The ll onorable John Kerry ecretary United tates Department of tate 2201 C treet, NW Washington , DC 20520 The H onorable Anthony Foxx Secretary May 22,2015

United tates Department ofTransportation 1200 New Jersey Avenue, E Washington , DC 20590 The Honorable Penny Pritzker Secretary United States Department of Co mmerce 1401 Constitution Avenue. NW Was hington , DC 20230 

# ~~VI

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RE : E mpirical Investigation and Analysis of Economic I ssue s Raised in " Re s toring Open Skies: The Need to Address ubsidi zed Competition from State-Owned Airlines in Qatar and the U.A.E." Dear Secretaries Kerry, Foxx, and Pritzker, As noted during our meetings in March with your staff at the Departments of tate, Commerce , and Transportation , Etihad is preparing a comprehensive response to the al legations made by Delta, Ameri can, and United (the U.S. 3). However, as promi sed during those meeting s, we are releasing certain parts of our re s ponse as they become available. The seco nd of these is a report from Edgeworth Economics entitled "Empirical Investigation and Analysis of Eco nomic Is s ue s Raised in ' Restoring Open kies: The Need to Address ub si dized Competition from tate-Owned Airlines in Qatar and the U.A.E.' , " which was commissioned by Etihad Airways. The Edgeworth Report concludes that:
• Traffic numbe rs to markets in which th e U
.. 3 compete with Etihad have increased

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### • For example, between 2009 and 2014 , the U.S. 3 and their partners' economy passenger numbers between the U.S. and the Indian Subcontinent actua ll y grew 

### 18%- premium traffic grew by 

### 27%- despite losing market share ; • Etihad's pricing on routes on which they compete with the U.S. 3 and their partners is competitive ; and • Etihad's growth is not "excessive, " as c laimed by the U.S
. 

### 3 , but rather is the result of increasing demand in emerging markets. The Edgeworth Report also analyzed the recent economic report by Compass Lexecon commissioned by the U.S. 3 to demonstrate the " harm" caused to them by the Gulf carriers ' service to the U.S
. Edgeworth found fatal flaws in the methods and conclusions therein:
• The Compass report does not analyz e the effect of the alleged conduct on fares , the standard ofharm in the US-UAE bilateral air services agreement; • The Compass report fails to establish a causal link between the traffic analyses it presents and the alleged subsidies , a well-established legal benchmark for antitrust and competition issues ; and • The Compass report assumes that incumbent carriers arc entitled to the passengers they serve and that new entrants must s timul ate new traffic

- a position inapposite in a competitive market. The Edgeworth Report leads to several inescapable conclusions : Etihad Airways is not violating the Open Skies agreement, is competing on market terms , is not " damaging' ' U.S. carriers, and is benefiting consumers in all of the markets in which it competes . Further, the Compass Lexecon Report, which attempted to demonstrate "harm " to the U
. S. 

### 3 , 

### is fatally flawed and strikingly contradicts Compass Lexecon's own past analyses in favor of U
. S. airline mergers. Yours sincerely,
aghan General Counsel & 

### Company Secretary
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