Myth Vs. Fact

Fact: The only part of the Open Skies agreements that provides any remedy against subsidies is one that allows a government to intervene if a foreign airline is charging “artificially low” fares. The Big 3 completely ignore this provision; they do not even allege much less prove that the Gulf carriers are charging such fares. Moreover, when the U.S. government asked the Big 3 to name a specific breach of Open Skies, they failed to identify a single provision. Thus, the Big 3 have not established that the alleged subsidies, even if assumed to be true, breach Open Skies.

Fact: This action would not only reduce the number of foreign passengers arriving in the United States, with the attendant economic harm, but also likely provoke the UAE and Qatar to impose their own caps on U.S. airlines. Such retaliation would mean serious harm to U.S. airlines and could impede U.S. exports and disrupt supply chains, as well as cause significant delays in the transportation of essential supplies for the U.S. military. Moreover, the action proposed by the Big 3 could prompt other U.S. Open Skies partners to assert subsidy claims against American carriers and raise questions in the minds of existing and future partners about the U.S. commitment to Open Skies.

Fact: The Gulf Carriers have contributed to U.S. economic growth. In 2014, the Gulf carriers alone brought 140,000 international visitors to the United States, who spent nearly $1 billion and generated over $2 billion in economic output. These visitors play an important role in tourism, business sustainment, and job creation. Freezing new routes and invoking Open Skies to address the demands of the Big 3 puts these gains at risk. More generally, the United States’ network of Open Skies agreements save passengers on U.S.-international routes approximately $4 billion per year, support approximately 9 million aviation and industry related jobs, and enable U.S. airlines to maintain global delivery networks to transport troops and vital supplies for the U.S. military.

Fact: U.S. Airlines, particularly the Big 3, have been the beneficiaries of direct and indirect government subsidies. They include the exception of the Big 3 and their foreign partners from U.S. antitrust laws and lenient bankruptcy laws that have allowed all Big 3 airlines to reorganize their operations and receive indirect subsidies through filing for Chapter 11. In addition, the United States prohibits foreign enterprises from owning a controlling share in U.S. passenger airlines, a rule that is not found in many other countries and that limits competition and protects U.S. airlines’ revenues in the richest aviation market in the world. If the United States is going to invoke Open Skies over subsidies, it must be prepared to defend its own practices.

Fact: An international review of airline subsidies may well be in order. But such a review should involve all relevant countries and consider all forms of governmental support. This approach is consistent with the longstanding U.S. policy of negotiating subsidies rules in multilateral fora, for example, the World Trade Organization, and not through bilateral arrangements, which would give non-participating countries an unfair advantage. This policy should apply equally to aviation, where the market is global and many governments provide various forms of financial support.