August 24 - The Battle Against Open Skies: What Would President Reagan Think?


INDUSTRY ANALYSIS

By Kevin Mitchell

After 2-1/2 years and tens of millions of dollars wasted on lobbying, that understandably has failed to persuade the Obama or Trump Administrations, in a Hail Mary pass that likely would even have Aaron Rodgers shaking his head, Delta Air Lines has tried to invoke the memory of Ronald Reagan. Andrea Newman, its SVP for Government Affairs, did so in an August 22, 2017 Washington Examiner op-ed entitled, “Gulf carrier cheaters threaten U.S. aviation jobs” in which she twice, in the first paragraph, mentioned the former President and that she worked for him.

I did not know President Reagan, nor did I work for him or purport to know what he would think about the political campaign Delta, and its oligopoly partners American Airlines and United Airlines (Big Three), are waging against Open Skies and the much-needed competitive choice Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers) offer consumers.

However, the former President might have responded to Newman’s op-ed as follows:

“Andrea, don’t you remember the stark warning I gave in my August 2, 1986 radio address to the nation on free and fair trade? Specifically, I emphasized: ‘And they [economists] all warn that high trade barriers, what is often called protectionism, undermines economic growth and destroys jobs. I don't call it protectionism; I call it destructionism.’ 

For 25 years the U.S. has provided global leadership in air service free trade with our Open Skies policy. Countries around the world have embraced it. The U.S. has been a beacon on the hill for liberalization of global skies. Open Skies has spurred economic growth and created and supported countless jobs just as I would have predicted. Now, rejecting my vision of open markets, Delta wants the U.S. to repudiate Open Skies and instead embrace destructionism?  Very disappointing!

As I said in my radio address, free trade and fair trade go hand-in-hand. I understand Delta has competitive concerns about the Gulf Carriers and alleged subsidies. If proven, that is a serious issue. But, why then has Delta failed to file an International Air Transportation Fair Competitive Practices Act (IATFCPA) complaint with the U.S. Department of Transportation (DOT)? Congress enacted IATFCPA in 1974, even before I was elected and you served in my Administration. Don’t you remember the IATFCPA complaint United filed in June 1981, during my Administration, against the Japan Civil Aviation Bureau and Japan Air Lines? DOT carefully reviewed the law and facts, and it acted quickly issuing an order in December 1981. 

Simply put, as in my Administration, IATFCPA is the appropriate process where, as here, U.S. carriers believe foreign competitors or their governments have engaged in unfair trade practices that have result in commercial harm. You cannot, and should not, cavalierly brand your competitors as “cheaters” or tell every U.S. Government official you see that Gulf Carriers are unfair competitors if Delta is unwilling or unable to prove your allegations to the U.S. Government in an IATFCPA case. That’s how we did it in my Administration and I fail to see why it should be any different now. 

On the issue of IATFCPA, can you please help me understand something. You claim Delta is suffering competitive harm as is required to successfully make an IATFCPA case. However, your President, Glen Hauenstein, in a July 15, 2015 earnings call, unequivocally told Wall Street analysts Delta is not. The transcript of what Mr. Hauenstein said in that Wall Street call is crystal clear, irrefutable. So, who’s right, you or Mr. Hauenstein? Delta’s record setting profits – congratulations by the way  – strongly suggest Mr. Hauenstein is correct. Is that why you have not filed an IATFCPA complaint?

I also am confused by your repeated claim that each Big Three flight canceled costs 1,500 U.S. jobs. Unless I am mistaken, during the Obama Administration, you and your partners claimed it was 800 jobs. Now, that same figure is 1,500? We saw hyperinflation in the Carter years but even by that standard this seems off the charts – a near doubling of your job loss claim in two years!? 

On that subject, does it apply to all cases where a foreign carrier operates a flight rather than Delta, American or United? For instance, Delta recently gave its Seattle-London Heathrow daily flight to your partner, Virgin Atlantic. Did that Delta decision cost 1,500 jobs? How about when Delta decides to have your joint venture partner Air France/KLM operate a flight rather than fly a Delta aircraft with Delta crew? Do each of those flights also cost 1,500 U.S. jobs?

On that point, when you cancel a flight like Atlanta-Dubai, Delta does not park the aircraft in the desert and furlough the crew and support staff, correct? The same is true for United’s aircraft and crew supporting its now canceled Washington Dulles-Dubai flight, right? Instead, as businesses with a legal duty to maximize earnings for your shareholders, those aircraft were redeployed to the more profitable transatlantic market where the Big Three and their foreign partners control more than 80 percent of the seats and have pricing power. Since obviously those redeployed aircraft do not operate without crew and support staff I don’t understand your job loss claim whether the alleged number is 800 or 1,500.   

Let me add while Delta’s words of concern about U.S. jobs are music to my ears, Delta’s actions in aircraft purchases – aerospace is a key engine for U.S. manufacturing jobs – are terribly disappointing. Recently, your CEO publicly declared that the Rolls Royce-powered Airbus A350-900 is Delta’s flagship aircraft. Not a Boeing? Not GE powered? Why hasn’t Delta purchased a single Boeing 777X? Gulf Carriers have purchased a lot of them ensuring that Boeing was able to launch the 777X program, and is able to deliver hundreds of thousands of jobs to U.S. manufacturing workers. 

And then there is Boeing’s unfair trade practices complaint against Bombardier that the Trump Administration is investigating for heavily subsidized C Series aircraft purchased by Delta. It is good to talk about U.S. jobs but it would be far better if Delta took actions, like aircraft purchases, that support rather than harm U.S. manufacturing jobs. As Mark Twain famously said, ‘action speaks louder than words but not nearly as often.’”

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