Hypocrisy Alert: Gulf Airlines Got Money to Finance Their Aircraft. Guess Where US Aircraft Financing Came From?

A couple of weeks ago I wrote US Airlines Should Shut Up About Having to Compete Against Gulf Carriers.

I thought that would be my last word on the dustup between US airlines and Gulf carriers, with US carriers complaining to the government that they have to face unfair competition and the Chairman of Delta (partner with Saudi Arabia’s national airline) resorting to associating Etihad, Emirates, and Qatar Airways with 9/11 terrorism.

But Alan H. pointed me to this New York Times piece which gives further coverage to the report by airline lobbyists (which they refuse to release publicly) that claims Gulf carriers have received $38 billion in subsidies. (All reports note that the report is 55 pages, though claim not to have seen it.)

When I read this claim:

Etihad alone received $17 billion in government subsidies in the last 10 years, they say. This includes $6 billion in interest-free loans from the government of Abu Dhabi to buy new planes from Boeing and Airbus, and $6.5 billion to cover operating losses.

I was reminded of a nugget in American Airlines, US Airways and the Creation of the World’s Largest Airline about the events leading up to the merger of American and US Airways.

Now, this book is very harshly reviewed. And if you don’t look closely you might think it’s because it’s a bad book (it isn’t).

The reviews are pretty vitriolic, like this one, which never mention what it is about the book they found distateful or lacking in truth:

Your Aunt probably knows more about airlines than Ted Reed does. Ted couldn’t write an unbiased account of the USAirways merger if his life depended on it. Ted hails from that new bred of internet “journalist” that does not place a high value on facts and objectivity. Just string together some words to fill up a page. Whenever Ted Reed writes about USAirways he does so with a hidden agenda that relegates truth and objectivity to the back seat. Read this book if you want to be misinformed.

Some reviews are more transparent (emphasis mine):

Ted Reed wouldn’t know a fact if it was right in front of him. His time at US Air clouds all of his opinions. He is very biased for the East.

Mr. Reed’s judgement seem’s to be biased to his former employer, USAirway’s. An old legacy airline which was just days from liquidating. The management team from America West Airlines stepped in and kept their airline alive. …Most current and former employee’s of the old USAirway’s are some of the most negative, unhappy, ungrateful, and self entitled people I have ever met in my 30 year airline career.

US Airways pilots are unethical, hostile and posses no integrity! Hopefully the American Airlines employees will have more honor to move this airline forward.

The negative reviews largely come from legacy America West pilots, and reading the book it was clear why. In the chapter dealing with the issue of pilot seniority integration after the US Airways-America West merger, the book painted both sets of pilots as having good points and the decision of the arbitrator — which led to the US Airways pilots bolting on the binding arbitration and setting up their own union whose sole purpose was sticking it to the America West pilots — as being beyond the pale.

The book’s discussion of the ruling never used the term “failed carrier” which is how US Airways was treated, essentially giving US Airways pilots lower priority because the airline was at the end of its road without the merger, in its second bankruptcy in just a few years.

That somewhat reasonable criticism notwithstanding, it was a good and breezy read, and contained one nugget I hadn’t known or at least hadn’t remembered from Eagle: The Story of American Airlines (that I read at least 15 years ago) by the great Robert Serling.

The funds for American Airlines’ first major aircraft order came in the form of a subsidized loan from the US federal government.

American Airlines Chairman C.R. Smith badgered and cajoled Donald Douglas into developing a stretched successor to the DC-2. It was 1934, and American didn’t have access to the cash required to fund the 20 aircraft. So he went to fellow Texan Jesse Jones, in charge of the Roosevelt administration’s Reconstruction Finance Corporation for a government loan.

(Smith was personally close to Eleanor Roosevelt and was son Elliott Roosevelt’s best man. He was also later a cabinet secretary in the Johnson administration between stints as chairman of the airline.)

This was effectively a government subsidy both to a US airline and to a US aircraft manufacturer.

There’s no way to parse through the hypocrisy and figure out whose subsidies were more important in their development, airlines need to stop complaining about too much government intervention needing to be met with even more government intervention.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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Comments

  1. You rave about the service and quality product that the middle eastern airlines put out. A product that is subsidized but complain harshly about the subpar product of US airlines. Then tell US airlines not to whine about the subsidies! It like the readers of these travel blogs that whine about the authors pushing credit cards, but continue to read the blogs and benefit from the informative articles! The blogger and the readers can’t have it both ways!

  2. @kirk – these airlines largely don’t even compete head on with us airlines, and us carriers shouldn’t try to match the strategies of gulf airlines although there are many things they can do better at. subsidies aren’t the reason for friendlier service.

  3. Gary — You’re really going to argue that the USA airlines case against the Middle East airline subsidies is weak because AA got a gov’t subsidy for aircraft in 1934? Really?

    As I’ve stated before, all airlines in the world receive, or have received, some largesse from their governments. But what’s going on with the Middle Eastern airlines is nothing like the world has previously seen. The tens of billions in subsidies is unprecedented, and completely distorts world aviation. It’s certainly not their business prowess that enables these otherwise inconsequential Middle Eastern airlines from tiny countries to account for half the order book of Boeing and Airbus. It is not unreasonable for the USA airlines to seek an end to openskies with countries whose airlines face no rational, economic limitation to their expansion. Indeed, it would be completely irresponsible of the US gov’t to not impose flight limits on these ultra-subsidized foreign airlines.

  4. @iahphx – a specific complaint by US airline lobbyists is that Middle East carriers got subsidized aircraft at startup. I’m pointing out that they aren’t alone, American’s first big aircraft order was subsidized too. One airline started 80 years ago, another started 10 years ago, the year isn’t relevant, the stage of its life cycle is similar.

  5. If a Middle East nation wanted to subsidize the purchase of 20 aircraft for their “start up” national airline, I don’t think “the world” would be complaining. Even though a 20 plane order would be HUGE compared to AA ordering 20 planes for the USA’s 1934 population.

    The problem is that the subsidies are unlimited. These Middle Eastern airlines want to be (and now are) gi-normous. There are several int’l airlines that are subsidized and not run for profit. South African certainly stands out as one. But nobody worries much about those, because they are not subsidized to “take over the world.” That’s the difference.

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