The fight between American airlines and the Gulf carriers over government subsidies just got juicier. Like pomegranate dripping down your chin juicy.
Immediately after Delta Air Lines, American Airlines and United Airlines accused Etihad Airways, along with Qatar Airways and Emirates, of receiving some $40 billion in illegal subsidies over the last decade, the Gulf carriers hit back about hypocrisy.
But now there’s a number attached: $71.4 billion worth of benefits provided to the American carriers by the United States government.
That number comes from a report [ PDF ], which was compiled by the London-based RiskAdvisory investigation group, commissioned by Etihad to investigate "financial and other governmental benefits provided to American Airlines, Delta Air Lines and United Airlines,” along with assistance provided to companies that have since been acquired by the three.
United received the majority of the benefits at more than $44 billion, while Delta and American received $15 billion and $12 billion, respectively. Nearly all of the benefits documented by Risk Advisory came after 2000.
That means that United alone has received more in “benefits” than all three Gulf carriers added together are accused of receiving in “subsidies.”
Etihad isn’t crowing too much about the results of the findings, however.
“We do not question the legitimacy of benefits provided to US carriers by the US government and the bankruptcy courts,” Etihad General Counsel Jim Callaghan said in a press release announcing the results. “We simply wish to highlight the fact that US carriers have been benefitting and continue to benefit from a highly favorable legal regime, such as bankruptcy protection and pension guarantees, exemptions from certain taxes, and various other benefits.”
But despite making for a great headline and PR coup, the numbers aren’t as damaging to the American carriers' claims as they might seem.
Nearly all of the $70 billion in benefits are related to the bankruptcy of the three firms last decade, both through debt relief and through the termination and transfer of nearly $30 billion in owed pension benefits.
While in the battle for public perception that distinction will make little difference, if the situation ends up in courts, it is key.
Under most international agreements, bankruptcy proceedings do not count as a subsidy. They are considered structural reforms and allowed so long as they are used to restructure a company so that it can be financially viable going forward. Subsidies, by contrast, are ongoing and allow a company to continue following a business model that is not financially viable in and of itself.
And that’s why one side is talking about subsidies and the other about benefits.
The U.S. carriers also make a distinction that the bankruptcy did not involve any taxpayer funds. Which is technically true. But it did require that the Pension Benefit Guaranty Corporation absorb $30 billion in liabilities. What is the PBGC? An independent agency of the U.S. government that, while it is not funded by tax revenue, is run by the government.
The other subsidies noted in the report include reduced taxes on jet fuel for commercial carriers - a benefit that the Gulf carriers are also given.
But this war of words isn’t really about legalities – it’s more likely to play out in the court of public opinion. And on that front, the Gulf side just scored.