Open Skies treaty allowing airlines to operate freely at risk after US big three accuse UAE and Qatar carriers of unfair competition

It is America’s latest Gulf war, pitting the giants of US aviation against their wealthy upstart rivals from the UAE and Qatar – and both sides are crying foul at the other’s practices.

The Open Skies treaty that allows all airlines involved to operate freely is at risk after the big three US carriers asked the American administration to rip up or redraw the agreements. Some warn that the bubbling dispute couldthreaten the foundations of modern flying and even trigger a full-blown trade war.

The airlines involved are Emirates, Etihad and Qatar Airways on one side and Delta, United and American Airlines on the other. Sir Tim Clark, the British chief executive of Emirates, said: “We didn’t want this fight. But we’re not some African or Asian minnow. We have a $37bn balance sheet. If they think we’re going to get pushed around – game on.”

The phenomenal growth of the Gulf airlines has long been a thorn in the side of established European carriers such as Lufthansa and Air France. But lately, they have been joined by Delta, United and American Airlines, who have started to rail against the threat posed by airlines that have raised service standards on international flights and whose hubs are ideally situated at the junction of Europe, Asia and Africa.

Facebook Twitter Pinterest Tim Clark. Photograph: Joe Skipper/Reuters

In Clark’s words, the row “went nuclear” in January, when the US trio submitted a 55-page dossier to Barack Obama’s administration alleging that Gulf airlines were benefiting to the tune of $40bn in state subsidies. That was unfair competition, distorting the market and hurting their businesses, they said, especially on routes to Asia. And it put American jobs at risk.



Clark, who blasted the dossier as “dodgy”, said: “It took them two years full time to go round the world digging the dirt on us. It’s been threatening, intimidatory, frankly a disgrace.”

Speaking in Miami this week for the annual summit of the International Air Transport Association (Iata), Doug Parker, chief executive of American Airlines, tried to downplay the spat. The rivals had, he told press, a “nice relationship” beyond the little “public policy issue that we’re pursuing with the US government”. He added: ”Our dispute is not with those three airlines.”

Clark met those words with a quiet fury. “It’s totally and utterly smoke and mirrors. They’re out to take us down.” The Emirates boss said the tactics recalled the days of Freddie Laker, the British businessman whose fledgling budget transatlantic operation was destroyed by US and European carriers colluding to sell their own tickets below cost.

“They ganged up to bring him down,” said Clark. “He was a small operator but a visionary. That was the last time anything like this really happened. Now it needs to be dealt with – it’s destructive, it’s ugly.”

After Iata’s annual jamboree, Clark professed relief that it did not descend into “a colossal inter airline brawl”– if not, perhaps, for the Gulf airline executives’ lack of trying. With the commemorative cupcakes iced and top brass from 250 airlines in the conference hall, Iata’s director general, Tony Tyler, had opened the summit by declaring, hopefully, that “this is not the battleground”.



I don’t support the view [of] the US carriers. It’s a move back to protectionism which the industry could do without Willie Walsh

But seconds after he took his seat, the Qatar Airways chief, Akbar Al-Baker, flamboyantly denounced him from the floor for failing to pass judgment on the US actions – and warned that any moves to tinker with the Open Skies agreements “will lead to retaliatory protectionism affecting all aspects of trade”.

Later, Tyler, treading a tightrope between the two most powerful factions in global aviation, pleaded: “Iata and its members are fully in favour of liberalisation and free and fair competition.”



Yet those two aspirations are exactly what the US airlines claim have clashed, alleging that only enormous state aid could have propelled the Gulf trio from bit players to outstripping the Americans for international capacity in little over a decade.

Parker said: “We’re just trying to get the government to enforce its trade policies. We expect that they will take some action. We can compete with airlines, not with governments.”



But Clark believes the US administration will think hard before jeopardising its relationships in the Gulf, where its military exports and strategic aims go way beyond commercial aviation.

He added that he believed many in the US government would also wonder why they should alienate airlines that buy so many US planes: combined orders from the Gulf carriers with aircraft manufacturer Boeing now run into hundreds of billions of dollars, with options to buy more. Clark reckons the $76bn order his airline placed for new 777X in 2013 will support 400,000 US jobs.



Etihad’s boss, James Hogan, was more guarded at the summit: “We’ve been tackling these issues in other parts of the world. We all have our business to run. If people see a threat, they respond accordingly. It’s a bullish proposal, but we’ve got a business to run, too.”



His airline’s formal response to the US government, filed last week, counter-attacks by claiming that the big three US carriers had received more than $70bn in state support in the last 15 years – including tax breaks, taking over pension liabilities, and, most obviously, Chapter 11 bankruptcy protection.



Gulf airlines' success prompts hostility from US and European carriers Read more

That all occurred in the period since the Open Skies agreement with the UAE was signed – pre-Etihad, with a bankrupt Gulf Air and a small Emirates, long before the power balance was radically, unimaginably readjusted. Tough, said Clark: “The US dictated the document, not us, and I was there. I asked if they were sure that’s what they wanted. It was a complete departure [from bilateral agreements].”

And then he made plans, ones that saw his airline grow to the world’s largest carrier of international passengers. Speaking in New York the night after Iata’s meeting, Clark said: “I suggest what it all boils down to is how the big three US legacy carriers can compete successfully with an aligned, unsubsidised global super-connector such as this, on a level playing field, without bankrupting themselves in the process.”



Where will the fallout be? In Europe, Lufthansa and Air France have backed the US carriers; they had raised similar concerns years ago about unfair competition.

Willie Walsh, chief executive of British Airways parent company IAG, however, disagrees – saying he has seen no evidence of unfair subsidy. He said: “I don’t support the view being expressed by the US carriers. It’s a move back to protectionism which the industry could do without. If this gathered momentum, it would be negative for the industry and the consumer if it could threaten Open Skies and that would concern me.”

