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The European Cockpit Association and the European Cabin Crew Association have both recently announced their support of the action group Europeans for Fair Competition (e4fc). Ho hum, yet another aviation body that thinks it will be taken more seriously if it spells like a teenager.
According to its website, e4fc is a coalition of employees, passengers and companies who are fighting to save European aviation. By which it means stop Emirates, Etihad and Qatar Airways from taking market share from the European carriers. How exactly they will do this is left to your imagination. How this saves European aviation is likewise left unspecified. But it will do it. Trust us. Naturally, there is an opportunity to provide donations towards this noble cause on the group’s website.
The usual allegations against the Gulf carriers are repeated. In e4fc’s opinion, competition in European aviation has been distorted due to the subsidies the Gulf airlines receive, including interest-free government loans and government-backed loan guarantees. This puts the jobs of European aviation workers at risk. Unless, of course, they happen to work for an airport, or the carriers in question, or Airbus.
And, of course, this only occurs because all three Gulf airlines are state-owned. Yes, that old trope.
State ownership in itself should not immediately cause alarm bells. There may be justifiable economic or ideological reasons for a government to retain ownership– whether fully of partly – of a business. For example, the business may be of strategic importance to the region or country, and the risk of leaving its provision (or non-provision) to the private sector may be deemed excessive.
When a state-owned airline is run at arms length, and has objectives of those of a privately-owned airline, there are in principle no differences between the two. Both state-owned and privately-owned airlines are required to continually innovate and improve their efficiency in order to compete. Both have incentives to make a profit. Their shareholders are also free to spend any dividend in any way they chose, whether that to be to bolster public finances or to expand their business empires.
One main difference often citied between a state-owned and a privately-owned firm is the cost and availability of finance. State-ownership implies a government guarantor, which can lead to preferential and cheaper financing.
However, this is not a public-private split. The cost of raising finance also varies between private firms, with some having access to cheaper credit than others as a result of the history and characteristics of the owners. This applies even in the case of airlines. Some of the larger airlines were shameless in opposing the work IATA did to draft and finalise the Cape Town Convention because it risked giving their smaller competitors a chance to obtain finance on rates similar to theirs.
State-owned firms are often also criticised for receiving loans from their government at a rate below the market rate, and even interest-free. The three Gulf carriers have been subject to such allegations.
Again, this is not a benefit that is exclusive to state-owned firms. The provision of loans at rates below the market rate can also be found in the private sector. Intra-group loans are common in the private sector, at interest often below the market rate. (In some cases, these have been criticised as a means to avoid paying tax).
These arguments start falling apart, of course, when it is evident that the firm is not acting in a manner consistent with a commercial business.
Therefore, in order to demonstrate that being state-owned does not equate to being subsidised, the Gulf carriers need to show that they operate as financially viable businesses, regardless of ownership. Being explicit about the objectives of their management and on their corporate governance would also help.
e4fc have some justification in demanding greater transparency around the Gulf carriers. But none in making this a state versus private ownership issue. But then again, perhaps transparency, like charity, should begin at home.
