Prior to International agreements, airlines would have to receive specific clearance in order to operate a flight into a different country. They would have to get authorization to land at each airport they planned to stop at, which was way more work than it should have been. The Open Skies Agreement was created to make this process more efficient. It grouped together several different countries and allowed air carriers to travel to and from any airport within those countries without having to get authorization for every flight. A few of the many countries involved in the agreement are the United Stats, France, Germany, Canada, and The United Arab Emirates (Bureau of Economic and Business Affairs, 2016). One of the important terms to this international agreement includes that the carriers must not be subsidized. There is currently an argument between the United States and The United Arab Emirates about their carries being heavily subsidized. The major carriers being questioned are Emirates, Etihad Airlines, and Qatar Airways (Mouawad, 2015).
Yes, all U.S. carriers used to receive subsidies; however, it was before the Open Skies Agreement was formed. Between 1918 and 1998, the federal government spent $150 billion to support aviation. This money went to building and improving new airports, helping out airlines during rough times, and sharing the costs of airlines when traveling into economically declined areas (McGee, 2015). Air carriers are also subsidized through the Essential Air Service, which allows small communities to still be served by certificated air carriers.
Foreign carriers are able to purchase aircraft below market value because of the export/import bank. This bank is an incentive program to generate more revenue for the U.S. manufacturer. Foreign carriers don't actually receive a discount on the aircraft itself; however, they are offered lower interest rates for the aircraft loan. It also allows for the export/import bank to finance to a U.S. exporter if they are defined as an SBA small business (EXIM, 2012).
Personally, I don't believe that the global playing field of air carriers is fair. The Open Skies Agreement clearly states that to be a participant you must not receive subsidizes. Although different carries have different definitions of being subsidized, they need to create one definition for all participants. The carriers that receive money when their fuel hedging estimates aren't correct have a major advantage over the carriers that don't receive money for that. Another disadvantage for U.S. carriers is the export/import bank. Foreign carriers are able to purchase aircraft at a cheaper rate due to the lower interest on loans. U.S. carriers do no get this discount, and thus are at a huge disadvantage financially because they not only pay more for their aircraft but they also don't get reimbursed for their loses in fuel hedging margins.
References:
Bureau of Economic and Business Affairs. (2016, October 18). Open Skies Partners. U.S.
Department of State. Retrieved from http://www.state.gov/e/eb/rls/othr/ata/114805.htm
EXIM. (2012, May 25). The Aviation Exports Policy. Export-Import Bank of The United States.
Retrieved from http://www.exim.gov/policies/aviation-exports
McGee, B. (2015, September 2). How much do Taxpayers Support Airlines. USA Today. Retrieved
from http://www.usatoday.com/story/travel/columnist/mcgee/2015/09/02/how-much-do-
taxpayers-support-airlines/71568226/
Mouawad, J. (2015, February 6). Open-Skies Agreement Challenged. The New York Times.
Retrieved from http://www.nytimes.com/2015/02/07/business/us-airlines-challenge-open-skies-
agreements.html?_r=0
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ReplyDeleteOverall, I thought this was a great read. I agree with your point that different carriers have different opinions of what government subsidies are. There is definitely a loose interpretation of the agreement about subsidies in the Open Skies Agreement. I think one option to clear this whole debate up is to create better guidelines of what the government is allowed to provide the airline and what is classified as a subsidy and not allowed. Overall, I think that in a way, the US carriers have blown this whole debate up because of the increased competition and their want to keep their market.
ReplyDeleteI agree with you that the global playing field is not fair. One of the major issues, as you mentioned, is that both sides have a different definition of what constitutes being subsidized. This has led to both sides accusing the other of unfair actions, while denying any unfair action on their part. If a concrete definition of what being subsidized was agreed upon, it would be a definite improvement.
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