WASHINGTON: The US and the UAE are nearing a deal to resolve a years-old spat over alleged government subsidies to Emirati airlines that the major US airlines claim have tilted the competition against them, four individuals familiar with the negotiations said.
Under the budding deal, Dubai-based Emirates and Abu Dhabi-based Etihad Airways would agree to voluntarily open up their accounting books, long accused by the US airlines of obscuring billions in subsidies. The airlines will also assert to the US that they currently have no plans to add additional flights to the US from Europe or other destinations outside of the UAE.
The deal will closely mirror one reached in January between the US and Qatar, the individuals said. The individuals weren’t authorised to discuss the deal ahead of its completion and requested anonymity.
Although the deal has yet to be finalised and formally adopted, both sides have agreed to the broad outlines of the deal, the individuals said. It was unclear exactly when it would be completed. The State Department official overseeing the issue, Assistant Secretary of State for Economic and Business Affairs Manisha Singh, is in Peru this week as part of Vice President Mike Pence’s delegation to the Summit of the Americas.
The State Department said “discussions are ongoing” but declined to confirm the details of the emerging deal, adding that there was “nothing to report at this time.” The White House did not respond to a request for comment, and the Emirati Embassy in Washington had no comment.
The three major US carriers — Delta Air Lines, American Airlines and United Airlines — have spent huge sums over the last three years pressing the Obama administration and Trump administration for tough action, and have been eager to show a win on the issue. The airlines have hoped that if they have more visibility into the finances of the state-owned Emirati airlines, the Emiratis will no longer be able to get away with unfair subsidies.
Both of the Emirati airlines have long denied receiving unfair government subsidies, as has Doha-based Qatar Airways. But the US airlines claim that the Gulf airlines have managed to mask payments to their airlines through creative accounting, such as catering contracts arranged at far below market rates.
It was unclear precisely what transparency measures the Emiratis will agree to in the deal. But in the Qatari arrangement, Qatar agreed within one year to releasing audited financial statements for Qatar Airlines “in accordance with internationally-recognised accounting standards.” Within two years, Qatar Airways is to disclose any transactions with other state-owned entities, such as caterers or other companies that support airline operations.
The other major concern of the US airlines regards start so-called “Fifth Freedoms” flights — routes that go from third countries, such as those in Europe, directly to the US. Emirates Airline currently offers “Fifth Freedom” flights in which passengers can fly from New York-area airports to Milan, Italy or Athens without ever setting foot in the UAE.
The US carriers claim those flights offered by flag carriers of the UAE undercut the flights they offer on the same routes. But the Gulf airlines have pointed out that some of the US carriers also offer flights that never set foot in their home country, such as Delta’s direct flight from Manila, Philippines, to Tokyo.
Under the scenario US airlines fear, Emirates or Etihad could expand their offerings by adding flights from Abu Dhabi or Dubai to, say, Paris or London, stop to pick up more passengers, then fly on to New York.
The US airlines had sought a “freeze” — a binding commitment that they wouldn’t offer any more Fifth Freedom flights — from the Gulf airlines, but appear to have fallen short. Instead, they are likely to receive a side-letter or similar document that states that as of now, there are no plans to offer any more such flights, at least partially addressing the US concerns. The side document is still being drafted, several individuals briefed on the discussions said.
For the UAE, the agreement averts the more serious step US airlines wanted: re-opening the so-called open-skies treaties that could ultimately lead to less favourable conditions for Gulf airlines.
