Hostile Takeover

In this modern era international trade goes a long way to making and breaking economies. Many heavy industries such as the automotive industry have seen massive downfalls with the introduction of cheap forging labor. Somewhat ironically the aviation industry also has their own “Big Three” companies in Delta, United, & American airlines. The aviation industry has faced its share of economic and political challenges over the years but early on the powers that be in aeronautics looked to establish a fair playing ground & international norms for their airlines with the Warsaw convention of 1929 (Convention) and later the Montreal convention of 1999. These treaties provided legal guidelines over liability and obligations as well as promoting international cooperation by discouraging unfair business practices and promoting a spirit of friendly competition. The aviation industry will soon face new challenges that are directly related to the changing economic and political landscape. Many nations who note the wealth and prosperity that international aviation can bring in the forum of tourism (among other things) have looked to boost their own aviation industry through unfair means, in violation of the “Clear and open skies” agreements that the U.S. and other nations have signed since 1992. According to the big three American airlines the wealthy middle-eastern states of the United Arab Emirates (U.A.E.) & Qatar have been subsidizing their airlines in order to undercut other carriers and increase their market share. Many around the industry consider this active government support petty & distrustful especially considering that after world war two the U.S. carriers could have dominated all air travel throughout Europe & the world if they had so desired.

                Publicly the U.A.E. and Qatar have not commented on the allegations that were only made on January 28^th 2015. The airlines said to have been receiving support are Emirates Airlines and Etihad Airways from the UAE, along with Qatar Airways of Qatar respectively; all of which are owned and operated by their respective governments. It’s worth noting that a government owning and operating a national airline to encourage the development of aviation infrastructure (think of Malaysia airlines) is not unheard of. Up until 1978 and the airline deregulation act the U.S. government operated all domestic airlines. Emirates CEO Tim Clark has said that his airline operates routes that Delta and others have neglected, using the Dubai hub to link cities that would otherwise never have been connected. The Middle-eastern airlines are offering fares of 900 dollars from American cities to India while U.S. carriers offer similar flights priced at 1,100 dollars. All of these airlines, namely Emirates airlines have grown rapidly over the past decade increasing their market share. Emirates operate one of the largest advertising campaigns in the world with its sponsorships of pro soccer teams & formula one racing among others. This is not the first time these airlines have been accused of breaking the rules. In 2012 the Australian Competition and Consumer Commission (ACCC)( Emirates ordered) fined Emirates 10 million dollars for fuel and route price fixing; A record breaking fine from the ACCC. Privately some Gulf state leaders have claimed that their state sponsorship of the airlines is justified considering  that money was given to all three major U.S. airlines after the 9/11 terrorist attacks (Money that was loaned, not given, & paid back in full with interest). The American government may have also shot themselves in the foot by cutting prices of new Boeing jets for export. These same new jets are now being used in mass to flood U.S. markets.

                The position that these Gulf States has taken quite literally flies in the face of the rest of the international aviation community. The biggest reason you would be hard pressed to find any counter argument supporting these governments besides “no comment” is that they don’t have an argument. They know what they are doing is unethical and illegal. Their only problem is that they now have been caught. Many people in the North American and European sectors of the industry have suspected for years that such an event was occurring due to these airlines’ rapid growth. To the American airlines’ credit they hired teams of investigators to find evidence (Williams, T.) of this activity that took two years just to collect. They found that the three airlines implicated have received 42 billion dollars since 1998! With the discovery of the evidence many nations in the European Union have followed suit including France & Germany, among others (France and Germany's). The advantages are logical when analyzed: the main things given to the airlines were money and fuel, two things that are extremely plentiful in the banking & trade center of the U.A.E. Another revelation of the 55 page report (Restoring Open) was that the airlines and governments were in fact in conspiracy with each other. The coordination runs so deep that it has supported Emirates airlines for every single year of its existence besides their first. The airline Etihad purchased the sponsorship of the Manchester City soccer team above its value and was instantly reimbursed by their government, effectively using the team to launder 640 million dollars. The accounts of these airlines show that if it were not for the influx of money from groups owned by the government they would be operating in the red almost every year. The governments (being those of devout Muslim nations) are the only ones allowed to control the sale of alcohol. They have only granted these rights to the three aforementioned airlines in order to prevent even local competition from challenging their system. The airports of these nations have grown rapidly with the airlines. These airports landing fees are some of the lowest in the world (the main source of income for major airports) and have a very small percentage of passengers from their home nation. Documents from the report show that they also have been being funded from the government for years to the tune of 2.4 billion dollars.

These States are engaging in classic State Capitalism. The leaders of these nations have made it clear that they expect their aviation industries to be the catalyst of their growth in the future. These airlines have come from scratch in 1998 to now operating the largest airline by passengers flown in 2014. They have more aircraft on order than exist in the entire commercial American fleet! These three airlines now account for 25% of international aviation traffic while their two nations have a combined population of only 4 million people. Originally their plan was to create “hub” airports in their capitals and take control of the routes between Europe and India. Many of their flights will stop in these airports even though there is no need considering their range. This is solely to squeeze money out of their passengers and into their countries. Now the conspiracy has worked so well for so long they are looking to expand and take over forging markets for the sole purpose of denying competitors profits. This is clearly demonstrated by routes originating from New York and Chicago and going to places that are either cheap to operate in or illogical destinations for international travel such as Milan. Rather than trying to backtrack over these transgressions in order to at least save face the airlines (& their governments) appear to have dubbed down on their strategy by sending their most advanced & luxurious aircraft to New York and offering a 2 for 1 sale (Thomaselli, R.) for  round trip international flights basically lowering costs from 900 dollars to 600. They seem to hope that they can strangle the competition before any action is taken. This most recent attack was lunched on May 10^th!

This machine has a very real possibility to destroy European and American airlines and critically damage the economies of the affected nations. For every international route lost by the American big three there are around 1,000 jobs that go with it. The U.A.E. and Qatar are looking to monopolize the entire aviation industry. This blurred line between business and political machines harkens back to Carnage and Rockefeller railroading their opponents and it’s shocking to see it taking place in the 21^st century. The Obama administration and other EU governments may be worried about starting a trade war with these nations but they need to realize that the war has already been going on for years; we just never realized that we were under attack. The governments of the world need to crack down hard and fast on this type of behavior. EU airlines have suggested that European airports deny landing rights to the companies implicated. This would protect national interests and punish the Gulf States instantly. The U.S. could utilize Boeing & France with Airbus to slow or stop the flow of reduced price wide body aircraft to these airlines, therefore preventing them from flooding the markets efficiently. Wide body type aircraft are the most effective for long rage flights and their capacity allows the flights to remain profitable. If the Gulf State’s airlines were forced to use their current fleets they would have to use them to secure their current market share (preventing further expansion) and hopefully over time they would become outdated compared to new models that would be made available to other airlines. The U.S. is also in a unique political position with the U.A.E. That nation rose to prosperity as a regional trade hub only after allowing U.S. military installations on their soil that would become their de facto defense from other regional powers such as Iran. The U.S. could threaten to minimize or close these bases leaving the U.A.E small, wealthy, and defenseless in a dangerous part of the world. These are a few possible courses of action but the bottom line is that action must be taken. A major sector of the world economy should not be monopolized simply because some were corrupt & bold enough to try to do so.

References

Convention for the Unification of Certain Rules Relating to International Carriage by Air, Signed at Warsaw on 12 October 1929(Warsaw Convention). (1929, October 12). Retrieved March 15, 2015, from http://www.jus.uio.no/lm/air.carriage.warsaw.convention.1929/doc.html

Emirates ordered to pay $10 million for price fixing. (2012, October 12). Retrieved March 15, 2015, from https://www.accc.gov.au/media-release/emirates-ordered-to-pay-10-million-for-price-fixinghttp://www.globalatlanta.com/article/27473/delta-takes-on-middle-eastern-airlines-over-subsidies/#largeBanner

Williams, T. (2015, March 9). Delta Takes on Middle Eastern Airlines Over Subsidies. Retrieved March 15, 2015, from http://www.globalatlanta.com/article/27473/delta-takes-on-middle-eastern-airlines-over-subsidies/#largeBanner

France and Germany's Transport Ministers Add to the Open Skies Battle With Gulf Carriers. (2015, March 13). Retrieved March 15, 2015, from http://skift.com/2015/03/13/france-and-germanys-transport-ministers-add-to-the-open-skies-battle-with-gulf-carriers/

RESTORING OPEN SKIES: THE NEED TO ADDRESS SUBSIDIZED COMPETITION FROM STATE-OWNED AIRLINES IN QATAR AND THE UAE. (2015, January 28). Retrieved March 15, 2015, from http://www.openandfairskies.com/wp-content/themes/custom/media/White.Paper.pdf

Thomaselli, R. (2015, March 10). Emirates Ups the Ante in Open Skies Dispute With Two-For-One Sale. Retrieved March 15, 2015, from http://www.travelpulse.com/news/airlines/emirates-ups-the-ante-in-open-skies-dispute-with-two-for-one-sale.html