WASHINGTON - Delta Air Lines, one of the state’s largest employers, claims that foreign government subsidies of airlines headquartered 7,000 miles away threaten the jobs of some of its 10,000 workers in Minnesota.
So Delta, United and American — known as the “Big 3” among U.S. airlines — have taken a very unusual step.
Along with the unions representing their workers, they want the U.S. government to ask carriers from Qatar and the United Arab Emirates (UAE) to stop offering new international flights from U.S. airports while the State Department investigates their government subsidies. Those subsidies have totaled $42 billion, and the Big 3 contend that the money has unfairly allowed Etihad, Qatar and Emirates airlines to undercut U.S. carriers in pricing international flights from U.S. airports.
Losing that international business could eventually translate into lost jobs, the Big 3 maintain, even at airports like Minneapolis-St. Paul, where the Gulf carriers currently do not fly.
“I’m not going to be able to say to you, ‘Minneapolis is going to lose 300 jobs because of this,’ ” Delta spokeswoman Kate Modolo told the Star Tribune. “What we can do right now is say our projection shows that if we are made to cancel a route due to the subsidized competition, it’s upward of 1,000 aviation jobs” that will be lost.
On Oct. 1, Delta will cut flights from its Atlanta hub to Dubai in the UAE from one a day to four or five a week. If the trend continues, Modolo said, the “trickle down” effect could reach smaller airports as U.S. carriers cancel less profitable routes to make up for money lost on lucrative international flights.
Still, support for calling out two Persian Gulf allies over a commercial airline dispute is hardly unanimous. Air cargo companies that operate in the Gulf states fear economic reprisals. Smaller commercial airlines, including JetBlue, say the Big 3 are flexing their lobbying muscle to protect themselves, not create competition.
Free trade think tanks like the Cato Institute agree.
“This is a classic case of protectionism,” Dan Ikenson, Cato’s trade policy director, said. “What we need is choice and competition. … The Big 3’s objectives run counter to U.S. economic interests.”
The U.S. has negotiated Open Skies agreements with more than 100 countries, aviation’s equivalent of free trade pacts. The underlying tenet of Open Skies is that airlines are free to fly to and from participating countries. Those flights must be international. Foreign carriers, cannot, for instance, originate a flight in Minneapolis and drop passengers off in Milwaukee.
The request for State Department intervention into Open Skies agreements among the U.S., Qatar and the UAE has drawn political support from every U.S. Senate and House member from Minnesota. The governor, several members of the state Legislature and some local mayors are on board. So is the Chamber of Commerce.
“Open Skies agreements are designed to preserve competition and ensure that all airlines are competing on a level playing field,” Democratic Sen. Amy Klobuchar said in a statement. “That’s why a bipartisan group of senators are urging the State Department and Department of Transportation to review these state-owned carriers in Qatar and the United Arab Emirates to determine whether action is needed to prevent distortions in the marketplace and protect American jobs.”
For GOP Rep. Tom Emmer, the verdict is already in.
“Recent market distortions in Europe, and now the U.S., clearly indicate that certain Gulf states, through their carriers, have violated the spirit of Open Skies, and consultation between the appropriate parties is absolutely necessary, not only to protect consumers and carriers, but to protect the integrity of agreements made,” Emmer said in a statement.
What Delta, United and American have asked for and what Minnesota’s political establishment has endorsed is in some ways unprecedented.
The formal conflict resolution process of consultation has only been invoked “a handful of times” since Open Skies agreements began in 1992, a senior State Department official told the Star Tribune. There has never been a consultation over a foreign government’s airline subsidies, said the official, and no case has ever been taken to binding arbitration. He did not want his name used because the government is still collecting comments in the dispute and has made no decision about what will happen.
The request to temporarily stop the three Gulf airlines from offering new flights at U.S. airports until the State Department investigates their subsidies is also unique — and controversial.
“The U.S. carriers, as part of their complaint, have asked the U.S. government to ask the airlines concerned or the countries concerned to voluntarily freeze service at current levels,” the State Department official said. “But no decision by the U.S. government has been taken on that particular request.”
Delta’s Modolo says the request is warranted because of “exponential growth” by Etihad, Qatar and Emirates airlines in the last 15 years and because of a 25 percent increase in new U.S. flights offered by the airlines since January, when the Big 3 issued a study that challenged the subsidies.
“Until the issues can be addressed and the consultation takes place, we think it is a legitimate request to put a freeze on new flights,” she said.
Yet what the Big 3 want is diplomatically risky. They are “asking the government to shoot first and ask questions later,” said Bryan Riley, a trade expert at the conservative Heritage Foundation. “With a freeze, you’re guilty until proven innocent.”
Meanwhile, he said, “in cases like this, you see lobbyists throwing out arguments without the evidence to back them up.”
As things stand, “the Gulf carriers remain free to announce service to Minneapolis this afternoon if they want to,” the State Department official said.
Among large airports not yet served by Etihad, Qatar or Emirates, Minneapolis-St. Paul ranks fifth in passenger traffic to the Middle East and Indian subcontinent, according to a research report prepared for the Big 3. Nearly 109,000 people traveled to those destinations from the Twin Cities in 2014.
MSP officials say they have not been approached by Persian Gulf carriers about offering international flights. Still, the Metropolitan Airports Commission wrote to Klobuchar and Democratic Sen. Al Franken to urge them to ask for a State Department investigation of the government subsidies paid to Etihad, Qatar and Emirates. MSP did not, however, call for a temporary freeze on new U.S. offerings by the three Gulf airlines.
In a statement, Franken said he wants the Transportation and State Departments to review the subsidies to “determine if there is a violation of our Open Skies agreements.”
But Franken has not called for a temporary freeze on new Gulf carrier flights, a spokesman said. A Klobuchar spokeswoman said the senator “has not taken a position on the expansion of new flights for the Gulf airlines, but it is something she is considering.”
For travelers, State Department intervention with Qatar and UAE over airline subsidies could end in higher airfares if it temporarily limits expansion of service or eventually drives away foreign competition, Cato’s Ikenson maintained. More airlines vying for passengers “is absolutely a good thing for consumers,” he said.
At the State Department, the senior official said the goals of Open Skies remain simple.
“The framework,” he said, “has always had the goal of promoting competition and providing options for travelers that keep airfares lower and offer more choices.”