The Gulf Airlines’ U.S. Supporters Continue to Flail

In explaining the more than two-year-old trade dispute between the massively subsidized Gulf airlines (Emirates, Etihad, and Qatar Airways) and U.S. network airlines American, Delta, and United, I’ve often called out the illogical, irrelevant, and just plain sloppy arguments from the Gulf carriers and their U.S. supporters. It’s a long list of deliberate misstatements that merely muddy what is a very clear case. The huge government subsidies and unfair benefits, totaling more than $50 billion proven since 2004, mean Gulf airlines are violating the terms of the Open Skies agreements that give them unfettered access to the U.S. market – and in so doing threaten the good jobs of U.S. airline employees, airline suppliers, and host communities.

Their recent whopper was truly grasping at straws. One of the Gulf side’s U.S. backers, the coalition U.S. Airlines for Open Skies (consisting of FedEx, Atlas Air, JetBlue, and Hawaiian Airlines) tweeted “US gov has provided $150 billion in subsidies to the airline industry, according to #CRS” (the Congressional Research Service). This was presumably intended to show that American, Delta, and United were also “subsidized.” But it was a total distraction, another attempt to divert attention from the real issue – and, as shown below, hypocrisy from four companies that should know better.

I read the 20-year-old report that the opposition cites, and immediately saw some key facts that, oops, the coalition did not choose to include.

Although their headline screams “$150 billion in [Federal] subsidies,” the actual direct funds Washington provided airlines were much, much smaller. From 1918 to 1938, these were mainly to support air mail, not passenger service, and totaled just over $100 million (not inflation adjusted).

In 1938, Congress passed the Civil Aeronautics Act, ushering in four decades of intrusive federal economic control of the airline industry, effectively removing the sector from marketplace realities. Competition and growth were “managed” by bureaucrats, and flying was expensive. A key element of controlled expansion was ensuring service to smaller and remote communities – places like Cody, Wyoming and Silver City, New Mexico – and Washington knew it would have to subsidize such service (in part because operating expenses were relatively much higher than today). Between 1938 and 1985 the Feds doled out $2.2 billion to underwrite this air service. (In a nice bit of irony, a small but meaningful chunk of that cash went to airlines in Hawaii, which means Hawaiian Airlines was on the gravy train!)

The 1978 Airline Deregulation Act ushered in the modern era of an open market, competition, and much lower prices, but for political palatability included a modest program called Essential Air Service to subsidize flights to smaller cities, and from 1979 until 1998 (when the cited report was published), those grants totaled $588 million. To be clear, these are markets that would otherwise lose access to any service at all – compare that to the Gulf carriers, which use subsidies to drive fair-playing competition off existing routes.

So how does the coalition shout “$150 billion” instead of less than $3 billion (none of which would meet the definition of an unfair or illegal subsidy)? The difference is almost all money that went to the FAA and its predecessors for things like airports and airways, air traffic control, and oversight. These are the basics that underpin a system that has delivered enormous economic and social benefits to the entire nation – and, not incidentally have enabled the growth and prosperity of FedEx, Atlas Air, JetBlue, and Hawaiian Airlines. Finally, a key point: the $155 billion of federal expenditure did not include offsetting revenues (to 1998) of $91 billion from the Aviation Trust Fund, which gets its money mainly from taxes and fees you pay when you buy an airline ticket. One conclusion: you wouldn’t want to hire the Open Skies Coalition as your accountants!

Here’s a screenshot of the final table of the CRS report:

I have no doubt the distractions, goofy and inapposite arguments, and willful misstatements will continue to flow from the Gulf carriers and their apologists, but all that should not distract the Trump administration from delivering on its long promises to end trade cheating in all forms and stand up for American workers.

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