West best advised not to get into a trade war over Gulf airlines
Posted on 12 October 2010 with 12 comments from readers
The not entirely impartial CEO of Air France-KLM has joined in the recent public criticism of allegedly unfair export subsidies to Gulf airlines, while the UAE has just declared its frustration with the failure of five years of negotiations for landing rights in Canada and kicked the Canadian military out.
The Western nations should watch their step. This summer Abu Dhabi awarded its $20 billion nuclear contract, the largest energy contract in the history of the Gulf States, to Korea, snubbing France and the United States who long assumed they were the only contenders (and the Korean Government was happy to put up $10 billion in subsidized loans to clinch this deal).
Supporting loss-making airlines
For in aviation the important thing is the trade that follows new destination links, and these benefits far outweigh the dubious advantages of supporting inefficient state-controlled airlines like Air France-KLM or Air Canada and the lifestyles of their staff.
Take Australia, for example. Before Emirates Airline started flying there in 1996 trade links were very sparse. Fast forward to today and business is booming with the Gulf. Ditto Korea, even Japan has just opened up to the Gulf airlines.
Does Canada really want to remain a relative backwater for trade with what promises to be one of the fastest growing emerging markets in the world? And all for the sake of temporarily shoring up the economics of its dysfunctional airline?
France has long been a bastion of protectionism and old habits die hard. Air France-KLM has been appalled by the impact of Emirates’ new flight to Amsterdam since the summer. Strange because its flights are discounting heavily but still passengers seem to prefer the new planes and younger, more enthusiastic flight attendants.
Support for whom?
Of course, stopping a few loan subsidies would not work in the long run. The Gulf carriers can find the money from their own not inconsiderable resources. And as for access to markets, well they can just concentrate on the destinations that are enlightened enough to see the benefits of free trade with the Gulf States.
As Tim Clark, President of Emirates Airline, wearily commented: ‘Once again it is disappointing to see the head of a major European airline issuing factually incorrect and wholly misleading statements. The merger of Air France and KLM has created the most dominant carrier in Europe and the notion that Emirates is taking jobs away is ludicrous’.
The West should know from Adam Smith and ‘The Wealth of Nations’ that closing the doors to trade is suicidal, especially in a global depression. For let’s be frank trade is nowhere back to pre-crisis levels yet and so this is a depression. And the first step to getting out of a hole is to stop digging.
Besides who is going to buy all the aircraft that the Gulf carriers have on order from the US and Europe if they are not given access to finance at reasonable cost? Hundreds of thousands of jobs at aircraft manufacturers would be put in jeopardy. Nobody wins in a trade war.
12 Comments posted by readers:
western airlines = labor unions
labor unions = socialist votes
socialist votes = leftist politicians
leftist politicians = nanny state
nanny state = labor unions!
This is natural “lip service” of this great correction. During stressful economic times leaders & CEO’s will always protect from within and block the opposition. The UAE is far from innocent in deploying protectionist policies. Middle East & Gulf cheerleaders will claim Canada is damaging it’s trade with this region by protecting it’s own airline, but the reality if you travel extensively and ignore the hallucinatory growth assumptions of this area is that it’s the Gulf that remains a relative backwater for trade.
Ed Note: Rubbish, get your GDP growth rates right, Dubai 16% 2003-8, that’s the highest in the world, above China!
Can you seriously suggest growth rates of this magnitude will continue and why are they relevant to what Paul King said?
Even a rose tinted view of things could not logically premise that growth such as this-impressive as it is – constitutes evidence that the UAE is a trading block to be reckoned with. On even the most optimistic measure, UAE GDP is ranked at least 40th in the wolrd, against Canada, France, Germany et al. all in the top 12 or 13.
I do not support the kind of blinkered view exhibited by Western airline CEOs but your views on the “strength” of the UAE offer similar myopia in my opinion.
Ed Note: Mr Corley you surely do not believe the rubbish from the IMF about UAE GDP – the bounce back this year must be in the Asian league, if only they had not maintained that the crash of H1 2009 did not happen the comparative would be very much greater!
We all know that solid facts sometimes produce flimsy deceptions. Whatever “rubbish” you choose to believe, it’s clear that the UAE trails far behind Canada in any measure of economic and political power. It’s normal that the editor who peddles investment newsletter subscriptions is biased towards the region he “sells”. My experience in this region shows most business plans are based on little more than wishful thinking and a great deal of what we see and experience is a largely unsustainable enterprise. While the UAE continues to “extend & pretend” the delusional will continue to transfer their wealth into “grains of sand!”
Ed Note: The GDP of the Gulf States is $1tn to Canada at $1.4tn – this is hardly a small matter.
No I’m with you on that one. I think we would all do well to ignore IMF utterances completely, together whilst I’m at it, with those from ratings agencies. However, at the same time, most of us know we should take local commentaries and quasi official forecasts with enormous scepticism.
The only thing that’s clear to me at least is that the depth of the mess in this part of the UAE is far, far worse than anyone at an official level is prepared to admit. In discussions with six family offices over the last four weeks, it is very clear that at ground level, business is nowhere near as good as the folksy banner headlines of recent weeks would try to have us believe.
Yes, GCC GDP is as you state but over a third of that is the KSA, only 12% of which is non oil. Grouped together the GCC rate pretty highly; akin to Australia. But given it’s the most uncohesive bunch of nations, i don’t think it’s fair to lump them with other heterogenuous countries.
Ed Note: The GCC does function to some extent as a trade bloc, although admittedly KSA-UAE trade is mainly blocked at the border right now. Its oil riches are its foundation, and the rest of business is cyclical – and this is the bottom of that cycle or close to it.
lip service
allegations of “rubbish”
unrealistic business plans, given the world’s continuing financial crisis
beggar-thy-neighbor policies of all countries
“race-to-the-bottom” currency devaluations
IMF stupidity (i.e. that archaic US stooge that should have been dismantled already!)
Bottom Line:
I like Sandman’s commentary the best! Labor union termites of the world
have united, and are taking over!
“Ed Note: Rubbish, get your GDP growth rates right, Dubai 16% 2003-8, that’s the highest in the world, above China!”
Fact Check: Dubai borrows 120 Billion Dollars, spends it (GDP inc.) and can’t pay it back.
Ed Note: fact check, Dubai is rescheduling its debts and has not defaulted on anything.
“has not defaulted on anything”. hmm, c’mon, up to a point Lord Copper.
The reschduling may or may not work in the long term, but the charge of “not paying it (all) back” can’t really be faulted. Here is a short list of people who are owed:
- banks have had to take a delay in repayment and interest rate haircut, assuming they get the cash in the end
- trade creditors have been paid 40 cents on the dollar and a promise of future payment at unfavourable terms, rather than the 100 pc immediate payment that is, well, normal (I tried offering etisalat 40pc and the rest in five years’ time and they said no)
- property investors have been wiped out on off-plan purchases all across Dubai, for property that has not been built and may never be, with the escrow accounts emptied. The best Nakheel has been offering is poor-quality alternatives
- that’s before you get into the unpaid (not unusual) and underpaid (commonplace) labourers, etc etc.
“Ed Note: fact check, Dubai is rescheduling its debts and has not defaulted on anything.”
they didn’t pay on schedule. That is technical default whether they want to call it that or not. The problem is dubai has no real assets so there is nothing for the creditors to collect. Dubai just flushed most of the money into worthless infrastructure.
Ed Note: the new roads, bridges, tunnels, airports, aircraft, hotels, hospitals, leisure facilitiies, malls, offices, villas and appartments are quite useful for those of us living in Dubai – but true this debt will have to be repaid.
A few things confuse me regarding this whole spat between Canada (Can) and Emirates/Etihad (EE). Maybe the author of the article can clarify for me. My knowledge of bi-lateral agreements, GDP, export subsidies et al is minimal, but I still have some questions.
1. Is EE government owned and financed, a private company, a parastatal or something else?
2. If they are not government owned and financed or a parastatal, why does the UAE government get involved in a commercial transaction for slots?
3. Why is the UAE government prepared to cause an “international incident” over slots for a private company? Will the Aus government get involved in the BHP/PotAsh negotiation for example?
4. Would the UAE government risk the same diplomatic fallout if the country involved was China or the US or a fellow Arab state? Would they kick the US out of Al Dhafra or deny overflying rights for Al Udeid if the US was involved?
5. Would EE/DNATA/ADAC/UAE allow the same unfettered access to a competitor as they are asking from Can?
Before anyone accuses me of being an EE/UAE basher I should point out that I am the world’s biggest capitalist and think that the EE business model is second to none (if only I thought of it). This does not explain the fact that a commercial negotiation has been politicised to a point of no return.
Ed note: too many questions, but do remember Emirates is 100% Dubai Government owned. And yes the UAE has an open skies policy.
Here they are saying that the Gulf needs to fight European protectionism lol..
http://gulfnews.com/opinions/editorials/gulf-airlines-must-fight-eu-protectionism-1.695552
I must agree that while they do have a point about protectionism there is an old saying of “If it isn’t the kettle calling the Pot black” Lol.. I see bigotry and hypocrisy here in this one. What about residency,ownership, and telecom monopoly among other monopolies that exist in the UAE?? I do agree with some of the things mentioned here about Gulf Carriers but let’s not get carried away and forget how far the Gulf States/Countries go to block outsiders from what they have a monopoly on themselves.
Note to editor: I hope you post this one because this is important to note otherwise this would add to the bigotry and hypocrisy.
Interesting and noteworthy response, Andy.
It reminds me of another old saying that applies here:
When we point a finger at someone, we are also pointing three fingers at ourselves!