Etihad, Lufthansa and EU Nationals Control

The LBA on 16 October 2014 reversed a decision to cancel 34 code share flights of Etihad and Airberlin that was taken a few days earlier. The reason for the earlier cancellation was that these code share flights violated the traffic rights agreement between Germany and the UAE. A meeting later in the month between both governments to discuss the bilateral will clarify things for the future. Lufthansa blames these code shares for the overcapacity on the Abu Dhabi route and called them unjustified.

Lufthansa has lobbied the EU to reexamine the control issues of foreign equity stakes in EU carriers and has lobbied for the courts to block Emirates Milan/JFK flights earlier in April 2014; those flights are now operated on a temporary authority pending an appeal's court decision.

Lufthansa has been more vociferous than most regarding the 3 Gulf carriers expansion into Europe. The EU now is examining whether Etihad controls Airberlin and Alitalia through its equity stakes and is also looking at the Delta/Virgin Atlantic deal. This has prompted the Swiss authorities to look at Etihad's control of Darwin Airlines now branded Etihad Regional.

The issue of foreign investors having control of EU carriers is  becoming a thorny issue. There is a needed balance required between control and the investment risk of bailing out a European carrier and preserving jobs and airline services to communities. The major EU legacy carriers are coming under pressure from EU LCCs and apparently from the Gulf carriers that they are not willing to invest more but are looking to cut costs and curtail services. Air France/KLM declined to increase its stake in Alitalia and Lufthansa was not interested in a minority stake. Etihad worked very hard to get the unions and the creditors to accept its terms for its USD 750 millions direct investment for a 49% equity stake in Alitalia. The problems of Lufthansa and AF/KL are compounded by the mega orders from the Gulf carriers for Airbus aircraft with the associated economic fallout of order cancellations.

Etihad will modify its agreements with its equity partners to comply with the EU and Swiss regulators control requirements. Etihad did the same in India when the regulators questioned its control of the Jet Airways board. Etihad will not jeopardize its strategy for expansion; one that is based on equity partnerships providing access to new markets, cost savings in aircraft acquisition, maintenance and other services and more traffic through its Abu Dhabi hub.

The airline industry is more global than ever; the EU has to balance its requirements and need of EU nationals control of its airlines and the foreign investment in these airlines. These investments preserve jobs and services in Europe at a time when its economies are under pressure and their own carriers are not willing to invest.

EU ETS At a Crossroads

The rhetoric has subsided and the EU have softened their stance and agreed to a discussion of the Carbon Tax within an ICAO framework. However, the EU still insisted that airlines that do not participate and pay up may face a ban into operating into Europe. At least we are all moving in the right direction.

The EU's position is based on the fact that climate change and the environment have been the subject of a lot of discussions with no actions taken. So the EU decided to take this unilateral action to force a change. Well it kind of worked.

The whole idea behind the ETS it is to force airlines to get rid of their older aircraft and purchase newer technology aircraft which are more efficient and more ecofriendly. MENA and the GCC airlines operate on the whole some of the newest and most advanced aircraft, but under the ETS they still have to pay the tax as the rules tighten with time; after all technology does not evolve in terms of months but rather years and sometimes decades. Airlines have started adding surcharges to the tickets to provision for the payments under ETS. At this time, Etihad added $3 to their tickets to Europe and others will follow soon. A $3 increase to a ticket to Europe is not going to stop people from travelling. However, the tax will dampen the expansion of airlines as they balance fares against additional payments under ETS, which looks somewhat protectionist.

What is really annoying as well as disturbing, that after all this rhetoric about carbon emissions and the airlines having to pay their fair share to offset the effect on the environment. None of that money has to go
towards improving aviation infrastructure or research to improve technology or even projects that improve the environment. Europe will still face the same flow control problems and the same shortage of runways facing the same delays that will keep aircraft unnecessarily burning fuel in the air and on the ground, producing more carbon emissions. The collected monies will go to the general budgets and probably be used to offset deficits or support popular programs that otherwise may  have to be curtailed.

EU ETS .... Is It Worth It

The  EU seems ready to bring the airline industry to a stand still over the Emission Trading Scheme (ETS).

ETS is not a bad idea and the airline industry should share the burden, nobody objects to that. The airline industry along with aircraft and engine manufacturers have always striven to produce more fuel efficient aircraft to meet invariably the ever fluctuating and rising oil prices and the effort is still going on with aircraft like the B787 and A350 producing efficiencies and reduction of emissions approaching 20%.

The EU has introduced an ETS that affects all airlines operating within Europe and in and out of Europe regardless of nationality or country of registry, and to add to the problem the funds levied by the EU governments do not have to be used to fund research or projects related to aviation or even the environment. It is only recommended that governments fund these projects, and with the euro zone debt crisis and a looming recession we all know where the funds will go to the general budget.

Several countries during the last ICAO meeting requested the EU to suspend its ETS and look at a global ETS that is more equitable. The EU rejected that proposal and insisted that it will go ahead with its planned scheme. The European Court of Justice rejected a law suit, that ETS infringes on the sovereignty of other nations and contravenes the Chicago Convention in regards to the taxation of international aviation, on the basis that the EU is not a signatory to the Chicago Convention, as if the EU member states are not.

Countries (China, India, Brazil, USA, Russia, Japan and the list goes on and on) opposing the EU ETS have prohibited their airlines from participating and the EU declared that they will ban any airline, not participating, from operating into Europe.

Really, and the EU thinks that the rest of the world will turn the other cheek and accept. There will be a reciprocal ban against all EU airlines., and Europe will be the biggest loser.

I am sure things will not get to that point and cooler heads will prevail and an acceptable solution will be reached, hopefully.