December 8 - Delta Campaign Against Gulf Carrier Subsidies Is Built On A House of Cards


It is understood that the U.S. Secretaries of State, Transportation and Commerce will soon deliberate over the demand of the major network carriers, led by Delta Air Lines (“Delta”), that the Obama Administration intercede in the aviation marketplace with protectionist measures to limit the Open Skies rights of Emirates Airline, Etihad Airways and Qatar Airways (the “Gulf Carriers”). The U.S. carriers are alleging and complaining that the Gulf Carriers are unfairly stealing their customers because they are egregiously subsidized.

There is every reason to believe, however, that these Cabinet Officers have listened carefully to the warnings of numerous stakeholders such as U.S. commercial and cargo airlines, airports, tourism destinations, corporate travel departments and consumer groups that the Delta-led, multi-million dollar scorched-earth campaign to disparage and commercially damage the Gulf Carriers is built upon a shaky foundation of hypocrisy and falsehoods. As with Kevin Spacey’s character Frank Underwood, in Netflix’s House of Cards, there is always more than meets the eye when it comes to major network airlines’ pleas in Washington.

Delta argues that the Gulf Carriers compete unfairly because the governments of Qatar and the United Arab Emirates do not have a corporate income tax. It is asserted in the infamous 55-page White Paper that such a government policy constitutes a subsidy. Talk about the pot calling the kettle black! U.S. tax law permits corporations, even those that have discharged their debts and wiped out losses through Chapter 11 bankruptcy, to carry-forward net operating losses (NOL) to offset future earnings and thereby eliminate or reduce tax liability. Based on earlier years of unprofitable operations, Delta and the other U.S. major network carriers have used huge NOL carry-forwards to eliminate tax liability on the record profits that they have earned more recently.

Importantly, now that NOL carry-forwards are nearly exhausted and record profits continue to roll in, news accounts indicate that Delta is cleverly cooking up a tax avoidance scheme to limit its future U.S. tax liability. To Wolfe Research analyst Hunter Keay it increasingly seems like Delta during its December 17 Investors Day Conference will announce some form of tax avoidance scheme such as the creation of an offshore holding company for its international operations and joint venture assets. The purpose would be to funnel income to countries with lower or no corporate taxes, thereby paying taxes to a foreign government, not the U.S. Treasury.

So, while Delta is wrapping itself in the Stars and Stripes with its protectionist pleas to President Obama, it is turning its back on Old Glory when it comes to doing its duty at home by baking a plot to avoid paying taxes to the U.S. government. Not only is it hypocritical to protest the tax policies of other countries when U.S. airlines have benefitted massively from the favorable treatment of NOLs in the Internal Revenue Code, but Delta now wants to avoid its obligations to the United States by funding foreign governments instead. Meanwhile, Delta gladly accepts taxpayer monies from the U.S. Treasury that flow into the Airport and Airway Trust Fund - a direct government subsidy to airlines - to cover Federal Aviation Administration shortfalls.

The fictitious Frank Underwood is able to advance his agenda on Capitol Hill through lies and manipulation because his opponents cannot perceive his ambitions and strategy and endeavor to resist his entreaties tactically. This is the real strategic and historic risk with the war on U.S. Open Skies policy and foreign carrier competitors, including Norwegian Air International, whose application to serve the U.S. has been politically blocked in Washington for almost two years. Major network airlines’ hypocrisy and manipulation must be stopped, as they threaten our nation’s economic wellbeing and represent all that consumers detest about the influence of special interests in Washington. 

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