have an issue with is when it is open ended. At some point the subsidies, loans and right off have to stop or it distorts competition and ultimatley that is bad for the consumer. For example some U.S. airlines may decide it is not worth competing with QA on certain routes and that leaves QA as the only direct choice. Hence QA fares will then increase to rip off as many customers as possible. You only have to look at direct flights from Doha to know what QA will do.

The U.S. airlines have a point, if there is no time limit to the government funding and a level playing field the U.S. government should limit landing slots for gulf airlines.

terracotta
terracotta
6 years ago
Reply to  MIMH

Who cares?

SullyofDoha
SullyofDoha
6 years ago
Reply to  terracotta

I thought MIMH put it rather succinctly. As an airline passenger, YOU should care!

MIMH
MIMH
6 years ago
Reply to  terracotta

I guess the shareholder in U.S. Airlines, the employees of U.S airlines as well as passengers who need to fly.

The Japanese did something similar to the motorbike industry in the seventies, huge government subsidies destroyed other companies as the japanese companies could sell at a loss to gain market share and now they dominate the industry.

Cerebus
Cerebus
6 years ago
Reply to  MIMH

It is possible to start an airline without government subsidies. There are many, many of them all over the world as examples. Virgin, Southwest, Delta….etc….etc…etc…of particular favorite is one that was bought up, TWA, which made its mark by fighting this very same battle in the US for years against Pan Am.

MIMH
MIMH
6 years ago
Reply to  Cerebus

Virgin is tiny, southwest budget and TWA started when there was less competition around the world.

Qatar wants a major airline with lots of routes to supplement its
Economy to do that organically would take decades, hence the need for a kick start.

Emirates is different, it’s established and the subsidies should go.

Cerebus
Cerebus
6 years ago
Reply to  MIMH

I see, so the logic here is its ok as long as you WANT to be something. In 2012, Virgin Atlantic carried 5.4 million passengers. Not exactly tiny. They started in 1993. Southwest is a budget airline, yet it is still a big one by passenger volume, and yes it is an airline. Pan Am – the last US Flag carrier went bankrupt in 1991 – of note….the government did not bail them out or subsidize them. Just because a business wants to grow faster than it could or should doesn’t justify an unfair business practice or in this case violating an international trade agreement.

Peter Pickle
Peter Pickle
6 years ago

What about income from
Qatar Distribution Company (QDC) – Qatar’s sole alcohol retailer?
Qatar Duty Free?

sicti
sicti
6 years ago
Reply to  Peter Pickle

In the range of miilions, not tens or hundreds of millions

MIMH
MIMH
6 years ago
Reply to  sicti

Don’t forget they are also the supplier to all hotels, so I would guess their revenue runs to 100s of millions….

sicti
sicti
6 years ago
Reply to  MIMH

Forgot about that. You’re right, can go higher.

KK
KK
6 years ago
Reply to  Peter Pickle

The irony is that several of state owned subsidiaries buy their liquor for their ‘well hidden company club bars’ from QDC. This is BIG business, I wonder how this is approved by local management. “Everybody knows but nobody dares to do anything”, I guess.

MIMH
MIMH
6 years ago

QDC is an interesting case to bring up. It used to be run by the western O@G companies until Qatar realised it was making so much money and then nationalised it. Some people state Qatar is an Islamic country so why get your hands dirty in the alcohol business, for the same reason it stated selling pork. Not to respect the choices of those which choose to drink and eat pork but to make a lot of money.

Now selling alcohol and pork is one way to fund partly an airline. Now to me that is not a subsidise but a legitmate second business.

Truth101
Truth101
6 years ago
Reply to  MIMH

I assume the US airlines are making the case that the Govt. giving QDC the monopoly on alcohol & pork sales allows them to charge a ridiculously high mark-up on all the products they sell leaving costumers with no other options but to pay up & QDC’s books showing ridiculously high profits as a result. Anyone shopping at QDC knows how they slyly raise the already ridiculously high prices every couple of weeks on average by a couple of riyals,so customers don’t notice.cheeky twats.

Grantley
Grantley
6 years ago
Reply to  Truth101

Indeed. And a bottle of table wine that costs three pounds in the UK is ten pounds here. Haram v Profit. Mmmmm, that’s a tough one, isn’t it?

Grantley
Grantley
6 years ago
Reply to  MIMH

Good comment. The QDC thing never fails to make me smile. Alcohol and pork are ‘haram’ but we don’t mind making huge profits from them…….

Your mom
Your mom
6 years ago

Look at it this way. I’m going to open and fast food restaurant and I’m going to compete with everyone. The difference is, I don’t have to pay rent, utilities, or taxes. I’m also going to fund it out of my own pocket so I’m going to serve wagyu beef and truffle fries and I’ll charge the same. I’ll also hire 4 employees to their 1 any you will be waited on hand and foot, but my payroll will be the same since I don’t pay them nearly as much. When people prefer me over you, I’ll blame you for not being able to manage yourself.

It lies somewhere between no duh and no crap why nobody can complete. The guy with the blank check book will always win. There are no sour grapes. Play by the same rules. That’s all.

guest
guest
6 years ago
Reply to  Your mom

Yes – but the United States has been doing this for years with farm subsidies – to the detriment of poor African farmers. Why isn’t it ok for other countries to do this to the United States? They just learned how to play the game from the best: http://www.ifpri.org/blog/hidden-costs-us-and-eu-farm-subsidies

Joe
Joe
6 years ago

I wonder how much the US government could help american airlines in subsidies if it gave them just 10% of its Israeli budget…

Yacine
Yacine
6 years ago
Reply to  Joe

Israel matters more than American airlines to the White House, Congress, and lobbies. American airlines matter more to the ordinary citizen, but those are called the sheeple. It is the government that decides not the sheeple.
I feel sad for you because you seem to be a very naive person.

Joe
Joe
6 years ago
Reply to  Yacine

It’s amazing that you completely missed the point and proceeded to insulting others just like every other pro-zionist troll out there on the internet.

My comment was pointing out how wrong it is that the US cares more about Israel than its own people, so thank you very much for spelling it out for everyone. You’re a very intelligent insightful person.

A_qtr
A_qtr
6 years ago

Does anyone really care? As long as the consumer is benefiting

Daniel Schriefer
Daniel Schriefer
6 years ago
Reply to  A_qtr

The consumer IS suffering. Most of the things I wanted to buy, especially professional gear, are not available in this country. And if they are, they cost five to ten times more than internationally purchased.

Kingdomishere
Kingdomishere
6 years ago
Reply to  A_qtr

Yours is short sightedness my friend….the game goes like…first kill competition by undercutting unfairly, once you are the last manstanding aka monopoly. From then hence form customer plays to my tune. Besides a fundamental condition to the open skies agreement is that the airlines will be free from government subsidies!!! Failiure to which the USA may be forced to limit these carriers access to thier market…..so I wonder why me as a customer, should not care?!!!

passenger
passenger
6 years ago

Can someone explain why Emirates is way cheaper than Qatar Airways, and yet there is not much difference in quality (at least not in economy class)?

Official
Official
6 years ago

I think there is a major confusion here that needs to be cleared.

Qatar Airways is a government owned enterprise, not a private or public company that receives support from the government. If you are the owner of the company, you have the legitimate right to pump money into your company.

So accusations of subsidies by US airlines has no ground.

Btw, Air France was government owned for over 50 years. British Airways was owned by the British government for around 15 years.

When it comes to airlines or aircrafts, companies always exchange fire in the same way it is reported here. For years now Airbus has been complaining that Boeing is receiving subsidies from the US government (the US company claims the same about Airbus and the EU). These accusations exchange directions depending on each year’s sales and profit report.

Qatar Airways expansion into the US market hiked in the past 2 years, and that is not good for US carriers. It is natural to make these accusations, because if proven right, the US government will have to act, open an investigation, and take counter measures. But that is unlikely to happen.

Kingdomishere
Kingdomishere
6 years ago
Reply to  Official

Official…I would strongly suggest you familiarise yourself comprehensively with these matters first before commenting, Delta’s CEO interview with Richard Quest stating his case on this matter could be a good place to start. Follow the link below. Doha news have provided a link of the report on these allegations…quite useful on getting your bearing on this matter.

http://edition.cnn.com/videos/business/2015/02/16/qmb-delta-ceo-richard-anderson-intv.cnn

passenger
passenger
6 years ago
Reply to  Kingdomishere

That video did not answer his questions (or rather comparisons). So what’s the deal?

Official
Official
6 years ago
Reply to  Kingdomishere

Thank you for the link, though I’m not sure based on what are you claiming that I’m not familiar with these matters. The link does not add much to the overall argument of subsidies, which is Delta CEO’s main point as he mentioned repeatedly.

By definition, as I have mentioned, there is a difference between government owned and government subsidised. Delta’s CEO says that these companies are governments, then says these companies are receiving heavy subsidies. After that he says the consumer wants fair competition, but I’m sure he meant his company.

He then says that this is no difference than Chinese companies dumbing steel in the market, and how this is against US trade policy.. here I had to stop watching, because either this guy doesn’t know what he’s talking about (government owned enterprises, subsidies, and dumbing are completely different things), or this guy is just trying so hard in an unfound case.

Kingdomishere
Kingdomishere
6 years ago
Reply to  Official

Official….seems I have to break it down so I will; the allegation is:

The mentioned gulf carriers are masquerading as government corporations (definition: should be profit making and at the minimum self sustaining though owned by government) whereas in essence they are enjoying government backing (subsidies) on their day to day running which if withdrawn will cripple the business if not kill it.

The open skies agreement signed with the US specifically states a condition that the airlines CANNOT enjoy government subsidies (that is the organisations should be self-sustaining businesses at the very minimum irrespective of owner whether government or private)

The subsidy clause is very key since it lays a level playing field for competition, that is competition will be based on business ingenuity instead of the depth of a either governments pockets.

Based on above the US carriers demand is since violating a condition of the open skies then requires for the agreement to be reviewed they are petitioning thier goverment to do exactly that (i.e. review the open skies agreements with these mentioned carriers).

I hope the issue is clearer now.

Cerebus
Cerebus
6 years ago
Reply to  Official

Oh, I see, so the expert on subsidies and government ownership in airlines is not the guy that runs the largest airline in the world, but the guy that comments on Doha news? I was so confused. A government owned company can be subsidized by the government. You can’t just take money from one pot and put it in another and call it an investment. Government owned companies must also play by fair rules and follow accounting standards and cover their costs. There is a good example of this in the US, if you are interested. Amtrak is the government owned passenger rail service in the US. It has ZERO competition. Yet, they are required to run at a profit or at least at cost. When they do not, the US government does bail them out. This is almost every year. Because of this, private passenger rail cannot compete fairly. Add in that Amtrak also owns the lines, the stations, etc. and would charge the potential competition fees in excess of its own, and you can see the issue. In an accounting sense, this is not an equity investment from the government, and just because they put it there on the debt/equity lines of a balance sheet doesn’t change what the money really is.

Cerebus
Cerebus
6 years ago
Reply to  Official

You are making the same false argument that Al Baker is using in saying its an equity investment. In this case that is simply an accounting falsehood. Changing the name of a subsidy and calling it equity is not the same. Your examples of Air France BA is off base as well. While they are national carriers, they are still required to turn a profit and finance their own operations. There is a really big difference between that and direct transfer of government funds into an airline to support operations. So, no, the arguments are not baseless and have specific legal implications under both WTO and Fair Sky agreements. Unless those agreements also don’t matter to Qatar?

Official
Official
6 years ago
Reply to  Cerebus

Cerebus, in your first comment you mentioned “Government owned companies must also play by fair rules and follow accounting standards and cover their costs.” And that is according to what international law? Please direct me to an international agreement that clearly states that government owned enterprises must cover their costs, otherwise the government must shut them down or whatever.

Once again, Qatar Airways, by law, is a government owned enterprise. Direct transfer of fund from the owner into the owner’s business does not go against any international agreement.

It is interesting that you mentioned the WTO. Qatar finished/did its Trade Policy Review in April 2014, in which I have worked directly on the report as well as responding to hundreds of questions from the members. Article XVII on the Agreement on Tariffs and Trade, and paragraph 1 of the understanding on the interpretation of the above mentioned agreement discusses State Owned Enterprises. The first paragraphe states:

“1. In order to ensure the transparency of the activities of state trading enterprises, Members shall
notify such enterprises to the Council for Trade in Goods, for review by the working party to be set up under paragraph 5, in accordance with the following working definition:

“Governmental and non-governmental enterprises, including marketing boards, which have been granted exclusive or special rights or privileges, including statutory or constitutional powers, in the exercise of which they influence through their purchases or sales the level or direction of
imports or exports.”

This notification requirement does not apply to imports of products for immediate or ultimate consumption in governmental use or in use by an enterprise as specified above and not otherwise for resale or use in the production of goods for sale.”

Qatar annually notifies the WTO regarding any enterprises which are covered under this article. Qatar Airways does not violate this article, otherwise the US, EU, and other WTO members would not miss the chance of challenging Qatar at the Dispute Settlement Mechanism within the WTO.

There is also the Agreement on Trade in Civil Aircrafts in the WTO, but it has nothing to do with the topic at hand.

I would assume that by Fair Sky agreements you mean Open Skies Agreement. This agreement does mention minimum government interference which may influence tickets pricing and competition. Lawyers can argue that a government owned enterprise does not go under the definition of government interference, and can argue that it also does not influence the tickets sales and pricing of services provided. The enterprise (Qatar Airways) has been government owned since its creation.

Please, let us make it clear, and I’m repeating myself, a company owned by an entity allows this entity to pump its money into its own company without legal challenge.

Looking at it from another angle, lobbying inside the US. Boeing, the favorite baby of the US government, makes billions of dollars from deals from these expanding Gulf companies. Fedex expantion plans depend on these companies as well. Considering sanctions against the 3 companies may not set right with Boeing or Fedex, which are way bigger businesses than the named airlines. It is highly likely that they would lobby against opening an investigation so their lucrative partners will not consider shifting to Airbus and DHL.

Unless I am talking to experts on international trade agreements or a lawyer, I rest my case.

Cerebus
Cerebus
6 years ago
Reply to  Official

Wow, you just made an argument against yourself. Excellent work. The very opening statement of the cited paragraph. “in order to show transparency” …. You see, Qatar Airways is subject to the agreement they signed under Open Sky. Period. That’s it. Saying that they are not because of their ownership doesn’t fly. Then you cite this source, which is about transparency. Under the terms of the agreement, which is what Delta and company are complaining about, they are specifically not being transparent. And finally, no calling a government injection of cash equity is not correct. It breaks basic GAAP rules, but hey, you are right, why follow standards if you can just make it all up. I suggest taking an accounting class. If you are an accountant, your knowledge in the area seems to be lacking, which might be scary for your employer. I can hear your advice now, no….just put the losses in this column and we will call them equity. In the US, UK, and Europe this is called fraud. Are we saying that because they are a Government Owned company that they can just say, screw it, forget the rules. Even Qatar has laws. GAAP may not be an international regulation, but it is an accepted standard. Just because the ownership is different doesn’t change the basic operational principles of a business or the rules that govern its operation, certainly not when that business is doing business in countries that have every right to expect it. Operating in the US will require them to follow certain regulations. The US government can force it. They Qatar can decide if they want to play in the largest aviation market in the world or not….seriously, they fly 40 million passengers a year. There are airports in the US that do 2-3 times as much (Atlanta/Chicago/NYC) and all told there are more than 900 million passengers flying in or in and out of the US a year. Who do you think has the most influence in this? In the US, Qatar can’t buy its way in, the rules don’t allow it.
The governments established the rules to allow a fair competitive environment, violating that agreement is the problem. Boeing doesn’t need Qatar anymore than Qatar needs them, and the same with Fed Ex. They are just fine without them, you are talking about 2 companies who have annual revenues nearly the 1/4 size of Qatar’s GDP. At the moment, the big subsides of the past are about to dry up because of oil prices. The US is still pumping out an excess of 1 million barrels a day. So its going to last. What is QA going to do? Tell Boeing to stuff it and mothball half of their fleet? Your arguments are justifying breaking international agreements. You don’t have to be a trade lawyer to read the report, written by…..gasp….actual trade lawyers that are telling you, you are wrong. But, you can copy and paste with the best of them.

Official
Official
6 years ago
Reply to  Cerebus

Funny how in the end of your comment you poke fun of the “copy and paste” and say that I am contradicting myself, when you clearly did not even read the whole article I provided.

I was responding to your previous comment that Qatar/Qatar Airways is breaking its commitments within the WTO and/or the Open Skies Agreement. To show that Qatar is not breaking any WTO commitment I provided the article which you did not read or understood because you stopped at the word “transparency”. The article starts with “In order to ensure the transparency” right? But it continues to explain what type of State Owned Enterprises can be investigated in distorting trade under the article. Qatar Airways does not go under that definition of SOE, so it is not violating the SOE article. Therefore, Qatar Airways is not breaking any WTO rules, which in your previous comment you claimed so. Qatar Airways does not influence the level or direction of imports or exports in a market distorting manner.

Back to your previous comment again, you claimed that it is breaking Open Skies agreement and I have explained why it actually does not. However, your only rebuttal is that it does because you believe that argument “does not fly” without explaining why.

You see, if you can’t prove that Qatar is breaking a binding article of an agreement, don’t go and talk about accounting standards in which: 1. Application is not mandatory. 2. It is not internationally followed by countries around the world. So If you take this case to a court and say this is against GAAP, that will be a good joke. It has no legal base at all.

Thank you for providing the links above, which repeat the same argument about subsidies. Not going to repeat the same argument myself.

Last but not least, by all means please go to Boeing and tell them that they don’t need Qatar Airways, Emirates, and Etihad. Tell them that they don’t need them as they will only be losing a few billions of dollars. You argue the importance of profitability, then pretty much say losing a few billions is not important to a company. Airbus, heck even the EU will give you a medal if you can convince Boeing of that.

Cerebus
Cerebus
6 years ago
Reply to  Official

I didn’t reply because the cherry picked clause is not applicable, it is the focus of imported and exported goods and has nothing to do with the issue at hand. Secondly, the clause concerns empowered government entities or non-government entities that have been granted special powers, with an example being a marketing board. Again, not an airline. Just because it says government doesn’t mean it applies. I never said that the case is to go to court based on GAAP. However in the USA, they use this as a standard. Its a legal basis there, and yes Qatar Airways does have to deal with US courts, so you cant discount it. I never said the application of the standards are mandatory, but best practice. But transparency is both from the WTO perspective and the agreements signed by the governments of both states. Again, its an agreement between the governments and not the airlines themselves. Unless you think QA is a government body granted special privileges as the WTO clause says, I don’t think that is the case. As to Boeing and Airbus, they don’t NEED to sell planes to the middle east. They can still sell them elsewhere. It just adds to the profit of the firms to sell more. The A380 is a good example, too expensive, so they will never recoup the costs, so the line is shutting down. Boeing is already in profit on its 787 and 777s, so not an issue for them other than some lost revenue. Not to mention if the ME3 aren’t playing anymore, the gap will be filled by someone else, which will also need to buy planes. Last but not least, I provided the links so you could feel a little better knowing that your argument is flawed not because I think it is, but because the experts in the area think it is, you don’t seem to understand the basic difference between equity and subsidies, they are not the same no matter who owns the company.

Cerebus
Cerebus
6 years ago
Reply to  Official

A better source than anyone on this page….or should we discount the leading periodical on the subject because of your opinion on what equity means? http://www.economist.com/blogs/gulliver/2015/03/airline-subsidies-gulf

Cerebus
Cerebus
6 years ago
Reply to  Official
Abdulrahman
Abdulrahman
6 years ago

Clearly, American companies don’t like the taste of their own medicine 🙂

Spirit
Spirit
6 years ago
Reply to  Abdulrahman

I’m amused; it is quite something reading the complaints below.

Abdulrahman
Abdulrahman
6 years ago
Reply to  Spirit

For many years now, the U.S. government has offered similar kind of assistance to many businesses and producers in the U.S. that not only an unfair advantage in the international market, but also were in violation of trade agreements with other countries.

Spirit
Spirit
6 years ago
Reply to  Abdulrahman

I am glad one of the readers raised the issue of how American farming subsidies have contributed to the impoverishment of African farmers and that is just one example.

MIMH
MIMH
6 years ago
Reply to  Spirit

Chuck in the EU as well, all farming subsidies should go. It’s a disgrace and corruption.

AEC
AEC
6 years ago
Reply to  Abdulrahman

If you’re that confident no problem letting the WTO decide..

KK
KK
6 years ago

QA, Etihad and Emirates all are operating within 1 hour reach of each other; all have or are building multibillion USD airports. All these carriers offer services that do not make sense (f.e. a ‘residence’ etihad ticket from AUD to LDN costs AED 155,000). Making profit is NOT the purpose; it is all about prestige and rivalry. In our company, management MUST fly first class; why ? Let’s see how long this will last.

The Reporter
The Reporter
6 years ago

“We don’t receive any subsidy. What the government has given us is equity into an airline which it owns.” It’s the way yer tell em…..

Osama Alassiry AlMaadeed

They keep using that word, “government”, I don’t think that here it means what they think it means.

Coco
Coco
6 years ago

Fi jadeed planes…shinu mushkila?

Mr. Reason.
Mr. Reason.
6 years ago

Get over it mureka. You had your share of subsidies when your airline industry was in nascent stages.

Frankie Carter
Frankie Carter
6 years ago

The Americans need to concentrate on not sucking before they point any fingers. This whole article made me LOL

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