Etihad, Emirates Executives Respond to Subsidies Charges

 - March 18, 2015, 8:36 AM
Emirates president Tim Clark said he expects an apology once the carrier disproves charges of improper subsidies. (Photo: Bill Carey)

Persian Gulf airlines are self-made success stories that are not propped up by the governments that own them, two chief executives declared March 17. Speaking in separate venues in Washington, D.C., the executives responded to charges that Gulf carriers are subsidized in contravention of open-skies agreements.

“As one of the newest airlines anywhere in the world, we had to create everything from scratch. Everything—our product, operations, infrastructure. We’re very proud of our progress,” James Hogan, Etihad Airways president and CEO, said in a speech to the U.S. Chamber of Commerce.

“Etihad is a David, a David who has been facing Goliath since 2003 when we started,” Hogan said of the Abu Dhabi-based carrier. “In virtually every market we’ve had to face existing competitors with established businesses, established infrastructure, established sales and marketing, established brands and established customer bases…To take them on, we’ve had to work harder, we’ve had to work smarter, and quite simply that’s called competition.”

Hogan and Emirates Airline president Tim Clark responded to allegations of improper subsidies made in a white paper circulated by U.S. carriers American, United and Delta. The U.S. airlines contend that Etihad and Emirates, both UAE-based, since 2004 have benefited from $18 billion and $6.8 billion, respectively, in government subsidies and “unfair benefits.” They allege a third Gulf carrier—Qatar Airways—has received $17.5 billion in subsidies. Doug Parker, American Airlines CEO, described the level of support as “unprecedented in the history of international trade” in prepared remarks to the chamber event. “Qatar and the UAE subsidize their state-owned carriers. These airlines certainly aren’t independent companies. They are not just owned by their governments. These airlines are arms of the state,” he added.

“We get criticized regularly for our so-called lack of transparency. But we see few national airlines that are as open in the first stages of their development as we have been with ours,” said Hogan. “We are a national airline, which means we are owned by our government. That does not make us unique. Outside of the USA, that’s how most airlines started and how many airlines still operate today. Our shareholders put initial equity investment into the company and they committed shareholder loans; we’ve always made that clear.”

Hosting a roundtable discussion with reporters several blocks away at the National Press Club, Emirates’ Clark said his airline was formed in 1985 “under a clear set of rules which included no subsidies whatsoever from the government of Dubai, apart from the initial seed capital and some other structural inputs that came in a year or two later.” Earlier in the week, Clark met with officials of the U.S. Department of Transportation, State Department, Department of Commerce and National Economic Council. He described those meetings as “very constructive.”

Clark was acerbic in reacting to the white paper. “This report comes as a little bit of a surprise,” he told reporters. “All we ask is that Emirates be given the chance to respond to the multiple allegations made in that report…and ladies and gentlemen we will do that. We will do that in a manner that will rebut all of the things that are said about us, and I expect once we have done that to be given the benefit of an apology from the people who have actually made these allegations.”

A reporter asked the executive about a specific allegation the white paper made: that Dubai’s government stepped in to shield Emirates from between $1.6 billion and $4 billion in fuel hedging losses in 2008-2009. “Tosh, and we will demonstrate it on that particular point,” Clark replied.