02 Jun 2015 00:00
Etihad Airways, the national airline of the United Arab Emirates, has urged the US Government to ‘keep the skies open’, in a comprehensive formal response to the joint campaign by Delta Air Lines, United Airlines and American Airlines to block competition and roll back the benefits of Open Skies.
The Etihad Airways response,
which has now been submitted to the US Department of State, the US Department
of Transportation and the US Department of Commerce, emphasises the many
benefits delivered by Open Skies to consumers, to American workers, to US
carriers and to US trade and tourism.
It categorically refutes claims
made by the Big Three carriers about Etihad Airways’ finances, giving a clear
and compelling explanation that the equity funding and shareholder loans
provided by the Government of Abu Dhabi, by way of investing in a successful
business model, fully comply with the US-UAE Air Services Agreement and all
other applicable rules.
The submission also shows that
the Big Three carriers have gained more than $70 billion in benefits from US
Government authorities, and through legal processes such as Chapter 11 bankruptcy
reorganization, over the last 15 years.
In a letter supporting the
airline’s formal submission, James Hogan, Etihad Airways President and Chief
Executive Officer, said: “Etihad Airways did not seek this fight; we focus on
making money by providing world class, innovative, re-imagined and
value-for-money product and services to our guests.”
Etihad Airways has submitted that
the Big Three carriers’ claims, allegations, and requests for relief are not
supported by fact, logic, law, or treaty, and that:
(1) Etihad’s conduct, and that of
the UAE Government, is fully consistent with the US–UAE Air Services Agreement,
applicable United States law and the governments’ respective treaty
(2) Government ownership is not
an issue under the US-UAE Air Services Agreement;
(3) Shareholder equity and loans
are not subsidies;
(4) While Etihad competes vigorously for all
passengers, it does not charge artificially low fares;
(5) Etihad causes no actionable
harm to the Big Three carriers, and actually provides them with significant
commercial benefits in terms of connecting passengers onto their networks (an
estimated 300,000 in 2015);
(6 ) Etihad has been successful
in markets in which the Big Three carriers affirmatively choose not to compete,
and is in fact providing the Big Three carriers with an avenue (through
codeshare and interline agreements) to offer their passengers routes that they
choose not to fly themselves; and
(7) Etihad treats its worldwide
employees, who come from over 140 countries, including the United States,
fairly and with respect.
Mr Hogan said: “For these
reasons, we respectfully submit that the Big Three carriers’ campaign against
Etihad Airways should end immediately and that there is no basis whatsoever for
government-to-government consultations under the US–UAE Air Services
Etihad Airways’ submission
includes detailed information about the airline, its financial strategy and its
The airline was established in
November 2003, decades after its major international competitors, by the
Government of Abu Dhabi, the capital of the UAE.
Today, Etihad Airways is a
globally-recognized, full-service international airline, which carries almost
15 million passengers per year and flies to, or is planning to serve, more than
110 destinations. The airline currently operates almost 120 aircraft and more
than 260 flights per day from its hub at Abu Dhabi International Airport.
Etihad Airways has had to invest
heavily to compete effectively against its more established competitors. Recognizing the enormous cost of entry to the
airline industry, the Abu Dhabi Government invested in Etihad Airways by
providing capital and shareholder loans.
Since 2003, the Government has
invested $14.3 billion in Etihad Airways; of this amount, $9.1 billion was
provided in equity funding and a further $5.2 billion was provided in
These commitments were made on
the basis that the airline would operate commercially, deliver a long-term
return on investment, repay shareholder loans and achieve sustainable
Etihad Airways receives no
Government subsidies or sovereign guarantees and, contrary to the claims of
some competitors, it does not receive free or discounted fuel or airport
services in Abu Dhabi, its home and global hub.
Since 2003, Etihad Airways has
raised in excess of $11 billion in long-term funding through the global
financial markets, including $3.7 billion debt funding raised in 2014. Approximately $5 billion of the airline’s
borrowings have been repaid since 2003, including $800 million in 2014.
The airline has established
strong relationships with more than 80 global financing partners and aircraft
lessors, 26 of which are based or headquartered in the US.
Etihad Airways is highly focused
on its commercial mandate. Although it
is only 11 years old, the airline has posted consecutive net profits since
2011. Etihad Airways complies with
International Financial Reporting Standards (IFRS) and is audited by KPMG.
Commenting on the submission,
James Hogan said: “Our story is one of an airline that has chosen to challenge
the global status quo, bringing new competition to markets that have for too
long been dominated by the major legacy airlines.
“In many markets, airlines react
to our new competition by improving their own offer to consumers. It is ironic that in the home of free
competition, a market in which we account for only a tiny fraction of one per
cent of international departures, we have instead been attacked.”
Etihad Airways’ submission
includes the example of routes to the Indian sub-continent to explain the
inaccuracies of the Big Three’s arguments. The submission states:
“Their only specific claim is
that from 2008 to 2014, they have allegedly collectively lost five percentage
points of their market share to the Indian subcontinent. However, what they neglected to mention is
that during the same period their passenger numbers actually grew by 18 per
cent. So while their collective market
share actually went down by a relatively insignificant 4.4 percentage points
(not 5 percentage points), their actual passenger volumes grew by over 18 per
cent, or over 250,000 passengers, including both economy and premium classes. This passenger growth clearly demonstrates
the power and effects of Open Skies and liberalized traffic rights.
“The Big Three carriers
affirmatively and voluntarily choose not to directly serve Etihad’s key Middle
East and Indian Subcontinent markets in a meaningful way. Instead they are routing US passengers
through congested European hubs and on to their European alliance partners to
serve certain destinations. Indeed, the
Big Three carriers’ campaign is little more than a regulatory attempt to
further cement their oligopoly, particularly on transatlantic markets.”
Mr Hogan added that facts, not
myths, should define the debate, saying: “These airlines criticize us for being
Government-owned – but government stakes in airlines are completely normal
around the world. The majority of
airlines in the global alliances, which the Big Three dominate, are owned or
controlled by governments or government-owned entities. Just this month, the French Government
increased its shareholding in Air France.
“The Big Three criticize us for
receiving Government investment. We have
never made any secret of the fact that we have received equity funding and
shareholder loans, which again is not unusual for airlines, or indeed for many
businesses. These investments received from our shareholder are not like the
more than $70 billion the Big Three have received from US Government sources or
court-approved processes since 2000 alone, a fact shown in a study by The Risk
“The Big Three say our services
threaten competition. Yet a report by
independent analysts the Edgeworth Group shows that our services actually
stimulate traffic flows, which have increased overall passenger numbers on
those routes for airlines including the Big Three and their alliance partners.
“The Big Three say we threaten
American jobs. Yet their campaign seeks
to limit the operations of Etihad Airways, which according to Oxford Economics
will support 23,400 American jobs this year, and almost double that number by
“And finally, the Big Three have
spent millions of dollars trying to influence politicians on the supposed
threats from the Gulf carriers, yet their report mentions consumer choice only
once – even then in a cursory manner.”
In his covering letter to Etihad
Airways’ submission, Mr Hogan said that the US carriers had been able to benefit
from numerous Chapter 11 reorganization processes, which gave them a major
advantage over their international competitors.
“Yes, we understand that
bankruptcy is a court process, but unlike these US carriers, Etihad does not
have an avenue by which we can periodically clean up our balance sheet by
disclaiming debts and other legal obligations.
We have to carry these obligations and debts on our books,” he said.
Mr Hogan’s letter also said that
the United Arab Emirates had embraced the US concept of Open Skies.
“One country that shared the
vision of the United States is our home, the United Arab Emirates, which also
embraced the idea of open and less regulated traffic flows despite being a
small and, at the time, relatively unknown country working toward financial
stability and success. This is why we
find it so ironic that in 2015 Etihad Airways finds both itself and its home
country under attack. We have helped
fully realize the best in international aviation policy: safe travel provided
by the highest quality airlines at fair prices that allow millions of
passengers to travel conveniently and easily to and from the United States to
markets in the Middle East, the ISC and beyond, enjoying the many benefits the
aviation industry offers.”
In addition to a detailed
rebuttal of the Big Three US carriers’ report, Etihad Airways’ submission to
the US Government also includes three reports commissioned from independent and
respected global expert consultancies.
EXAMINATION OF BENEFITS ACCRUING TO US CARRIERS
- On 15 May, 2015 Etihad Airways released a report authored by
UK-based The Risk Advisory Group that documented in detail benefits valued at
more than $70 billion which Delta, United and American have received from the
US Government and judicial processes and mechanisms available only in the
- These benefits included massive debt write-offs in multiple
bankruptcy proceedings, government assumption of airline employee pension plans
and bespoke tax benefits.
- Etihad Airways does not question the US Government’s right to make
these benefits available to US carriers, and nor does it criticize the US
carriers for taking advantage of these substantial and valuable benefits.
- Instead, Etihad Airways commissioned this report to highlight the
environment in which it has to compete and the hazards of unilaterally
labelling different funding strategies as subsidies, and otherwise
mischaracterizing the way a competitor conducts its business.
REVIEW OF US CARRIERS’ ASSERTIONS
- On 22 May, 2015, Etihad Airways released a report drafted by
Washington, D.C.-based Edgeworth Economics.
Etihad Airways’ instructions to Edgeworth were simple: review the
economic claims made by Delta, United and American and provide an independent
critique of their assertions.
- Edgeworth conducted a detailed review and concluded, among other
things, that air routes between the United States and the Indian Subcontinent
(ISC), on which over 65 per cent of Etihad Airways’ US passengers fly, are
- They found that Etihad Airways’ US competitors largely choose not
to serve these routes directly. They
instead fly passengers to Europe and connect them onto non-US partner airlines,
a practice that often requires passengers to make additional stops.
- Edgeworth also determined that Etihad’s published fares on these
routes were consistent with those of competitors, even though the revenue per
kilometer generated on these ISC routes was considerably less than the
immunized US and European carriers receive on their protected North Atlantic
- Most significantly, Edgeworth found that even though there is more
capacity on these ISC routes in 2014 than there was in 2009 (the result of
increased competition), there continues to be considerable demand for that
- Between 2009 and 2014, US airlines and their immunized joint
venture partners actually carried over 250,000 more passengers between the US
and the ISC – that is a gain of over 18 per cent.
- In 2014, Etihad Airways delivered 182,000 connecting passengers to
US airlines including American, United, Delta and Jet Blue. This is forecast to grow to approximately
300,000 in 2015, an increase of 65 per cent, following the introduction last
year of new routes to Los Angeles, San Francisco and Dallas Fort Worth.
- Etihad Airways is proud to contribute to the success of Open
Skies, while maintaining a load factor at approximately 80 per cent on average.
ECONOMIC CONTRIBUTION STUDY
- Issued on 27 May 2015, and drafted by Oxford Economics, this
detailed Etihad Airways’ contribution to the US economy.
- Oxford valued at $2.9 billion the contribution Etihad Airways will
make to the US economy in 2015 through capital expenditure, passenger and cargo
services, direct and indirect employment and contribution to tourism.
- This research also calculated that Etihad Airways would employ, or
contribute to the employment of over 23,000 Americans in 2015.
- Additionally, Oxford projected that the value of our contribution
would grow to $6.2 billion by 2020, supporting more than 46,000 American jobs.
- While Delta, United and American expend considerable money on
advertising and other tactics that claim Etihad Airways threatens American
jobs, Oxford conclusively demonstrates, on the contrary, we have a very
positive impact on the US economy and workforce.
Mr Hogan said the Etihad Airways
had clearly demonstrated that it was contributing not only to competition in
the skies, but also to the US economy.
“We believe in competition
and consumer choice,” he said. “It is now time to get back to the business of
providing high quality air services and enhancing consumer choice, just as Open
Skies intended. Let’s keep the skies open.”