The United States and the United Arab Emirates signed a deal Friday to resolve a years-old spat over alleged Emirati government subsidies to its airlines and accusations of unfair competition in the U.S.
After months of negotiations, a deal was reached that was carefully constructed to allow both sides to claim victory. Yet in a sign of how testy the issue has become, the Emiratis and the U.S. airlines immediately disagreed about what the deal said about the most controversial issue: flights to the U.S. that don’t stop in the UAE.
The deal was signed in private at the State Department by Assistant Secretary of State Manisha Singh and Emirati Ambassador to the U.S. Yousef al-Otaiba. The State Department declined to comment. The Associated Press obtained the text of the agreement, known as a “record of discussion.”
Under the deal, Dubai-based Emirates and Abu Dhabi-based Etihad Airways agreed to voluntarily open up their accounting books by publishing annual financial statements “consistent with internationally recognized accounting standards.” The major U.S. carriers — Delta Air Lines, American Airlines and United Airlines — have long alleged those financials obscure billions in hidden subsidies by the Emirati government.
The more sensitive issue related to so-called “Fifth Freedom flights” in which passengers can fly to or from the United States to third countries without ever setting foot in the UAE. Those flights have long been the bane of the U.S. carriers, who argue such routes undercut their own flights between the U.S. and destinations in Europe and Asia.
Otaiba, the Emirati ambassador, called that a victory, because Emirati airlines would remain “free to continue to add and adjust routes and services.”
“The UAE is very pleased that our understanding with the U.S. preserves all of the benefits of Open Skies for travelers, airlines, communities and aerospace companies in both countries and around the world,” Otaiba said, referring to the so-called open skies agreements that govern international civilian air travel.
Not so, said Scott Reed of the coalition representing the big three U.S. airlines.
“This agreement will freeze Emirates and Etihad Airways from adding additional direct flights from the United States to Europe and Asia,” Reed said in a statement.
The reality is somewhere in between. In the side letter, the Emiratis do not explicitly promise never to add more such routes, but simply indicate none are planned. Still, the agreement rests on a tacit understanding between the U.S. and Emirati governments that more routes won’t be added, several individuals familiar with the negotiations said.
The deal is expected to be announced Monday when the Emirati foreign minister visits Washington, according to a State Department official, who wasn’t authorized to speak to reporters about the agreement and requested anonymity.
The U.S. airlines can also point to language included in the agreement that affirms their longstanding claim that Emirati government subsidies are hurting their business. The agreement says that both sides agree “that such government support in whatever form may adversely impact competition in providing international air transportation.”
That led Reed, the U.S. airlines representative, to call it a “win.”
“We are extremely pleased that the UAE has finally admitted what we have said all along: that their government subsidies harm competition,” Reed said.
Yet in another example of how the deal gives both sides room to say that the other side caved, it also includes language that effectively states the opposite.
“The delegations stated that government support in whatever form — including policies, practices, and rules — is neither uncommon nor necessarily problematic in the global aviation sector,” the agreement says, paradoxically.
Both of the Emirati airlines have long denied receiving unfair government subsidies. The three U.S. carriers have spent huge sums over the last three years pressing the Obama administration and Trump administration for tough action, and have been eager to show a win on the issue. The airlines have hoped that if they have more visibility into the finances of the state-owned Emirati airlines, the Emiratis will no longer be able to get away with unfair subsidies.
The deal closely mirrors one reached in January between the U.S. and Qatar. For the UAE, the agreement averts the more serious step U.S. airlines wanted: re-opening the open skies treaties, which could ultimately lead to less favorable conditions for Persian Gulf airlines.