March 5 - Is The Delta-Air France/KLM Marriage Headed For Divorce?


Anyone who has heard Delta Air Lines (Delta) whine for the last four years about Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers) knows it is adamantly opposed to state ownership of foreign carriers. It claims to have a “principled” position that such ownership is inherently unfair. According to Delta, it inequitably tilts the competitive playing field to the advantage of the foreign state-owned competitor by opening the door to direct and indirect subsidization.

Delta's CEO, Ed Bastian, often boils it down to a privately held carrier such as Delta cannot compete with a foreign government. It’s that simple. The foreign state versus Delta, not its airline. Mr. Bastian adds the exclamation point that state-owned carriers, therefore, pose an existential threat to the US aviation industry and its workers.

According to Delta, such an ominous threat requires extreme countermeasures. It accordingly has demanded that both the Obama and Trump Administrations abandon longstanding Open Skies policy. Full commercial liberties that are the hallmark of Open Skies are self-defeating and antithetical to a world with advantaged state-owned carriers. Therefore, instead of a uniformly applied Open Skies policy, Delta contends that the US needs a managed-competition scheme applied on a case-by-case basis instead. Such an approach would be tailored to limit the rights of state-owned carriers and thereby level the playing field. Mr. Bastian has said he is especially enamored of Canada’s Blue Sky policy, a protectionist managed-competition scheme that has been widely panned for being anti-consumer and decimating competitive choice.

Given Delta’s “principled” position against any state ownership of airlines, one cannot help but ask whether the Delta-Air France/KLM marriage is headed for divorce given the mounting state ownership of Delta’s most important commercial partner? Is there sufficient room in the Delta-Air France/KLM union for the Governments of France, China and now the Netherlands?

At first, the substantial financial stake of the Government of France in Air France/KLM must have been a bitter pill for Delta to swallow. In 2015, that foul taste got especially bad as France issued a new regulation granting investors who hold Air France/KLM shares for more than two years, such as itself, double voting rights.

Then, in 2017, China Eastern Airlines, China’s most heavily subsidized state-owned carrier, announced it acquired a 10 percent stake in Air France/KLM. If ownership by the Government of France with double voting rights was not repugnant enough to Delta’s “principled” position against state ownership, now the Government of China was a substantial owner too. That blow likely was lessened by the fact China Eastern was not just any old evil state-owned carrier. It is a heavily subsidized state-owned carrier in which Delta owns a $455 million dollar, 3.55 percent stake. Delta simultaneously joined heavily subsidized China Eastern is also taking a 10 percent stake in Air France/KLM.

Last week it was announced that the Government of the Netherlands has acquired 14 percent of Air France/KLM. It also is clamoring for Board seats. According to the Dutch Finance Minister, the goal is to attempt to “balance” influence over Air France/KLM that the Government of France already has due to its current 14.3 percent position.

Has this wave of state ownership of Air France/KLM caused handwringing at Delta headquarters? Is Delta management contemplating an end to its commercial marriage with Air France/KLM as a result? After all, Delta claims to have a righteous position against state ownership of foreign carriers.

Don’t be silly. Welcome to the world of Delta hypocrisy. State ownership is inherently bad unless it benefits Delta’s commercial interest. State subsidies are abhorrent unless the recipient is Delta or a commercial partner. Try to identify a single example of Delta taking a “principled” policy position rather one guided by gaining commercial advantage or hobbling competitors and then pivoting with the business and political winds.

The fact is all of Delta’s sound bites about state-owned carriers and the existential threat they pose is hollow political rhetoric. Seventy-four (74) percent of its SkyTeam partners either are fully or partially state-owned. Nevertheless, as Delta sees it, they are “our” state-owned airlines so unfair advantage and level the playing field condemnations do not apply. The same for China’s most heavily subsidized airline, China Eastern, in which Delta is an investor. It is “our” heavily subsidized partner. Delta welcomes all the subsidy the Government of China shovels its way.

Now Delta is circling to invest hundreds of millions of dollars in Alitalia, which is without peer in Europe when it comes to receiving massive state aid and government bailouts. “Principled” positions against subsidized foreign carriers? Hardly. More accurately, it is just selective indignation when it suits Delta’s protectionist agenda and commercial needs.

Delta is free to partner with whatever carriers it chooses. Similarly, it has a right to invest in whichever carriers further its commercial objectives. However, Delta has zero credibility to lecture the Trump Administration and policymakers about the dangers of state-owned airlines because its partnerships and investments fatally undermine its disingenuous rants against Open Skies policy and Gulf Carrier competitors. When it comes to Delta’s policy positions, judge their merits by Delta’s actions, not its political rhetoric.

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