Looks like the rest of the world may follow Canada's lead:
I hope they do.
Air France CEO Calls for EU Curbs on Expansion by Gulf Carriers
By Laurence Frost and Andrea Rothman -
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Oct Pierre-Henri Gourgeon, chief executive officer for Air France-KLM Group. Photographer: Antoine Antoniol/Bloomberg
Air France-KLM Group is teaming upwith Europe’s biggest airlines to push for European Union actionto slow the encroachment of Emirates and other Gulf carriers,saying the region’s status as an air-travel hub is under threat.
“Europe is at the crossroads of international air travel,and this is a role we need to value and defend,” Air FranceChief Executive Officer
Pierre-Henri Gourgeon said in aninterview. “What we’re telling the authorities is that we needa strategy that gives us a chance to resist.”
Gourgeon, British Airways Plc CEO
Willie Walsh and DeutscheLufthansa AG’s
Wolfgang Mayrhuber are among executives scheduledto attend a meeting of the
Association of European Airlines onOct. 15 in London. They will discuss a joint push with Americanrivals for a change to the export-guarantee regime and thetrans-Atlantic trade agreement that enshrines it, said
Christian de Barrin, a spokesman of the Brussels-based industry group.
For the past two decades, the U.S. and Europe have agreedto withhold export credit guarantees from airlines registered infive countries where Airbus SAS and
Boeing Co. airliners arebuilt: Britain, France, Germany, Spain and the U.S. This meansmany European and all American carriers are denied cheapergovernment-backed plane financing available to rivals fromcountries including Gulf states.
‘Home-Country’ Rule
The role of export financing has ballooned since the creditcrunch reduced banks’ willingness to lend. The share of planedeliveries covered by government guarantees more than doubled to34 percent in 2009, Airbus and Boeing figures show.
“Our ability to fund the acquisition of new aircraft ishandicapped by the so-called ‘home-country’ rule,” BA spokesman
Paul Marston said. “These guarantees are not operating in theway they were intended -- and we therefore urge the EU to amendthe rules to remove the competitive distortions that havedeveloped.”
In a policy paper published on its
website last week,Lufthansa called for an end to “market imbalances” resultingfrom export-credit financing, saying “basic rules of regulatorypolicy are being disregarded.”
Emirates, the biggest Gulf carrier, already pays verylittle in the way of airport charges or fuel tax at its Dubaihub, as well as escaping many of the social charges that weighon European companies, Air France’s Gourgeon said. Thosebenefits could generate 3 billion euros ($4.2 billion) of
operating income if applied to Air France-KLM, he said.
No Tax?
“When you’re supported in this way you can offer the endproduct at very low prices,” the CEO said in the Oct. 7interview at Air France’s headquarters near Paris Charles deGaulle airport. “They don’t pay tax -- they don’t even have aword for it.”
European carriers may also seek action under EU
Regulation868, which imposes protective duties on foreign carriers thatuse subsidies or other forms of “non-commercial advantage” toundercut prices, the AEA’s de Barrin said.
“When so many entities and economies around the world arebeing shored up by governments in order to survive, it issurprising to single out Emirates with unsubstantiated claims ofbeing subsidized,” President
Tim Clark said in commentse-mailed to Bloomberg. “We have grown without subsidy throughthe success of our commercially-driven business model -- and seeno reason to apologize for what we have achieved.”
Qatar, Etihad
John Clancy, trade spokesman at the European Commission,the 27-nation EU’s executive arm in Brussels, didn’t immediatelyhave a comment. Neither did Helen Kearns, the commission’sspokeswoman for transportation.
Emirates
overtook Lufthansa last year as the biggestcarrier on international flights, thanks to a sixfold increasein traffic since 2000, when it ranked 24th. British Airways, topin 2000, now stands fourth in the
International Air TransportAssociation ranking, which treats Air France and KLM as separateairlines.
Airbus and
Boeing together have outstanding orders for 102widebody planes from Qatar Airways, 59 from Etihad Airways and175 from Emirates, which has already taken delivery of 13 of the90 Airbus A380 superjumbos it has ordered in total.
The U.S. Export-Import Bank guaranteed $414 million ofEmirates bonds last year to fund the purchase three Boeing 777jets, an example of the cheaper financing that would be offlimits for Lufthansa or
Southwest Airlines Inc.
Level Playing Field
“There’s definitely an argument that there needs to be alevel playing field in financing,” said
Howard Wheeldon, seniorstrategist at BGC Partners. “Any pressure that France, Britainand Germany can bring to bear makes good sense.”
For investment-grade U.S. carriers, cost savings from theagency-guaranteed financing they are denied would amount to 3percent of total loan value annually, according to Air Francedata comparing the spreads on guaranteed debt with those ofcommercially traded plane-financing notes over the past twoyears.
“That’s a lot of money,” Marc Verspyck, the Frenchcarrier’s senior vice president for finance, said in aninterview. In addition to the actual savings, eligibility forguarantees cuts financing risk when ordering planes, he said.
Air France rose 1.4 percent to 12 euros at the 5:30 p.m.close of trading in Paris. Lufthansa
slipped 0.4 percent to14.35 euros on the Frankfurt exchange. British Airways gained1.6 percent to 268.4 pence in London.
Manchester Route
European airlines may struggle to maintain efficientconnections as Middle Eastern carriers lure more passengers awaywith new destinations, Gourgeon said. He cited Emirates’sintroduction of an Airbus A380 superjumbo flying between Dubaiand Manchester, northern England, since last month.
“It will progressively become more difficult for BritishAirways to have enough passengers to offer the same frequency offlights to Hong Kong,” the CEO said. Traffic through Paris,Milan and Munich would also suffer, he said.
If left unchecked, the competitive imbalance between theGulf and Europe will eventually lead to a mass shift in stopovertraffic, and other economic activities, to Middle Eastern hubs,Gourgeon said.
“I think it’s very dangerous for Europe,” he said. “Whatthey’re trying to do is buy our jobs.”
To contact the reporters on this story:
Laurence Frost in Paris at
[email protected]Andrea Rothman in Paris at
[email protected]
To contact the editors responsible for this story:Kenneth Wong at
[email protected];Benedikt Kammel at
[email protected]