August 7 - Delta’s Homage to Canada, Protectionism and Subsidized Aircraft


INDUSTRY ANALYSIS

BY Kevin Mitchell

Delta Air Lines, and its anti-competition oligopoly partners American Airlines and United Airlines (Big Three) are increasingly desperate in their campaign against longstanding U.S. Open Skies policy and consumer choice provided by Emirates Airways, Etihad Airways and Qatar Airways (Gulf Carriers). Flush with record-setting profits, the Big Three have chosen to plow tens of millions of dollars into a record-setting lobbying campaign against competitive choice. 

Tellingly, the Big Three have failed to file an International Air Transportation Fair Competitive Practices Act (IATFCPA) complaint with the U.S. Department of Transportation (DOT).  For more than 40 years, U.S. airlines – including the Big Three – have relied on IATFCPA when they believe actions by foreign airlines or their governments have resulted in unfair competition causing provable commercial harm. If the law is as clearly on their side as they assert, and their version of the facts is irrefutable as they claim, why have the Big Three failed to file an IATFCPA complaint which has a six month statutory clock if DOT determines corrective action is warranted?    

Instead, to avoid the exacting fact-based review DOT’s expert and professional staff would conduct under IATFCPA, the Big Three are trying to use political muscle to persuade the U.S. Government to breach Open Skies agreements and deprive consumers of competitive choice. Having failed to convince the Obama Administration, the Big Three decided to wrap themselves in the American flag and mimic President Trump’s campaign rhetoric to try to gain traction with the new Administration. The political rhetoric they spew is as hollow as the fictional claims they make against the Gulf Carriers.

It is essential to look at the Big Three’s actions, not listen to their words. Delta is a prime example. It claims it supports Open Skies and is a champion for American jobs. However, Delta seems much more enamored of Canada’s Blue Skies protectionist aviation policy, which has been a disaster for Canadian consumers, and it is a champion for subsidized Canadian aircraft manufacturing to the detriment of Boeing and American jobs. Facts are stubborn things.

In Delta’s slick 15-minute employee video, CEO Ed Bastian admiringly touts Canada’s protectionist Blue Skies policy, which is the antithesis of Open Skies. When I recently called out Delta for repudiating U.S. Open Skies policy, and advocating Canada’s Blue Skies managed-competition scheme instead, Delta cried foul. It recently applauded U.S. Open Skies for some carriers and the protectionist Canadian policy for others. I thank Delta for putting an exclamation point on the accuracy of my statement. It is impossible to simultaneously support liberalization and protectionism. 

Open Skies isn’t a selective policy depending on whether you fear competing with certain guest-focused airlines. It isn’t subject to the competitive whim of a handful of carriers who have benefitted tremendously from it but now are afraid to compete with all comers in an open marketplace. At least Delta and Bastian are honest about it. What Delta has acknowledged the Big Three want is to replace Open Skies with the Canadian Blue Skies model, which solely considers the profits of Air Canada, and completely ignores the best interests of consumers, communities and the national economy. 

Delta also cried foul that I noted it was odd for a self-professed champion of American jobs to purchase 75 of the heavily subsidized, Canadian manufactured Bombardier C series CS100 aircraft. Bombardier’s contract with Delta also includes options for 50 additional aircraft, and Delta can convert a percentage to orders for the larger CS300, which competes with Boeing's 737-700/7 MAX.

Delta’s rebuttal – Boeing doesn’t offer a competitor model so there is no potential harm to the U.S. aircraft manufacturing industry and the hundreds of thousands of American jobs that depend on it. Why then did Boeing file a trade dispute against Bombardier for the Delta transaction, and why did the U.S. Department of Commerce and U.S. International Trade Commission agree to investigate it? 

Delta has the right to purchase any aircraft it chooses. In the trade dumping complaint it is alleged Delta paid just $19.6 million per plane for aircraft that should have cost $33 million each. If proven true, it is a sweetheart deal for Delta shareholders and Canadian aerospace workers. However, Delta cannot and should not wrap itself in the U.S. flag touting it is a champion for American manufacturing jobs. Its C series purchase, and its pattern of wide-body aircraft purchases, tell a diametrically opposite story.

Delta recently became the first airline in North America to take delivery of an Airbus A350-900. CEO Ed Bastian hailed it as “our new flagship.” Yes, Delta’s self-proclaimed flagship aircraft is an Airbus assembled by European workers, not a made-in-the-USA Boeing assembled by Americans. Nevertheless, that doesn’t tell the full story of Delta’s flagship A350-900. It is powered by Rolls Royce Trent engines. Delta turned its back on GE Aviation and its American workers too.

The flagship Airbus A350-900 isn’t an aberration for Delta. At the same time in 2014 that it purchased 25 of them, it also purchased 25 Airbus A330-900neos.  Of course, those A330-900neos are Rolls Royce powered too. So, how does Delta reconcile its claim to be a champion of American jobs with its pattern of non-U.S. made aircraft purchases!? 

In stark contrast to Delta are the Gulf Carriers that, in fact, are loyal to U.S. aerospace manufacturers and suppliers. Except for the Gulf Carriers, it is doubtful Boeing would have been able to launch its high profile, next generation 777X program, which will showcase its global leadership in composite technology and support hundreds of thousands of American manufacturing jobs. Of the 306 777X’s purchased, 235 were purchased by Gulf Carriers with Emirates alone buying 150 GE-powered 777Xs. What about Delta, American and United? The Big Three have not purchased a single 777X despite record-setting profits. So much for wrapping themselves in the American flag!

The harder you look at the Big Three’s claims the more non-existent they become. We are suffering commercial harm due to Gulf Carrier competition; we had yet another record-setting quarter and are bullish about long-term profits. The more you juxtapose the Big Three’s words against their actions, the more hollow and hypocritical their arguments are. Delta can celebrate Canada, its protectionist Blue Skies policy and its support for Canadian manufacturing jobs. Instead I steadfastly support the American, long-standing Open Skies policy and American aerospace manufacturing jobs, and in doing so believe I stand shoulder-to-shoulder with President Trump.

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Mitchell is founder of Business Travel Coalition and OpenSkies.travel.  

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