House Judiciary Committee Members Urge Administration to Examine Gulf Airline Subsidies

Washington, D.C. (May 14, 2015) – A bipartisan group of 19 members of the U.S. House Judiciary Committee today asked U.S. Secretary of State John Kerry and U.S. Transportation Secretary Anthony Foxx to answer important questions regarding massive subsidies that the governments of Qatar and the United Arab Emirates (UAE) are providing to their state-owned airlines. In the past decade, Qatar Airways, Etihad Airways, and Emirates have received over $42 billion in subsidies and other unfair benefits from Qatar and the UAE.

“There is a tremendous groundswell of bipartisan support from Congress to ensure a competitive playing field for U.S. airlines and aviation workers,” said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies. “The House plays an important role in promoting competition, and we welcome their support in addressing the serious market distortions that Gulf subsidies are causing. We urge the Obama administration to sit down with Qatar and the UAE to resolve these blatant and unyielding violations of Open Skies.”

In the letter led by Chairman Bob Goodlatte (R-VA), the House Judiciary Committee members expressed concerns about the consequences of a distorted aviation marketplace, including the viability of domestic and rural routes and the long-term negative impacts on American consumers.

Today’s letter builds on the growing chorus of members of Congress encouraging the U.S. Government to take action to address the harm being caused by subsidies provided to the gulf carriers. Yesterday, Representatives David Joyce (R-OH) and Steve Israel (D-NY) successfully led an effort in the House Appropriations Committee to direct DOT to fully consider all evidence provided by the U.S. airlines and their employees and report back to the Committee about moving forward with consultations within 90 days of enactment. The Committee’s action makes clear that Members of Congress who oversee DOT’s budget are concerned about the effect of subsidies in creating market distortions within Open Skies agreements and are taking this case seriously.

This also follows a bipartisan letter signed by 262 Members of Congress last week, which asked the Administration to address the Gulf carriers’ violations of Open Skies agreements.

The full text of the letter from the House Judiciary Committee is below and the signed version can be found here.

Dear Secretary Kerry and Secretary Foxx:

The House Judiciary Committee recently received allegations that the state-sponsored airlines of Qatar Airways, Etihad Airways, and Emirates Airlines (collectively, the “Foreign Airlines”) are receiving subsidies from Qatar and the United Arab Emirates (“UAE”). If these allegations prove true, the state subsidies to Foreign Airlines likely are improper in light of existing “Open Skies Agreements” with Qatar and UAE. Furthermore, the alleged foreign subsidies may be distorting market-based competition and placing domestic, privately-owned airlines at a competitive disadvantage.

When negotiating and implementing Open Skies Agreements, the State Department and the Department of Transportation are required by law to “emphasiz[e] the greatest degree of competition,” “strengthen[] the competitive position of air carriers to ensure at least equality with foreign air carriers,” and “eliminate[e] discrimination and unfair competitive practices faced by United States airlines in foreign air transportation.” These statutory requirements are further implemented in the Department of Transportation’s policy statement, which states in relevant part that the objectives of our national aviation strategy include “[e]nsur[ing] that competition is fair and the playing field is level by eliminating marketplace distortions, such as government subsidies ….” As you know, Qatar and the UAE are counterparties to Open Skies Agreements with the United States.

To the extent that the Foreign Airlines are in receipt of inappropriate subsidies, these airlines likely are expanding at a rate that is inconsistent with market demand. Accordingly, the expansion likely is at the expense of privately-owned airline carriers, which must rely on revenues derived from profits rather than sovereign funds to continue their operations. These market distortions may have a particularly problematic impact on airline routes to rural areas. Rural routes are economically viable, in part, due to a portion of the passengers on these routes ultimately traveling to international destinations. Accordingly, a non-market based diversion of international travel routes from privately-owned domestic carriers to the foreign-subsidized Foreign Airlines may endanger the viability of domestic, rural routes.

Furthermore, foreign subsidies may distort the market in a fashion that could produce significant long-term harms to consumers. Although foreign subsidies may cause consumer prices to be discounted in the short-term, these artificially low prices may cause rivals to exit the relevant markets, thereby increasing the market’s reliance on foreign carriers and their subsidies. This, in turn, creates a more volatile market. Should the foreign subsidies ever abate or disappear, prices may dramatically correct themselves and may be unchecked by rivals, who could have already exited the market. Accordingly, in the long-term, this could leave consumers with higher prices and fewer choices.

The Committee on the Judiciary historically has exercised vigilant oversight of issues related to competition, foreign and domestic. In that regard, the Committee takes very seriously allegations of market distortion that may negatively impact American consumers.

In order for the Committee to better evaluate the allegations and the Administration’s response to potential market distortions, please answer the following questions by May 20, 2015.

1. Are you aware of any foreign subsidies to the Foreign Airlines?
a. If not, have you determined the absence of any foreign subsidies, and how did
you determine that?
b. If so, what will be the response to these subsidies, consistent with the
departments’ relevant statutory authority and stated policies?

Thank you for your attention to this potentially serious issue facing competition in the aviation marketplace. We look forward to your response.

Sincerely,

Chairman Bob Goodlatte (R-VA)
Ranking Member John Conyers, Jr. (D – MI)
Rep. Mike Bishop (R-MI)
Rep. Steve Chabot (R-OH)
Rep. Judy Chu (D-CA)
Rep. David N. Cicilline (D-RI)
Rep. Doug Collins (R-GA)
Rep. Blake Farenthold (R-TX)
Rep. Trent Franks (R-AZ)
Rep. Luis Gutiérrez (D-IL)
Rep. Henry C. “Hank” Johnson (D-GA)
Rep. Tom Marino (R-PA)
Rep. Jerrold Nadler (D-NY)
Rep. Pedro R. Pierluisi (D-PR)
Rep. Ted Poe (R-TX)
Rep. John Ratcliffe (R-TX)
Rep. F James Sensenbrenner, Jr. (R-WI)
Rep. Lamar Smith (R-TX)
Rep. Dave Trott (R-MI)