The European Commission (EC) has been outspoken lately in its defense of Air Italy as a European Union carrier. And the EC been equally outspoken on the need for strong safeguards to guarantee fair conditions for competition, including in its recently-initialed Comprehensive Air Transport Agreement with the State of Qatar.
But the EC been regrettably silent where these two issues intersect–in Qatar Airways’ use of Qatar government subsidies to fund Air Italy, enabling the airline to launch subsidized flights to the US and undermining fair competition and distorting the transatlantic aviation market.
The facts are straightforward: Air Italy’s FY2017 financial statements show that over the course of 2017, Qatar Airways provided approximately $100 million to Air Italy via a mixture of cash injections, loans and loan guarantees. Air Italy used the $100 million to launch several new, transatlantic routes to the US, which it operates with a fleet of Qatar Airways Airbus A330s. Qatar Airways’ own financials, in turn, show that the actual source of the $100 million was the Qatar government, which injected $491 million in cash into Qatar Airways during the same year.
Air Italy is dramatically expanding on transatlantic routes with subsidies from Qatar in an effort to buy market share and is incurring enormous losses as a result. Its 2018 financials show that it lost over $175 million last year and that it expects to lose a similar amount this year. A normal airline that had to rely on its own resources could not incur losses of this magnitude and stay in business. Air Italy’s ability to expand irrationally is due entirely because of the subsidies it obtains from the Qatar government through state-owned Qatar Airways.
Meanwhile, as a result of Air Italy’s below-cost pricing, its unsubsidized competitors in the US and Europe are watching their market shares fall, and their yields deteriorate. Eventually, one or more of them may be forced off the routes. These unnatural market forces undermine fair competition, destroy jobs and ultimately will harm consumers because of less competition. This is why the EC has been so clear about its view of subsidies and why it should not defend carriers who benefit from them.
The European Union has one of the world’s strictest regimes for combatting subsidies. Its state aid rules prohibit EU governments from providing the kinds of subsidies that the Qatar government routinely grants to Qatar Airways, and that Qatar Airways is providing to Air Italy in turn. Given its zealous application of these rules to EU companies, the EC should explain why it is looking the other way here.
Finally, what’s been conspicuously absent in this debate is Qatar Airways’ own financial statements. Its fiscal year ended on March 31, but it has failed to release the documents for public review. The logical conclusion is that it has something to hide–most likely, continued losses, additional subsidies from the Qatar government, and additional subsidies for Air Italy. This is the opposite of the fair competition and level playing field that the EC claims to champion. The European aviation community should be outraged.
Peter Carter is EVP and chief legal officer at Delta Air Lines. The views expressed here are his own.