WTO Definition of a Subsidy
(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and equity infusion), potential direct transfers of funds or liabilities (e.g. loan guarantees);
(ii) government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits;
(iii) a government provides goods or services other than general infrastructure, or purchases goods;
(iv) a government makes payments to a funding mechanism, or entrusts or directs a private body to carry out one or more of the type of functions illustrated in (i) to (iii) above which would normally be vested in the government and the practice, in no real sense, differs from practices normally followed by governments.
The Current Reality
European airlines follow strict competition rules per European Commission guidelines. Three Gulf carriers, however, have received massive aid- over €39 billion in subsidies- from their governments over the past 10 years. This has resulted in huge, artificial, and unfair advantages.
Since it was founded in mid-2003, Etihad Airways has received more than €16 billion in subsidies from the government of Abu Dhabi (UAE), including €7.9 billion in “loans” and “shareholder advances” that have no repayment obligations and €6.4 billion in reduced interest payments from government loan guarantees. Indeed, in 2014 alone, Etihad Airways received €2.3 billion in capital injections from their government.
Qatar Airways has also been provided with more than €16 billion from the government of Qatar over the past 10 years. In fact, in 2009 Qatar Airways shareholders considered dissolving the airline as it had accumulated losses that exceeded 50 percent of its share capital. Without government subsidies, Qatar Airways would not exist.
This costs European jobs.
Emirates has also received over €5.6 billion in subsidies from their home government of Dubai (UAE). These subsidies include debt assumption from fuel hedging losses and government subsidized airport infrastructure.
As a result of this aid, European airlines and their employees are losing market share on routes that were once profitable as Gulf carriers expand into regions regardless of market demand and flood routes with excess seats at artificially low prices. It has become impossible to compete fairly for customers on such routes, and as a result, European airlines are having to withdrawal from routes they once served and forgo job growth.
This is detrimental to the European aviation industry & its workers. The European aviation industry supports over 7 million jobs- 7 million workers who will lose their jobs as a result of unfairly subsidized competition. This is bad news for travelers as well. Without competitive fares, there will be significantly fewer airlines, leaving travelers with less choice and prices not determined by healthy competition, not to mention significantly less non-stop access to destinations both at home and globally, particularly regarding travel to the Gulf, India, and South-East Asia.
The future looks even worse taking into consideration the more than 200 wide-body aircraft these 3 airlines have on order for delivery over the next 5 years, fueling growth at unprecedented and unwarranted levels backed by home-state subsidies.
Unless action is taken, these aircraft will largely be put into service on routes already served by European carriers, flooding markets & costing European jobs.
What’s at stake?
Massive subsidies distort the market and make it impossible for European companies to compete. Already the effects of these subsidies are rippling through Europe: money is being lost, routes are being terminated, and jobs are being cut. For example, between 2004 and 2015 European carriers have decreased their frequency to Bangkok by 8 flights a week, while Gulf carriers have added an additional 66 flights a week between Europe and Bangkok.
For every route that a European carrier has to abandon or scrap from service expansion plans, over 600 jobs are lost. Unfair Gulf subsidies put almost 7 million jobs at risk.
What steps can we take to address this?
Our individual nations and EU governing bodies must stop these subsidies Trade agreements must be adhered to and enforced. It is in the best interest of our individual economies, workers, and consumers, as well as in the best interest of the European Union as a whole, that Europe continues to be able to remain a player in the realm of international aviation. This is only possible if competition is fair.
Thankfully, the European Commission has taken the critical first step toward finding a solution to these subsidies.
On December 7, 2015, the European Commission (EC) introduced a comprehensive aviation package aimed at (among other things) providing the EU with the ability to negotiate air transport agreements with third countries on behalf of its member states.
It is made clear in the proposal that such agreements would specifically address the “conditions under which” the airlines owned by the Gulf Coast Cooperation (GCC) countries operate to ensure fairness in competition.
Learn about the subsidized carriers:
One of the subsidized carriers of the United Arab Emirates, Etihad Airways has been collecting subsidies since it was founded in mid-2003. How else are they going to pay for all of their sports sponsorships?
Qatar Airways never needed to depend on profits to keep their airline in business. When funds are running low, they can depend on a check from their government. Who else is going to buy all of those A350s?
Emirates, the national airline of Dubai, has collected subsidies from their government since 2004. Learn the different ways they have collected subsidies from the United Arab Emirates.