Sunday, October 25, 2015

Global Airlines-Is it Fair?

Government subsidies have always been a major part of the aviation industry.  Current long haul carriers receiving government subsidies include Qatar Airways, Etihad Airways, and Emirates.  They have received a whopping $39 billion dollars in subsidies (Reed, 2015).  U.S. carriers have also received government subsidies in the past. From 1957 to 1984 Delta, United, and American Airlines were allocated about $938 million dollars and nearly every major american airline was bailed out after the September 11th terrorist attacks. The reason for the subsidies from 1957 to 1984 were to create an infrastructure and cultivate a starting industry.  This provided a way for air carriers to fly to small populations it would otherwise not go to.  (Investopedia, N.A.)

Foreign air carriers are receiving incredibly low interest rate loans on there newly purchased aircraft. A quasi-governement agency called the ECA acts as an intermediary between the Export-Import bank and the exporter, such as Boeing.  They figure out the loan situation. Under a new program foreign air carriers are allowed to acquire incredibly low interest rates before delivery and lock them in.  Foreign airlines are receiving interest rates below 2%. (Meecham, 2012)  I feel that foreign air carriers are being given to much of an advantage.  American carriers were subsidized, but only to start up the industry and infrastructure. Foreign carriers seem to be taking advantage of the system through treaties and low interest rate to have an immense advantage. They should have some help as they start there business, but not the amount that has been given. It's tough to start a airline with competing with all of the carriers that have been in the industry for a while, but they are receiving far to much of an advantage. It is not currently a fair industry.

References:

Investopedia. (N.A.) How do government subsidies affect the profitability of the airline industry? Investopedia. Retrieved from http://www.investopedia.com/ask/answers/061515/how-do-government-subsidies-affect-profitability-airline-industry.asp

Mecham, M. (2012, August, 1). Ex-im bank uses new financing guarantee. Aviation Daily.  Retrieved from http://aviationweek.com/awin/ex-im-bank-uses-new-financing-guarantee

Reed, T. (2015, April 15). U.S. airlines have paid the government $250 billion- amazing some claim they are subsidized. Forbes. Retrieved from http://www.forbes.com/sites/tedreed/2015/04/14/u-s-airlines-have-paid-the-government-250-billion-amazingly-some-claim-they-are-subsidized/
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4 comments:

  1. tucoOctober 27, 2015 at 6:56 AM

    I am in agreement with you that the “Playing Field” is tilted toward the Gulf carriers, especially after 2001 when the Open Skies agreement came to fruition. Recent new aircraft orders by the Gulf carriers are a sign that things are going well.

    ReplyDelete
  2. ccarmodyOctober 27, 2015 at 9:32 AM

    I agree with you. I do think unfair competitive advantages should be addressed to provide a system where operators are less dependent on government support.

    ReplyDelete
  3. ahsiek aviationOctober 28, 2015 at 11:55 AM

    I agree that the U.S. is giving foreign airlines a bigger advantage over domestic airlines. If anything the U.S. should be trying to ensure that U.S. carriers survive, thrive and surpass foreign carriers but that is not the case.

    ReplyDelete
  4. UnknownOctober 28, 2015 at 12:01 PM

    Unfair competition has to be addressed at the import export bank level, but as far as subsidies go from the airlines home government I think that is fair.

    ReplyDelete

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