1

US Department of Transportation, Department of Commerce and Department of 

State Stakeholder Engagement on Gulf Carrier Subsidy Claims – IAG Comments

1. Introduction 

International Airlines Group (IAG), parent company of British Airways, Iberia and Vueling, welcomes 

the opportunity to submit comments to the US Departments of Transportation, Commerce and State 

open forum for stakeholders, concerning subsidy allegations made by three US airlines (American, 

Delta and United) against three airlines from Qatar and the UAE (Qatar Airways, Emirates and 

Etihad, collectively known as the “Gulf carriers”).

IAG and British Airways is pro-consumer and pro-competition and is driven to win business by 

offering the best products and services to consumers in all the markets it serves. We have

consistently supported the liberalisation of air transport worldwide.

Competition is a fact of life for all our businesses; we believe that embracing it offers IAG the 

greatest opportunities to deliver profitable growth and shareholder value over the long term. This 

includes markets where IAG competes successfully – i.e. profitably – with all three major Gulf 

carriers. British Airways has faced direct competition from Emirates for over 25 years.

IAG’s approach is entirely consistent with the rationale for pursuing Open Skies policies, as set out by 

the US Department of Transportation (DOT) on its own web site, which states:

“Open Skies agreements have vastly expanded international passenger and cargo flights to and from 

the United States, promoting increased travel and trade, enhancing productivity, and spurring highquality job opportunities and economic growth. “ 

It goes on to say:

“Open Skies agreements do this by eliminating government interference in the commercial decisions 

of air carriers about routes, capacity, and pricing, freeing carriers to provide more affordable, 

convenient, and efficient air service for consumers.”

IAG takes this US policy position as the starting point for our comments relating to the 

concerns expressed by the three largest US airlines in their recently-published “White Paper”.

In this submission, IAG does not seek to defend specific carriers, nor go into detail on the individual 

allegations; this will be for the carriers concerned to address. Rather, we aim to support the 

important principles outlined by the DOT above. 

2. Benefits of the US “Open Skies” policy

Economic benefits of the US “Open Skies” policy that have accrued over time stem primarily from 

the increased passenger and trade flows that have directly resulted from the freeing up of capacity 

and frequency limits on air services. This has enabled airlines to offer increased services on existing 

routes and to open entirely new markets that incumbent carriers did not exploit, connecting many 

city pairs that previously did not feature in the networks of the older airlines, which are tied to their 

historic hub markets. 
2

This burgeoning of new routes and high quality service has undoubtedly brought enormous benefits 

for US consumers, whether individuals or businesses, leading to enhanced trade and tourism 

opportunities and the wealth creation and employment that follows. 

On the trade relationship between the US and the UAE, figures from the US-UAE Business Council 

(citing US academic research) demonstrate that US exports to the UAE are growing strongly on the 

back of enhanced connectivity. The UAE is now America’s largest export market in the Middle East. 

US exports and foreign direct investment to the UAE rose from $3.6 billion in 2004 to $24.6 billion in 

2013, representing a 6-fold increase in the space of just 9 years.

It can be no coincidence that this astonishing growth in trade is underpinned by the start of direct 

flights between the two countries in 2004 as a result of the enlightened “Open Skies” policy pursued 

by the US Government in its bilateral relationship with the UAE.

In addition to the trade benefits outlined above the US has also, in its leading role as an aerospacemanufacturing nation, been able to capitalise upon the growth of the Gulf carriers as they build their 

fleets. Orders of aircraft and engines by the Gulf carriers have dwarfed those of most other airlines 

around the world. Since Boeing aircraft represent the largest single category of US export earnings, 

and support many hundreds of thousands of jobs directly and indirectly in the US, it would be 

perverse not to take into account the value of the Gulf carriers to the US economy and US citizens, a 

value that is made possible by the opening of markets that has been catalysed and (in many cases 

led) by the efforts of the US Government across the world. 

A key element of the benefits the US secures from its pursuit of “Open Skies” is enhanced 

connectivity for many regional US points that would otherwise have no direct flights to the Middle 

East. 

This sharing of the benefits across the US brings the many benefits of direct connectivity with export 

markets and sources of tourism to US regions. The combined value of new services by Gulf carriers 

to US airports and their surrounding communities runs into billions of dollars per annum. Emirates

alone generates some $2.8 billion per annum, according to various publicly-available studies 

conducted by or on behalf of US airports.

The consumer benefits brought to the US travelling public by the Gulf carriers are hard to ignore. 

New flights have opened up an array of new destinations and direct city-pairs, added to the choice 

of airlines available on existing destinations, and introduced levels of customer service rarely seen in 

this market. Not only do Gulf carriers bring competitive service and prices, they also stimulate the 

market, so that much of the increase in their own passenger traffic is incremental, not taken from 

existing operators. 

The White Paper makes much of the Gulf carrier impacts in relation to passengers travelling 

indirectly e.g. between India and the US, as if consumers should be denied this choice. Passengers 

travelling between two points on the globe do not “belong” to any particular airline or group of 

airlines. Airlines must compete to offer passengers what they want. The outdated concept of 

“ownership” of passenger traffic must be rejected by all governments. 

The overall picture today is an overwhelmingly positive one for the travelling public and it is hard to 

reconcile the arguments made in the White Paper with the overall interests of American (and 

foreign) consumers.
3

The benefits to US consumers, businesses and employment are plain to see. The global 

competitiveness of the US economy has been significantly enhanced by the aviation policies the DOT 

has pursued over the last 30 years. Turning the clock back now would be folly.

3. Alleged subsidies to Gulf Carriers

The White Paper’s allegations on subsidies to Gulf carriers do not withstand scrutiny. IAG also has 

serious doubts about the way information is presented in the White Paper. It is heavily caveated due 

to difficulties in obtaining information. Yet, even where transparent accounts are available, many of 

the conclusions drawn appear inaccurate e.g. in relation to jet fuel subsidies or alleged fuel hedging 

support.

Some of the arguments relating to IAG in the White Paper are inaccurate and misleading. 

Even where independent studies are used to support arguments, the evidence is deliberately 

misquoted to distort its meaning so that unfavourable conclusions can be drawn (“US white paper 

on Gulf carriers distorts my academic report”, Frankie O’Connell, ATW 26 April 2015). 

Such examples call into question the integrity of the whole document.

Whilst IAG does not intend to make detailed points to rebut specific allegations in this paper, our 

own review of the published accounts of Emirates shows that it is a well-run airline that is profitable 

and makes dividend payments to its shareholder. Similarly, the UK Department for Transport 

reached a similar conclusion with Qatar. It has recently lifted long-standing frequency restrictions 

contained in the UK-Qatar bilateral on the basis of a satisfactory review of all information relevant to 

fair competition.

More generally, IAG believes that:

• Fuel subsidies to any of the Gulf carriers are non-existent. It is not credible to make 

allegations simply because the States concerned have large oil and gas reserves, especially 

when there is clear evidence that the carriers concerned have standard commercial 

contracts in place with well-established jet fuel suppliers.

• Alleged subsidies in the form of investments in airlines, where they have occurred, are no 

different from the many investments made by States in airlines across the world in the past, 

or by governments elsewhere in the world, about which there appears to be no concern 

whatsoever.

• State investment in airports infrastructure is not, and never has been, regarded as “subsidy” 

anywhere in the world. In the Gulf, as in the UK, airports are (regardless of ownership) run 

on a commercial basis and commercial revenues from retail and car parking in particular (as 

opposed to aeronautical revenues) frequently make up approaching half of the income of 

the airport concerned. This enables airports to attract business through reduced 

aeronautical charges. Provided charges are applied in a non-discriminatory manner i.e. all 

airlines may benefit from the same charges, under Open Skies principles there can be no 

justification for complaint. It is good business and it translates to lower airport charges and 

lower fares for passengers. There is nothing wrong in that.

• The Gulf carriers are not protected from competition by their own governments. 

Competition at the Gulf hubs is fierce. This is the case in Abu Dhabi, Dubai and Doha. In 

Dubai, well over 100 international airlines compete successfully against Emirates and fly 
4

dubai. It is one of the most heavily competed international hubs in the world, as well as the 

largest.

• Complaints regarding lower labour and social costs could apply to many countries which the 

US has Open Skies agreements with, and reflect local market conditions and policies. The 

White Paper highlights a lack of trade unions in the Gulf States as a key issue yet OECD 

figures on union density (defined as the percentage of employees who are members of a 

union) for 2013 show that in the US these represent just 10.8% of the workforce, 

significantly below the OECD average of 16.9%. This compares with 25.4% for the UK,

however IAG does not regard this relatively high figure as a legitimate reason to curb 

competition.

• Similarly, local tax regimes e.g. corporation tax and income tax are a matter of national 

policy. Such matters are not within the scope of Bilateral Air Services Agreements and never 

have been. 

4. State support and practices that benefit US and EU carriers 

Since the inception of international commercial airline service, nations have recognised the benefits 

of linking their peoples, businesses and governments to the world. With the recognition of those 

benefits, many nations also determined that it was essential to establish and support a homeland 

(national) airline ensure the reliability of those links. National support of such airlines over the 

decades took a variety of approaches – state ownership and capital provision, sole-source 

government contracts, state supported research and development of aviation equipment, airports 

and air traffic management systems – are among the approaches often used which directly 

benefitted airlines. IAG has consistently argued against state aid and has never attempted to place 

commercial restrictions on those in receipt of such aid.

There can be few major carriers in the world that have not previously benefited from State support 

of its business in one form or another or does not currently derive benefit from differences in 

national or local legislative, taxation and other policy regimes in different jurisdictions. Often it is a 

matter of definition or interpretation.

As mentioned already, infrastructure costs are frequently borne by States or that infrastructure was 

originally created by States to benefit carriers. This makes the Gulf States no different from other 

nations. 

In the US, there are many rules that differ from other countries which could be interpreted by other 

nations and their airlines as “unfair”. These include Chapter 11 reorganisation procedures, which 

among other things has allowed airline pensions liabilities to be taken of carriers’ books, Fly America, 

where Government traffic must use US airlines (or their codeshare partners) not foreign airlines, the 

Department of Defense strategic airlift program, state and local air service development funding 

support, special state and local tax forgiveness incentive programs, and broadly, federal tax dollar 

support for research and development in aerospace. US airlines continue to be protected by 

ownership and control regulations which are more restrictive in the US than in many other 

countries.

The EU has its own State Aids policy which has frequently been a cause for concern for airlines that 

have not benefitted from their homeland government’s largesse. Many carriers have benefited from 

“lawful” State Aid to enable restructuring of their business. These often massive injections of state 

subsidy are meant to be granted on a “one time last time” basis and subject to the “Market 
5

Economy Investor Principle” that aims to ensure capital injections are made on a commercial basis. 

However the rules may not always be applied as rigorously as they might, resulting in distortions to 

competition vis-a-vis other airlines (both EU and non EU). It is also the case that certain carriers 

have been able to have pension liabilities assumed by the State.

In addition to direct or indirect financial support, it is important to consider what some might 

describe as the largest and most pernicious – for consumers and business alike – forms of support 

that any government can give, namely protection from competition. The US has led the way in 

removing these protections through its aggressive pursuit of its open skies policy. Reintroducing 

restrictions targeting the Gulf at the behest of three highly profitable US airlines would be little 

different from offering those American carriers a cash subsidy underwritten by US consumers. 

But the US and EU are not unique in supporting the aviation sector. This is a global phenomenon that 

takes a variety of forms. 

5. Conclusion

IAG believes that our industry functions best when competition is allowed to flourish. This delivers 

the best outcomes for consumers and businesses alike and we want to see more, not less, 

liberalisation. It is a matter of grave concern to see protectionism raising its ugly head at the first 

sign of effective competition from the Gulf countries.

IAG disputes the evidence and conclusions that unfair subsidies are being provided by the Gulf 

States to the Gulf airlines contained in the White Paper prepared by American, Delta and United. IAG 

believes the evidence and therefore the conclusions to be unreliable and wholly inappropriate as a 

means of informing important government policy decisions. The White Paper’s arguments should be 

rejected as a return to international aviation policies that protect airlines from competitors instead 

of fostering competition.

As the US has demonstrated since it first liberalised its domestic air market in 1978, competition 

benefits consumers. The international liberalisation that the US has had the foresight, 

determination and confidence to pursue in the intervening years fosters economic growth through 

enhancing trade, tourism and inward investment. 

It is a sound and enlightened approach that delivers enhanced prosperity to the US and its trading 

partners that must not be put at risk. To shield US airlines from their competitors would be to grant 

them the biggest subsidy of all.