November 28 - Delta Urges Congress To Violate US Legal Obligations 

 

Business Travel Coalition

INDUSTRY ANALYSIS

 

Delta Urges Congress To Violate US Legal Obligations 

Endeavors to throw consumers under the bus, again

By Kevin Mitchell

Ed Bastian, CEO of Delta Air Lines (Delta), working with hometown Georgia Senator Johnny Isakson, helped slip a provision into the Senate tax reform bill that, if enacted into law, would put the US in violation of its international legal obligations to at least a half-dozen countries in bilateral tax reciprocity agreements and directly contradict long-standing principles endorsed unanimously by the US and other countries in the International Civil Aviation Organization (ICAO). 

Specifically, the Bastian/Isakson provision would violate the US obligation and commitment to provide income tax exemption reciprocity to foreign carriers that fly to the US. Doing so in the blatantly discriminatory manner of the Bastian/Isakson provision could also result in the US violating its bilateral Open Skies agreements. 

There is little argument that the proposed tax provision would lead to complex multi-jurisdictional tax requirements and impair the global commercial aviation system. Indeed, the International Air Transport Association told the Wall Street Journal this week that the tax provision, “would upend decades of precedent - which the U.S. has long supported - on the taxation of international aviation.” 

Mr. Bastian’s too-clever-by-half attempt to gouge foreign competitors represents terrible public policy that would create a precedent putting US companies doing business abroad at significant risk. Specifically, by using the tax code and recognition of income for tax purposes as a government-sponsored competitive bludgeon, the Bastian/Isakson provision would create a very slippery slope.

The most likely target for retaliation would be US world-leading all-cargo airlines. However, that precedent could be applied to US companies in many industry sectors. Indeed, in the many countries in which US passenger airlines dominate the market, what’s there to stop those governments from shaking down Delta and others for a tax revenue windfall?

So what is the Bastian/Isakson provision and what does it do? Politico, which first exposed it, described it as a special interest “pork” provision. The unmistakably targeted provision would selectively nullify longstanding reciprocal tax exemptions for commercial aviation-related income earned in the US. 

For instance, US carriers are not subject to British taxation for income derived on flights to and from the UK. On a reciprocal basis, UK carriers are similarly exempt from taxation of income from their US flights. That is long established US tax policy consistent with unanimously adopted ICAO principles.

However, the Bastian/Isakson provision would arbitrarily and selectively nullify exemptions for countries that have bilateral tax exemption agreements rather than a full-fledged tax convention and to which US passenger airlines fly fewer than two times a week. As Politico, the Wall Street Journal, the Financial Times and Reuters have all reported, it appears to have been tailored just to harm the Gulf Carriers. Nevertheless, the provision would bludgeon airlines in other countries as well. 

In fact, it would nullify the current reciprocal tax exemption of at least 15 airlines from 14 jurisdictions (12 countries and two territories). Among those countries subject to the sweeping impact are some of the most important US geopolitical allies - Saudi Arabia and Jordan, not to mention the UAE and Qatar. The cascading impact is not limited to Middle East countries with others negatively impacted including Malaysia and Ethiopia. Whether Mr. Bastian realized that his provision would tax his SkyTeam alliance partner, Saudi Arabian Airlines, is unclear.

Delta’s protectionist partners, American Airlines and United Airlines, are smart enough - one hopes - not to open this Pandora’s Box for global airlines as well as themselves and their alliance/JV partners. However, Delta is so blinded by its Gulf Carrier obsession that it is oblivious to the hazard that it is creating for all stakeholders, including the consumer for whose benefit Open Skies policy was developed in the first instance.

Senator Isakson released statement explaining the reasoning behind the provision.  Tellingly, it is a window into how Delta lobbying never allows facts to get in the way of its advocacy. According to that statement Senator Isakson was misled into believing it was appropriate retaliation against the UAE and Qatar for “choos[ing] not to open their markets to U.S. companies.” Really!

It’s sad that Senator Isakson’s office swallowed Delta’s claim that those markets are closed to US carriers without checking the facts. Had they done so and asked UPS - another important Georgia constituent - they would have learned that UPS, like every US cargo and passenger airline, has full Open Skies rights to fly to and beyond the UAE and Qatar. UPS currently flies to Dubai. What’s more, FedEx, another important Georgia constituent with 10,000 employees in Senator Isakson's state, has a hub in Dubai that is vital to its global network.

Had Senator Isakson asked the US State or Transportation Departments he would have been told that Delta has full Open Skies rights to freely fly to and beyond the UAE and Qatar, and it could indeed operate a hub in either country if it wanted to aggregate traffic for India service, for example. Instead, Delta has chosen to outsource its Middle East and India flying to its European airline partners. 

The Bastian-Isakson provision represents and/or would be (1) bad public policy, (2) based on the false premise the UAE and Qatar air service markets are closed, (3) putting the US in violation of international aviation and tax obligations harming important allies and trading partners, (4) setting a dangerous precedent for US companies doing business abroad by saying that it is okay to use the tax code and nullification of reciprocal tax exemptions as a competitive weapon and (5) subordinating consumer interests to special interests. 

Sadly, Delta senior management and its Board of Directors do not care about any of the serious consumer or industry concerns that the Bastian/Isakson provision raises. Apparently they are not concerned about harming SkyTeam alliance partner Saudia. They are blinded by a manic obsession to harm Gulf Carriers at any cost. What’s in the best interest of the US? Irrelevant. What’s in the best interest of the US airline industry and other American companies that do business overseas? Not important. What’s in the best interests of consumers? Seriously!?

All that is antithetical to the Delta ethos. All that matters is Delta - and Delta wants to stick it to the Gulf Carriers in any and all ways that it can.    

It is past time for the Trump Administration and Congress to tell Delta enough is enough. The US should not breach its bilateral tax reciprocity agreements and ICAO and Open Skies obligations; anger more than a dozen countries; and set a dangerous precedent that could harm US companies doing business overseas simply to appease Delta, which believes it has a score to settle with Gulf Carrier competitors. 

Delta should use its record-setting profits to more effectively compete in the marketplace and not be allowed to use the Trump Administration and Congress as anti-consumer co-conspirators.

©2001 to 2018 Business Travel Coalition, Inc..