May 9 - On The Matter Of Government Subsidies Of National Airline Industries


INDUSTRY ANALYSIS

By Kevin Mitchell 


On The Matter Of Government Subsidies Of National Airline Industries

The worn allegations from the US BIG Three (Delta, American and United) about unsubstantiated harm from alleged $50 billion in government subsidies to Qatar, Etihad and Emirates airlines (Gulf Carriers) continues unabated. “Commentary” pieces in news publications across the US from “concerned” citizens all contain the exact same tired and shameful talk points asserted and handily rejected as facts since 2015.

WHOLESALE HYPOCRISY

The US has conservatively subsidized the airline industry from its beginning to the tune of $226 billion. A US government report identifies $155 billion in airline industry support through 1998 and a private-sector study shows $71 billion since 1999 and through 2014.

A little known US Congressional Research Services (CRS) report completed in 1999, but only recently discovered, details how the federal government spent $155 billion through 1998 in support of aviation activities to help establish the US airline industry.

Publisher: United States Congressional Research Service

Title: AVIATION: DIRECT FEDERAL SPENDING, 1918-1998

CRS report number: RL30050

Author(s): John W. Fischer and Robert S. Kirk, Economics Division

Date: February 3, 1999

ABSTRACT

The federal government has provided large financial resources in support of commercial aviation since 1918. This report details the amounts and types of federal spending that have occurred over this 80-year period. It also discusses some of the issues that have shaped federal policy toward aviation and identifies some of the issues likely to affect federal spending in the future.

(Access the full CRS report at http://btcnews.co/1J0kHR0.)

CRS REPORT QUOTES

“In the early years of federal support for aviation most assistance came in the form of designated subsidies to foster the growth of what has become the commercial aviation industry. This was in keeping with the aviation sector's embryonic nature. As the industry has matured, the level and expense of the federal effort has expanded and spending for capital infrastructure and operational activities have become specific components of annual federal budgets.”

“In the intervening 80 years the federal government has spent $155 billion in support of aviation activities.”

“The aircraft loan guarantee program began in 1957 and expired in 1983. During its lifetime, the program authorized federal guarantees of up to 90 percent of private loans for the purchase of equipment by local, short-haul, and feeder air carriers.”

BTC OBSERVATIONS

A central argument of some US airlines seeking government protection from foreign competition is that the Persian Gulf States have been inappropriately and unfairly helping the Gulf Carriers become established with financial aid. What this CRS report shines a bright light on is the simple fact that government assistance has long been provided on a very large scale to airlines around the world, including in the US.

What’s more, the US government, fully cognizant of this reality, endorsed an Open Skies policy over two decades ago that, while it provides sufficient flexibility to deal with major market distortions, is not premised on the complete absence of government aid to aviation, much less so on some subjectively-perfect level playing field.                                                  

SUBSIDIES SINCE 1999 

A Risk Advisory Group report details some $71 billion in financial support and benefits since 1999 in areas such as bankruptcy debt relief, pension termination and fuel subsidies. The report confirms that the US has found numerous ways to financially help its airline industry become established and profoundly advantage it in ways to enable the most powerful and profitable airlines in the world. (The Risk Advisory Group report is available at http://btcnews.co/2jQMiAv.)   

The BIG Three’s profits are being driven to record highs by the benefits of (1 industry consolidation, 2) antitrust immunized alliances, 3) general revenues from the US Treasury that flow into the Airport and Airway Trust Fund, 4) avoidance of ticket taxes on billions of dollars of revenue from ancillary fees and carrier-imposed charges and 5) operating in and from the largest aviation market in the world and the most important and stable country, and a country whose greenback serves as the world’s reserve currency. The list goes on and on and US airlines have logically and deftly leveraged all these very powerful advantages.

However, given the continued history of subsidization of the BIG Three, and all the unique structural advantages they enjoy, it is gross hypocrisy and arrogance-in-the-extreme to demand protection from competition. Asking the US government to protect them from new foreign entrants would only help the BIG Three at the expense of commercial and cargo airline consumers as well as numerous other Open Skies stakeholders.

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

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