EU airlines ask government to contain Gulf carriers

Top European carriers chief will meet on Friday to seek cheaper financing to buy aircraft

Airlines in Europe will ask European Union to contain expansion of Gulf carriers including UAE-based Emirates and Etihad which are eating into their market share, Air France Chief Executive Officer Pierre-Henri Gourgeon said.

“Europe is at the crossroads of international air travel, and this is a role we need to value and defend. What we’re telling the authorities is that we need a strategy that gives us a chance to resist,” he said in an interview.

Top European airlines’ chiefs will meet this week to ask for a shift in export-guarantee regime in order to get hands on easier and cheaper credit.

This means many European and all American carriers are denied cheaper government-backed plane financing available to rivals from countries including Gulf states.

“Our ability to fund the acquisition of new aircraft is handicapped by the so-called ‘home-country’ rule,” BA spokesman Paul Marston was quoted as saying by Bloomberg. “These guarantees are not operating in the way they were intended -- and we therefore urge the EU to amend the rules to remove the competitive distortions that have developed.”

Emirates, the biggest Gulf carrier, already pays very little in the way of airport charges or fuel tax at its Dubai hub, as well as escaping many of the social charges that weigh on European companies, Air France’s Gourgeon said. Those benefits could generate 3 billion euros ($4.2 billion) of operating income if applied to Air France-KLM, he said.

“When you’re supported in this way you can offer the end product at very low prices,” the CEO said in the Oct. 7 interview at Air France’s headquarters near Paris Charles de Gaulle airport. “They don’t pay tax -- they don’t even have a word for it.”

“Emirates is run as a fully commercial business, unlike many European carriers,” the company said in a statement e- mailed by a spokeswoman. The carrier pays landing charges in Dubai, and “although differently structured, our employee cost base is comparable to other airlines.”

European carriers may also seek action under EU Regulation 868, which imposes protective duties on foreign carriers that use subsidies or other forms of “non-commercial advantage” to undercut prices, the AEA’s de Barrin said.

The US Export-Import Bank guaranteed $414 million of Emirates bonds last year to fund the purchase three Boeing 777 jets, an example of the cheaper financing that would be off limits for Lufthansa or Southwest Airlines Inc.

“There’s definitely an argument that there needs to be a level playing field in financing,” said Howard Wheeldon, senior strategist at BGC Partners. “Any pressure that France, Britain and Germany can bring to bear makes good sense.”

European airlines may struggle to maintain efficient connections as Middle Eastern carriers lure more passengers away with new destinations, Gourgeon said. He cited Emirates’s introduction of an Airbus A380 superjumbo flying between Dubai and Manchester, northern England, since last month.

“It will progressively become more difficult for British Airways to have enough passengers to offer the same frequency of flights to Hong Kong,” the CEO said. Traffic through Paris, Milan and Munich would also suffer, he said.

If left unchecked, the competitive imbalance between the Gulf and Europe will eventually lead to a mass shift in stopover traffic, and other economic activities, to Middle Eastern hubs, Gourgeon said.
“I think it’s very dangerous for Europe. What they’re trying to do is buy our jobs,” Bloomberg said quoting Gourgeon.

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