Abu Dhabi, UAEMonday 21 October 2019

Trade war declared on Gulf airlines

European carriers take aim at export credit deals for Emirates, Etihad and Qatar in a bid to limit the growth of Middle East airlines.

The biggest flag-carrying airlines in Europe are joining forces in an effort to thwart the rapid global expansion of rivals from the Gulf amid a rising tide of protectionism in the industry.

Air France's chief executive, Pierre-Henri Gourgeon, took the vanguard in a blistering public attack against Emirates, Etihad and other Gulf-based airlines yesterday.

"Europe is at the crossroads of international air travel, and this is a role we need to value and defend," Mr Gourgeon told Bloomberg. "What we're telling the authorities is that we need a strategy that gives us a chance to resist."

Air France and other European airlines are lobbying their governments to put an end to export credit rules that benefit Middle Eastern airlines, citing the competitive threat posed by the likes of Emirates, Etihad Airways and Qatar Airways.

The complaints come as a rising chorus of airlines have sought to limit the expansion of the three carriers by other means, primarily by asking their governments to oppose additional landing slots. This week the UAE's ambassador to Canada made a rare public statement expressing its disappointment that Canadian authorities had blocked attempts to increase landing slots for Emirates and Etihad for the past five years.

Executives from Air France, British Airways and Lufthansa will attend a meeting of the Association of European Airlines in the coming days to discuss a joint push with US rivals for a change to the export-guarantee regime, said Christian de Barrin, a spokesman of the Brussels-based industry group.

The Gulf airlines, led by Emirates, the oldest and largest of the three, are some of the most well-known brands from the Arab world and have made air travel one the greatest exports out of the UAE and Qatar, after oil and gas.

This year, Emirates became the largest international airline by capacity, surpassing Lufthansa, while Etihad and Qatar Airways have also experienced double-digit traffic growth last year. Both also have tens of billions of dollars worth of new aircraft on order.

"I think it's very dangerous for Europe," Mr Gourgeon said of the Gulf carriers. At issue are cheaper forms of financing available to airlines outside of Europe and the US, called export credit guarantees. Export credit agencies in the nations that manufacture Airbus and Boeing airlines - US, UK, France, Germany and Spain - often help foreign buyers of these planes arrange cheaper financing than their own home carriers pay.

"Our ability to fund the acquisition of new aircraft is handicapped by the so-called 'home-country' rule," BA spokesman Paul Marston said. "These guarantees are not operating in the way they were intended - and we urge the EU to amend the rules to remove the competitive distortions that have developed."

One example cited by the US-based Air Transport Association was the financing of three Boeing 777s to Delta Airlines. Without any export backed credit insurance, last year it raised capital directly from banks and arranged interest rates at more than 8 per cent.

By contrast, Emirates raised US$414million (Dh1.5 billion)for three 777s the same year, paying an interest rate of 3.4 per cent through bonds backed by the US Export-Import Bank.

Tim Clark, the president of Emirates, defended the airline, saying: "We have grown without subsidy through the success of our commercially-driven business model - and see no reason to apologise for what we have achieved. When so many entities and economies around the world are being shored up by governments in order to survive, it is surprising to single out Emirates with unsubstantiated claims of being subsidised."


Updated: October 12, 2010 04:00 AM