Tuesday, March 1, 2011

OECD Implements New Aircraft Understanding

Last week, the OECD adopted new (albeit non-binding) rules governing export credits for aircraft financing.  At the signing ceremony for the Sector Understanding on Export Credits for Civil Aircraft, Doc. No. TAD/PG(2011)3 (Feb. 2, 2011) (available here), OECD Secretary-General Angel Gurria touted the agreement's ostensible benefits:

The new Aircraft Sector Understanding is interesting and remarkable:  

First, because, it unifies the terms, conditions, and procedures of official support for large and regional aircraft exports; second, because of its innovative design; third, because of its ability to significantly reduce, if not eliminate, subsidies; and fourth because it creates a level playing field among exporters, airlines and governments.

See Angel Gurria, OECD Secretary-General, Remarks at the Aircraft Sector Understanding (Feb. 25, 2011) (available here). 

Missing from Gurria remarks, however, was any response to the public charge that the Understanding was crafted to dampen the competitive position of Gulf air carriers Emirates and Etihad.  Cf., e.g., James Hogan, CEO Etihad, On the Record: Export Credit Financing (Feb. 11, 2010) (available here).  Though both airlines maintain that export credits support less than a quarter of their aircraft financing, that has not stopped airlines in the United States and European Union from arguing that the credits confer an undue advantage on the Middle Eastern airlines.  But even with the revised rules in place, Emirates and Etihad are well-positioned to out-compete their European rivals.  The biggest remaining hurdle between the Gulf carriers and open competition in the EU are the protectionist air services agreements with the United Arab Emirates maintained by the Member States.  Were the European Commission to win a mandate to enter into comprehensive negotiations with the UAE for a deal similar to the 2007 U.S./EU Agreement or the 2009 EU/Canada Agreement, the European legacy carriers would surely suffer. 


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