March 3, 2011
Enemies United Against Taxation
After 2,300 years, the observation of the great Indian political adviser and architect of the Mauryan Empire, Chanakya, still rings true: The enemy of my enemy is my friend. With that point in mind, bitter airline rivals British Airways and Virgin Atlantic, along with airports and tourist sector stakeholders, are showing a united front against the United Kingdom raising its air passenger tax as part of its new budget. See Pilita Clark, Air Industry United to Fight Tax Raises, Fin. Times, Mar. 3, 2011 (available here). Though there appears to be little hope that the U.K. will reduce the tax, passenger airlines would welcome shifting the charges from a per-passenger to a per-aircraft tax.
The U.K. Treasury has defended the air passenger tax as integral to its public financing and deficit reduction plan, though it is questionable whether the airline industry--which produces positive economic effects for airports, travel and tourism, and the countless other industries which rely upon air transport in their day-to-day operations--should be targeted at all. Is the economic good which could come from the U.K. balancing its budget worth the potential cost of hampering the vitality of its airlines? It would be well for the British Government to take pause and recall the words of its great statesman, Sir Winston Churchill: "We contend that for a nation to try to tax itself into prosperity is like a man standing in a bucket trying to lift himself up by the handle."
March 1, 2011
Canada's New Air Services Agreement with Qatar
Air transport liberalization between two State partners is easy to infer when their aeropolitical relations have historically been nonexistent. By offering the Gulf State an unimpressive three-flights-a-week, Canada has managed to simultaneously expand Qatar's market access rights while remaining unabashaedly protectionist. See Matthew Fisher, Qatar, Canada Do Airline Deal, Montreal Gazette, Nov. 12, 2010 (available here). Qatar will begin serving Montreal from its hub in Doha this June. See Amina Murtada, Qatar Airways Launches Three Non-Stop Services to Montreal Weekly, Feb. 27, 2011 (available here).
The restrictive accord with Qatar flatly contradicts the Canadian Government's "Blue Sky" air transport policy, a de facto replication of the U.S. Open Skies policy. Instead of "encouraging the development of new markets, new services and greater competition," see Transport Canada, Canada's Blue Sky Policy (Nov. 27, 2006) (available here), the Canadian Government has opted to limit the traffic rights of one of the world's most dynamic airlines in order to protect its flag carrier, Air Canada. This should come as no surprise. Canada continues to limit flights from Qatar's neighbor, the United Arab Emirates, despite Emirates' 90% load factors on its thrice weekly flights from Dubai to Toronto.
Blog readers interested in perusing the testimony from last week's Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights may do so here.
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.