US and UAE sign agreement to resolve Emirates, Etihad subsidy claims

The UAE must ensure that the airlines’ transactions with government-owned entities are conducted on commercial terms

The United States and United Arab Emirates signed a deal on Friday to resolve US claims that Gulf carriers have received unfair government subsidies, the US State Department said.

The voluntary agreement, which applies to Etihad and Emirates airline, is similar to a deal announced in January between the United States and Qatar in which Qatar agreed to release detailed financial information about state-owned Qatar Airways.

The UAE’s ambassador to the United States, Yousef Al Otaiba, praised the deal.

Since 2015 the largest US carriers – Delta Air Lines Inc , American Airlines Group Inc and United Airlines – have urged the US government to challenge the conduct of the three major Middle Eastern carriers under “Open Skies” agreements. The US airlines have contended the Gulf carriers are being unfairly subsidised by their governments with more than $50bn in subsidies over the last decade.

Read: US and UAE sign agreement to resolve Emirates, Etihad subsidy claims

Qatar, Etihad Airways and Emirates, have denied those accusations. The Gulf airlines operate around 200 flights per week to 12 US cities.

Read: Etihad Airways rejects subsidy claims, attacks US airline ‘oligopoly’

The Open Skies agreements that the United States has signed since 1992 with Gulf states and other countries are designed to eliminate government involvement in airline decision-making about routes, capacity and pricing in international markets.

The UAE – as Qatar did in January – told the United States in a letter that the two UAE airlines have no current plans to add additional “Fifth Freedom flights” that allow an airline to fly between foreign countries as a part of services to and from its home country.

Read: Qatar Airways agrees to financial disclosures in spat with US carriers

“We have reached a mutually agreeable conclusion to this issue that has gone on for several years now,” a senior State Department official said. “For us this was leveLling the playing field for our US stakeholders and there’s the added benefit here of increased financial transparency.”

The UAE said it agreed to ensure financial transparency, and when Etihad Airways’ restructuring is complete it will issue regular financial statements as Emirates does.

The UAE must ensure that the airlines’ transactions with government-owned entities are conducted on commercial terms. The disclosures could help US carriers make the case that the airline is potentially getting unfair government subsidies.

“The UAE is very pleased that our understanding with the US preserves all of the benefits of Open Skies for travelers, airlines, communities and aerospace companies in both countries and around the world,” Otaiba, the ambassador to the United States, said in a statement.

“All the terms and provisions of the Air Transport Agreement including Fifth Freedom rights remain fully in place, with UAE and US airlines free to continue to add and adjust routes and services.”

A group representing Delta, American, United and major airline unions, the Partnership for Open and Fair Skies, also praised the agreement.

The group’s campaign manager, Scott Reed, in a statement said the agreement was “a win for American jobs.” He also said it would “freeze Emirates and Etihad Airways from adding additional direct flights from the United States to Europe and Asia,” putting the group at odds with the UAE statement.

Emirates later appeared to deny that it would face any restrictions on fifth freedom routes.

“There are no limitations on the fifth freedom routes or direct expansion into the US from the UAE,” a spokesperson said.

“Contrary to some media reports, there is no freeze on any of the operating rights prescribed in the Air Transport Agreement or any tacit undertakings to do so,” according to a statement issued by the carrier.

“The Record of Discussion also makes clear that the UAE and its designated carriers are, and have been at all times in full compliance with the agreement, and that there were never any violations of the Agreement by UAE carriers.

With contributions from Reuters