Volume # 06 | June, 2018

UAE Freezones Biz News Updates

US Airlines Claim Victory Against Gulf Rivals, But Details Of UAE Deal Suggest Little Will Change

An Etihad Airways plane from Abu Dhabi comes in to land at Los Angeles International Airport, California on March 22, 2017.

Major US airlines have been united in their praise for the White House following a review of the 'open skies' agreement between the US and the UAE which was wrapped up this month. It will, they claim, reduce the unfair competitive advantage that Emirates and Etihad Airways have been enjoying for years. Yet it is unclear if there will actually be any change in behaviour by the Gulf carriers following the latest negotiations.

The Partnership for Open & Fair Skies (POFS) – a coalition of American Airlines, Delta Air Lines, United Airlines and a string of associations of pilots, flight attendants and other industry workers - applauded the new agreement, saying it would “protect American airline jobs and help enforce US trade deals against unfair foreign business practices.”

Those comments echoed the words of the White House itself, which said in a statement issued on May 17 that the agreement will benefit pilots, flight attendants, machinists and others working in the US airline industry.

The big US carriers have long complained that their main Gulf airlines – principally Emirates, Etihad and Qatar Airways – have unfairly benefitted from government support. They hope that will now change, with the POFS saying that, as a result of the deal, the UAE has “committed to applying commercial terms to all transactions and… committed to a freeze on any additional “fifth freedom” passenger flights to the United States”.

Some US carriers have hinted they may now resume some long-haul services which they had previously abandoned, having found the competition with the Gulf carriers too tough to cope with.

However, their claims the deal will lead to the UAE changing the way it finances and operates Emirates and Etihad Airways, “including an end to government subsidies”, are hard to stand up once you look at the detail of what the two governments announced.

The UAE has signed up to a number of commitments which are fairly loosely worded and appear designed to address US complaints without actually forcing any change in behaviour.

For example, a State Department spokesperson said on May 14, following a meeting between secretary of state Mike Pompeo and UAE foreign minister Abdullah bin Zayed Al Nahyan, that “the two governments recognize the possible adverse impact of government support on competition” and agreed that airlines “should endeavor to take steps to ensure that material transactions with government-owned providers of goods and services of either country are based on commercial terms”.

The two governments have also pledged that airport usage charges – an oft-cited complaint for the US airlines when looking at the costs charged to Emirates and Etihad for using the large, modern airports in Dubai and Abu Dhabi – “should be reasonable”.

However, the agreement itself offers contradictory language on this area. Paragraph 4 of the Record of Discussion released by the State Department says that government support “ is neither uncommon nor necessarily problematic in the global aviation sector” before going on to say that “government support in whatever form may adversely impact competition in providing international air transportation.”

The US also appears to be placing a lot of weight on the UAE’s indication (not mentioned in the Record of Discussion) that its airlines “have no current plans” to begin any more so-called ‘fifth freedom’ routes – flights between the US and UAE which can pick up or drop off passengers in third countries along the way.

This has been a particular concern for US carriers, even though there are very few ‘fifth freedom’ routes operated by Emirates or Etihad to US cities. Among the few are an Emirates flight from Dubai which picks up passengers in the Greek capital Athens and drops them in Newark Liberty International airport, and another between Dubai and New York JFK via the Italian financial and fashion hub Milan. As some commentators have pointed out, the wording of the UAE’s pledge leaves plenty of scope for Etihad, Emirates or any other UAE carrier to formulate such plans in the future.

The UAE airlines have also pledged to publish financial reports that adhere to international accounting standards – something Emirates already does and which Etihad now says it will start to do once it has completed a restructuring exercise.

After all the discussion and criticism, the aviation industry is left with a situation where all the rights and provisions contained in the existing 2002 Air Transport Agreement between the two countries remain fully in force. The UAE’s official news agency WAM cited Sheikh Abdullah as saying that the latest announcement “confirms business as usual”.

It seems the UAE was able to use a number of levers to ensure that the US essentially backed away from trying to impose any fresh commitments. As the Record of Discussion notes, the two countries have been longstanding allies in facing off against terrorist groups such as ISIS and Al Qaeda. In addition, the UAE is the largest importer of US goods in the Arab world – not least because of all the Boeing planes that Emirates and Etihad buy – as well as being host to 1,500 US firms and a significant source of foreign direct investment into the US.

Perhaps the main gain from the agreement between the two sides is that it removes one point of potential friction at a time when Washington is keen to rally support within the Middle East for its actions against Iran.

The reality for passengers though is unlikely to be any different, despite comments by the likes of Delta chief executive Ed Bastian who said the agreement “marks a truly significant moment in a years-long pursuit of a level playing field for Delta and other US carriers.”

May 21, 2018

Free Zones Of UAE

Volume # 06 | June, 2018

UAE Freezones Biz News Updates

Courtesy Forbes

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