August 29 - Big Three CEOs in Washington This Week


INDUSTRY ANALYSIS


 Are They Finally Bringing An IATFCPA Complaint?

By Kevin Mitchell

Ed Bastian, Doug Parker and Oscar Munoz, the CEOs of Delta Air Lines, American Airlines and United Airlines respectively (Big Three), are expected to be in Washington this week. They are scheduled to meet with Secretary of State Tillerson and Secretary of Transportation Chao, and also are seeking to see Secretary of Commerce Ross. 

It is no small feat to coordinate calendars for three high-powered CEOs who run global companies that each must travel to the nation’s capital. One would think such an occasion would be reserved for the highest corporate priorities.

For instance, one can see such a rare opportunity being set-aside for Congressional meetings on tax reform or to try to jump-start their much prized but stalled air traffic control reform legislation. Or, perhaps, it might be deemed necessary to try to reverse the momentum a Passenger Facility Charge (PFC) increase has as a result of airports out-foxing the Big Three whose DC offices apparently were asleep at the switch as the Senate Appropriations Committee approved legislation calling for a $4 per flight PFC increase. After all, according to a Delta press release decrying the legislation, based on U.S. Government Accountability Office (GAO) studies, if enacted this could result in more than a four (4) percent decline in passenger demand. But, with Congress on recess, none of those explanations is a possibility.  

So what brings the Big Three CEOs to Washington for a day of joint meetings? They are coming to jointly whine again about the competitive choice Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers) offer to travelers. The Big Three’s Gulf Carrier obsession is unhealthy. Judging from their failure to see, from their point of view, the threat of a PFC increase, it has become a costly distraction. How else could the Big Three be caught so flat-footed when every year one of their highest Washington priorities has been to defeat even a $1 PFC bump-up, let alone this year’s Senate committee-approved $4 increase? 

After 2-1/2 years and tens of millions of dollars of wasted shareholder money enriching lobbyists, law firms and PR agencies, the Big Three are back yet again to plead their laughable case for protection from competition. Woe is us as our oligopoly, combined with our foreign alliance and joint venture partners, “only” control some 80 percent of the seats in the U.S.-Europe market and antitrust immunity “only” permits us to fix prices and collude on capacity levels and schedules. Given such “limitations,” how do you expect us to compete against Emirates’ single daily New York-JFK –Milan-Dubai flight and, during the Summer season only, against its Newark-Athens-Dubai service too? Crying towel alert!

This week’s Big Three CEO visit conjures up images of another sad day in recent U.S. transportation history when three CEOs came to Washington in self-pleading mode. In November 2008, the CEOs of the big three U.S. automakers, with begging bowls in hand, boarded their private jets to fly to Washington to ask for a taxpayer bailout.

This is the 2017 U.S. aviation industry version of that sad day with shockingly bad optics. The Big Three are flying high financially, higher than they have ever flown before. In 2015 and 2016 alone, the Big Three had a combined net profit of $28.8 billion. Staggering! They are on pace for another year of eye-watering profits in 2017. Yet, they come to Washington portraying themselves as victims of unfair competition.  

Worse yet, their fear-baiting, anti-Open Skies campaign makes the outlandish claim that the U.S. airline industry as we know it and the livelihood of the Big Three’s employees are at grave risk. In fact, Mr. Parker is so “worried” about the future of American, that he has foregone a salary choosing instead to be compensated in stock – a testimonial to his confidence in American’s future.

The key question that this week’s Washington visit raises is, after over 2-1/2 years of flying in circles, will the Big Three CEOs finally bring with them an International Air Transportation Fair Competitive Practices Act (“IATFCPA”) complaint that they intend to file at the U.S. Department of Transportation (DOT)?

Over 40 years ago Congress enacted IATFCPA authorizing DOT to evaluate claims of alleged unfair competitive practices by foreign carriers or their governments that have resulted in competitive harm. With a statutory clock of six months, IATFCPA requires DOT to take remedial action if its fact-based evaluation deems it is warranted. Given that Messrs. Bastian, Parker and Munoz all assert their legal claim is undeniable and the alleged facts of subsidy are irrefutable, why are they so afraid to file an IATFCPA complaint?

The explanation, of course, was provided by Mr. Bastian’s colleague Glen Hauenstein the President of Delta. IATFCPA requires a complainant to prove it has suffered competitive harm as a result of the alleged action or misconduct. The possibility a carrier might suffer competitive harm in the future is not legally sufficient. Speculative claims of future competitive harm may be fodder for apocalyptic political sound bites but they are irrelevant to an IATFCPA case.

With that context, in a July 15, 2015 Q2  earnings call with Wall Street analysts, Michael Linenberg of Deutsche Bank asked Mr. Hauenstein, Delta’s EVP and Chief Revenue Officer at the time, “Glen are you seeing some displacement of that traffic to competitors such as Emirates or Etihad or Qatar as they continue to add more and more seats into the marketplace. And I’m looking more like U.S. into India, Middle East, Africa because there is a decent amount of flow traffic between you and your partners.” Hauenstein’s unequivocal response: “As we’ve stated in the past, we are not.” Hauenstein could not have been more clear or emphatic. Delta has suffered no commercial harm despite its political rhetoric to the contrary.

Simply put, as confirmed by Mr. Hauenstein’s admission, the reason Messrs. Bastian, Parker and Munoz have not filed an IATFCPA complaint is that they know, deservedly so, it would be denied. So much for all their huffing and puffing about a legally bullet-proof case supported by irrefutable facts. More aptly, they have no legal claim and a lot of fictitious political fairy dust masquerading as facts, and they know it.

So, instead of an IATFCPA complaint, the Big Three CEOs come to Washington this week with their Carl Sandburg strategy: “If the facts are against you, argue the law. If the law is against you, argue the facts. If the law and the facts are against you, pound the table and yell like hell.”

As the Big Three CEOs pound the table and spin tales of being victims despite record-setting profits, I hope the Secretaries will remind them that Delta, American and United as well as Northwest, US Airways and Continental relied on IATFCPA in the past and, again, it is the appropriate process they must follow if they sincerely believe they have a case against the Gulf Carriers.

If they continue to refuse to bring an IATFCPA case, then that should tell the Secretaries all they need to know and they should tell the Big Three CEOs that the Trump Administration considers the matter closed.

 

 

 

 

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