December 17 -  A Lump of Coal for Delta’s Ed Bastian


INDUSTRY ANALYSIS

Ed Bastian, Delta Air Lines’ CEO, never lets facts get in the way of his protectionist agenda. At some point, perhaps Mr. Bastian will realize Delta’s fixation on Gulf Carrier competitors, and his willingness to ignore documented facts to prosecute that case, have totally obliterated his and Delta’s credibility.

However, judging from his recent interview on CNBC’s Squawk Box, Mr. Bastian has yet to recognize this. In fact, he exacerbated the damage to his already shredded credibility. Granted, that wasn’t easy to do considering whoppers in the past such as Mr. Bastian’s ominous warning to his current employees that Gulf Carriers are an existential threat to their continued employment while simultaneously boasting to the Detroit Economic Club that Delta, in fact, is on a hiring spree looking to add 25,000 new workers over the next five years. Nevertheless, leave it to Mr. Bastian, he managed to lower the bar yet again.

Let’s deconstruct what Mr. Bastian told Squawk Box viewers and shine the stubborn sunlight of truthfulness and documented facts on each statement.             

Mr. Bastian said the following about the Trump Administration’s discussions with the governments of Qatar and the United Arab Emirates (UAE): “The administration did a very nice job the first part of the year responding to that [Delta’s allegations] and getting the Middle Eastern airlines to not only acknowledge the fact that there’s a lack of transparency about their results, but make certain they’re not going to launch new routes into the states [US] from countries other than the Middle East, using those subsidies.”

First, Mr. Bastian’s praise for the Administration is disingenuous. How exactly did Mr. Bastian define victory and what outcomes would be worthy of Delta’s praise? And, relative to how Mr. Bastian defined success, what would constitute “a very nice job?” Well, in Delta’s Q3 2016 earnings call, Ted Reed of TheStreet noted that Doug Parker of American Airlines stated publicly that his company’s endgame was preventing Fifth Freedom US-Europe flights expressly authorized by the US-UAE and US-Qatar Open Skies agreements. For Mr. Bastian, however, that alone was not sufficient. Delta wanted a more draconian outcome for consumers. When asked if he shared Mr. Parker’s objective, Mr. Bastian stated, “freezing and/or eliminating fifths would be a great start.” In other words, Mr. Parker’s ceiling was Mr. Bastian’s floor.

Both Mr. Bastian and Mr. Parker, and especially Delta and American shareholders, have more than fifty million reasons to be greatly disappointed. Both, however, continue to work overtime trying to spin failure into success (and to justify the millions of shareholder dollars each has wasted on their failed campaign against Open Skies).                  

As explained below, the State Department has unequivocally stated that the understandings with both the UAE and Qatar fully preserve all existing Open Skies rights, including the Fifth Freedom rights Mr. Bastian was targeting. So, how exactly can Delta declare victory and heap “genuine” praise on the Administration – “a very nice job” – when the outcome completely failed Mr. Bastian’s litmus test for success?  It’s disingenuous Ed spinning his heart out and engaging in transparent but phony curry favoring.  

Second, Mr. Bastian falsely claims that all Gulf Carriers acknowledged that there is a lack of transparency in their financial results. Is that really the case? What about Emirates Airline, and what exactly did the US-UAE understandings say about its long-standing PricewaterhouseCoopers (PwC) audited annual financials? Paragraph 7 of the US-UAE Record of Discussion directly addressed that question: “The Delegations noted that such audited financial reports have for many years been issued by Emirates Airline and by the U.S. airlines that are currently providing, or have in the past provided, scheduled combination international air transportation under the Agreement.”

Is Mr. Bastian admitting that Delta currently fails to provide adequate transparency in its financial reporting, or perhaps is he accusing American and United of that? Unless that’s the case, it is impossible to see how Emirates’ PwC audited transparency – which the US Government deemed to be co-equal to that provided by Delta, American and United – can be insufficient or lacking? Of course, Mr. Bastian, an accountant, is making no such admission of a deficiency in Delta’s transparency nor is he making such a claim about his fellow oligopolists American and United. Rather, as Mr. Bastian often does when he speaks about the Gulf Carrier issue, he simply made a false statement.  

Finally, Mr. Bastian claims that the US-Qatar and the US-UAE understandings “make certain” Qatar Airways, Emirates Airline and Etihad Airways will not launch Fifth Freedom flights to the US. In other words, Mr. Bastian claims that Delta achieved its objective of gutting the two Open Skies agreements by eliminating Fifth Freedom rights.

That statement is demonstrably false. However, that hasn’t stopped Mr. Bastian from repeatedly making it. So what are the facts?

The State Department could not be clearer. Anticipating questions from Members of Congress and the media, the State Department prepared a US-UAE backgrounder document for top officials that included the question, “Did you freeze Fifth Freedom flights to the United States or otherwise limit Fifth Freedom rights of the UAE?” Top State officials were instructed in that backgrounder to respond “No. We have not renegotiated rights contained in the bilateral Open Skies agreement with the UAE, nor have we sought to do so. All provisions of that Agreement remain in force.”

Ambiguous or debatable? No.

Nonetheless, the State Department wasn’t through leaving zero doubt on this point. In its May 18, 2018 media note responding to public misstatements and self-serving spin by Mr. Bastian, Mr. Parker and others, State affirmed that the Fifth Freedom-related side letter provided by the UAE Government to the US Government “stipulate[d] that nothing in their communication amends or otherwise changes the 2002 Agreement or any rights therein.” This mirrors Paragraph 2 of the US-UAE Record of Discussion in which “[t]he Delegations [US and UAE] reaffirmed their strong support for the Air Transport Agreement between the United States and the UAE, signed on March 11, 2002 (the "Agreement"), including all rights to conduct international air transportation contained therein.”

The Associated Press (AP) considered the claims by Mr. Bastian and others that the UAE had agreed to freeze Fifth Freedom flights and thereby voluntarily abstain from adding such flights in the future. Like the State Department’s numerous statements making clear there is no voluntary or involuntary freeze, the AP’s conclusion was clear and unequivocal. It concluded that claims of a Fifth Freedom freeze or moratorium were neither accurate nor supported by the facts. Specifically, in its May 22, 2018 article, the AP reported that it had obtained a copy of the UAE side letter to the USG on Fifth Freedom flights and “[t]here is no talk of a freeze or commitment not to change those plans in the future.”

Facts are stubborn things. They also are an important litmus test Santa Claus applies to determine his naughty and nice lists. Mr. Bastian has proven yet again that he finds facts and candor to be inconvenient when he is seeking to advance Delta’s protectionist agenda against Gulf Carriers competition and the much-needed competitive choice it provides to consumers. For this reason, again this year Mr. Bastian is high on Santa’s list to receive a big lump of coal in his Christmas stocking.

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