Are the state-owned United Arab Emirates airlines subsidized?

On the one hand …

“Categorically, unequivocally and emphatically, we have never been subsidized,” says Tim Clark, the president of Emirates Airlines which, along with Etihad airlines, has been unsuccessful in winning Canadian government approval for new landing rights for its giant A380 superjumbos Boeing 777s at airports in Vancouver and Calgary.

Tim Clark: Subsidy debate has airline boss in a spin [Registration required]

Since the subsidy question will not go away, Mr Clark details the support that got Emirates flying. In 1985 Sheikh Mohammed gave Maurice Flanagan, the airline’s first managing director, $10m.

“He said, ‘Go and set up the airline.’ He gave us two 727s from the Dubai Royal Air Wing and built a training facility. In total it worked out at $50m,” Mr Clark says. “That’s all we have had. And he was absolutely clear: ‘You don’t come to me for money. You will buy your own aircraft.’ And we have done ever since.”

 

TakeoffEh.Com: “Clark says he will resign the day after anyone can prove that Emirates is subsidized by government.”

Emirates has also published an eight-page rebuttal to various arguments, including many made by Canadians, that it is subsidized. “Subsidy: The Myths and the Facts” [PDF]

On the other hand …

Schulich School of Business professor Fred Lazar (March,2010): “If air transportation services were covered by the GATT, Air Canada would have had the Canadian Government launch a countervailing duty case against Emirates, the national airline of Dubai, and Etihad, the national airline of the UAE. And most likely, it would have won the case since both of these airlines (and the third amigo, Qatar), are subsidized by their respective governments. There isn’t a level playing field in this industry. However, this industry is not yet covered by the GATT.

The governments backing the three amigos (they are all owned by their respective governments) continue to invest heavily in building up their airports. Abu Dhabi is investing an additional €32-€40-billion in its airport; Qatar is investing €8.7-billion in the airport in Doha; and Dubai, assuming it can get the financing, has planned an investment of up to €26-billion in the Dubai World Central Airport. I doubt that their airlines will be picking up much of the tab on these investments.”

Foreign Affairs Minister Lawrence Cannon (Nov 2010): “I made it perfectly clear that we’re not prepared to put Canadian workers out of their jobs by allowing a subsidized foreign airline to literally flood the Canadian market.”

New York Times (Oct. 2010): “Some aircraft financiers, however, were skeptical of Emirates’ claims. One European banker, who would speak only anonymously because his bank provides loans to the airline, estimated that nearly 50 percent of the Emirates jet purchases had been subsidized by Western export credit agencies. Emirates raised eyebrows again this summer with two more huge jet orders — including plans to buy an additional 32 Airbus A380 jets valued at $11 billion at list prices, bringing its total orders for the twin-deck superjumbo to 90. In July, Emirates placed another huge order, for 30 Boeing 777s.”

USA Today (Dec. 2007): “Emirates' operating costs are significantly lower than those of its European or U.S. rivals, according to Michael Dyment, an aviation analyst at Nexa Capital Partners, a Washington, D.C., corporate finance group. He credited Dubai's zero tax rate, the airline's ability to tap credit markets to buy new airplanes because of Dubai's good credit standing, and to the fact that legacy costs like pension burdens are low. It also helps to operate in a country where the laws prohibit trade unions.

“One of the key advantages they have over others is that the airline itself is not subject to the same labor rules,” Dyment said. “They are able to keep organized labor away, so they don't have a unionized environment that has been detrimental to other carriers.”