Global Airlines: Is it Fair?

One long-haul foreign carrier that receives government subsidies is Qatar. Qatar is based out of the Persian Gulf and they have received $7.7 billion in interest-free loans from their government. They have also received $6.8 billion in reduced interest costs due to sovereign guarantees for its borrowing (Yglesias, 2015). Another long-haul foreign carrier that receives subsidies from their government is Emirates. Emirates is based out of the Persian Gulf as well they have received government assumption of $2.4 billion in fuel hedging costs and $1.9 billion in low labor costs due to non-union labor. They have also received $2.3 billion in artificially low airport charges at its Dubai hub (Yglesias, 2015).

Long-haul US carriers that have received government subsidies include American, Delta, and United. These subsidies only started when the commercial aviation industry started contracts to mail carriers (Reed, 2015). Most all of the subsidies that US airlines have received from the government have been paid back essentially through there massive profit.

Not only are foreign carriers receiving government subsidies but they are also basically getting a better interest rate when they buy new aircraft. This quote, I think, best describes the way the Export-Import Bank works in this situation. Although it is long I thought that it was necessary to describe how the system works.

“The Export-Import Bank functioned primarily as a tool to sell American-made industrial products and capital goods to businesses and governments from countries with limited or no access to capital. An airline from say Mali (this is a hypothetical scenario), that wanted to buy Boeing 737s would be quoted exorbitant interest rates for a loan by commercial banks given the instability of that nation, but the Export Import Bank could loan them the money at a risk premium benchmarked to prevailing commercial rates. While this was initially meant mostly as a last resort avenue of funding, for both Boeing and Airbus, ECA-backed purchases have been common practice. Between 2008 and 2013, 26% of large commercial aircraft were backed by Export Import Bank funding (Bhaskara, 2014).”

I think that the global “playing field” with regards to long-haul carriers receiving government subsidies is very unfair. I understand that the US carriers received government subsidies back in the day, but most carriers have paid or nearly paid back all of their money that they have received from the government. The money was given to the FAA to help with advances within the aviation industry. With foreign carriers getting subsidies and having the Export-Import Bank on their side when buying wide-bodied aircraft it makes it almost impossible to keep up with them.

Yglesias, M. (2015, March 27). America's biggest airlines are accusing persian gulf carriers of cheating. Vox. Retrieved from http://www.vox.com/2015/3/27/8296495/gulf-airline-subsidies

Reed, T. (2015, April 14). U.S. airlines have paid the government $250 billion: Amazingly, some claim they are subsidized. Forbes. Retrieved from http://www.forbes.com/sites/tedreed/2015/04/14/u-s-airlines-have-paid-the-government-250-billion-amazingly-some-claim-they-are-subsidized/2/

Bhaskara, V. (2014, September 2). The fight over the export-import bank has no easy answers. Forbes. Retrieved from http://www.forbes.com/sites/airchive/2014/09/02/the-fight-over-the-export-import-bank-has-no-easy-answers/