May 13 - Delta Air Lines and Heavily State-subsidized Alitalia


INDUSTRY ANALYSIS

By Kevin Mitchell


At the same time it hypocritically attacks other state-owned carriers, Delta fully supports Alitalia

Good luck if you are hoping to find consistency in Delta Air Lines’ (Delta) public policy stances. You won’t.

A case in point is the tale of two Italian carriers - Alitalia and Air Italy - and Delta’s diametrically opposite positions on each.

Alitalia, the long-time flag carrier of Italy, continues to exist solely because of repeated massive bailouts by the Government of Italy. The European Commission’s pending investigation into whether a recent 900 million Euro loan from the Government violated state aid rules is but the latest in a long string of Alitalia-related state subsidy probes. Alitalia is a prime example of a failed carrier that its government simply won’t let meet its market-driven fate. After two years, Alitalia remains in bankruptcy administration limbo. Rescue bidders have until June 15 to submit formal proposals.

Simply put, Alitalia is exactly the type of state-owned foreign carrier Delta has branded an existential threat to the US airline industry and its workforce. It relies on market-distorting state aid to survive. As a result, competitors are unfairly disadvantaged.

In contrast, Air Italy is not at the state aid trough. Its funding recently was reviewed by the European Commission, but not for a possible state aid violation. Rather, the Commission reviewed, and confirmed, that Meridiana’s private funding - before it rebranded as Air Italy - fully complies with the regulation requiring Air Italy to be owned and controlled by a European citizen and thereby entitled to full US-EU Open Skies rights.

So, given Delta’s multi-million dollar lobbying campaign against alleged state support for Emirates Airline, Etihad Airways and Qatar Airways (Gulf Carriers), it is reasonable to assume Delta would be attacking Alitalia, not Air Italy. However, the exact opposite is true. That assumption is a bridge way too far for Delta. It would require Delta to have a steadfast principled position on state aid to foreign carriers, rather than a malleable and selective one depending on competitive calculus and commercial relationships.

Delta’s CEO, Ed Bastian, frequently makes blanket statements decrying state aid and market-distorting subsidies. Nevertheless, Mr. Bastian is guided solely by Delta’s competitive calculus. Delta’s outrage is like a weathervane that solely points in the direction the winds of its commercial self-interest dictate.  

Delta’s support for Alitalia is number one in its hypocrisy hit parade. Why? Heavily state-subsidized Alitalia is its SkyTeam alliance partner. As such, it is immune from Delta’s indignation and, in fact, the recipient of strong Delta support. Reuters reports that Delta, along with Italian railroad Ferrovie dello Stato Italiane, prepared a 1 billion Euro ($1.1 billion USD) offer to rescue Alitalia.

That offer came on the heels of Mr. Bastian telling a JP Morgan investor conference in March that “[t]o the extent that we can help them stay in SkyTeam, and the transatlantic joint venture, and provide them some incremental support along the way, we can do that.” Against that backdrop, it is no surprise that Alitalia is reported to be in talks to become an associate member of Delta’s new transatlantic joint venture with Air France-KLM.

Will we see Delta contribute hundreds of millions of dollars to an Alitalia rescue bid submitted by June 15th? Stay tuned.

Out of the other side of its mouth, however, Delta moans about fledgling carrier Air Italy and its “threatening” fleet of five - yes just five - aircraft capable of long-haul operations. Delta argues Air Italy is tainted by Qatar Airways’ 49 percent minority investment, and both the Government of Italy and the European Commission wrongly concluded that investment is consistent with EU law requiring Air Italy be owned and controlled by Europeans. Tellingly, however, Delta has not sought a review of that decision in Brussels, instead choosing to solely flex its political muscle in Washington.

Applying Delta’s same logic about Qatar Airways’ Air Italy investment, obviously Etihad Airways’ massive Alitalia rescue investment in 2014 - and an attempt to restructure it set-off alarm bells in Atlanta - right? In fact, those bells must have been considerably louder at Delta headquarters because of Alitalia’s larger long-haul fleet and its long-established US service to numerous cities, right? And, then there is the fact Etihad pledged to invest 1.758 billion Euros in Alitalia and Qatar Airways’ $41.6 million USD investment in Meridiana/Air Italy was just a fraction of that.

Of course, Delta didn’t say a word about Etihad’s Alitalia investment and its considerable influence over Alitalia’s commercial decisions. In fact, Delta continued to code-share with Etihad-funded and managed Alitalia.

Delta’s position turns solely on its commercial self-interest litmus test. A state-funded investment by Etihad in SkyTeam partner, Alitalia, is fine. A state-funded investment by Qatar Airways in tiny Air Italy is an existential threat to US aviation.

No one should be surprised. This Alitalia/Air Italy dichotomy is just one example of Delta’s unprincipled, selective and anti-competitive indignation. How often have you heard Mr. Bastian complain about heavily subsidized Chinese airlines? How often does Mr. Bastian declare state-subsidized Chinese carriers are an existential threat to Delta and other US transpacific carriers, and how frequently does he point to the fact that Chinese subsidies have enabled their airlines to capture around two-thirds share of the US-China market? Never.

Delta, never complains about market distorting Chinese carrier subsidies. In fact, Delta invested $450 million in China Eastern Airlines, regarded to be the most heavily subsidized of all Chinese airlines.

Next time Mr. Bastian or one of his lieutenants rattles off Delta’s tired talking points bemoaning the Gulf Carriers and Air Italy, ask them to explain precisely how it is that Delta simultaneously partners with and supports state bailout king Alitalia. Don’t expect a cogent or compelling answer. There isn’t one.

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