Fair and Open Skies: Safeguarding the U.S. Airline Industry
By ALPA Staff
In the last several years, the U.S. airline industry has encountered developing headwinds affecting the competitiveness of U.S.-based carriers and the careers of their pilots. If unchecked, the global growth of flag-of-convenience air carriers and atypical employment practices will radically alter pilots’ career stability, safety, and economic security as well as upend the global aviation system.
Since the early 1990s, U.S. Open Skies policy has liberalized global aviation services to increase market-access opportunities for airlines, employees, and passengers. This system has generally worked because it created fair and equal opportunities for airlines of all parties to compete, creating a mutually beneficial marketplace in which foreign countries gained access to the U.S. market while the United States gained access to theirs, which created more jobs for all. However, this system will only continue to work if the provisions of U.S. Open Skies agreements are properly enforced, fair terms are upheld, and labor standards are placed at the forefront.
Flag-of-convenience airlines present a major anticompetitive hurdle. This business model, which originated in the maritime industry, allows a carrier or corporation to shop the globe for the most permissive legal, regulatory, safety, and labor environment available to operate aspects of its business in countries with less-stringent laws and legal enforcement. For the American maritime industry, this arrangement resulted in the United State’s share of world cargo carriage plummeting from 25 percent to 2 percent, with 88 percent of U.S. seafaring jobs disappearing. In aviation, these flag-of-convenience operations are beginning to grow in Europe and South America, and if they’re not stopped, they’ll continue to proliferate across the globe.
In addition, there’s a growth of atypical employment models in which employers—through a variety of schemes—are seeking to dissolve their direct relationship with their pilots and cabin crews. These arrangements, which may include misclassifying pilots as self-employed or independent contractors, are meant to undermine the right to collectively bargain and dismantle the traditional employee-employer relationship related to safety, pay, benefits, and working conditions. In Europe alone, approximately 15 percent of all pilots are employed under atypical employment contracts in which the status of all aspects of their job—safety, retirement, and collective bargaining—are subject to a tenuous and complicated patchwork of different countries’ laws.
In the U.S. Congress, efforts are under way to end these unfair business practices as they relate to U.S. pilots and U.S. airlines. In the House, Rep. Peter DeFazio (D-OR), chair of the Transportation and Infrastructure Committee, plans to introduce a bill to tackle flags of convenience and atypical employment. His bipartisan bill, which is based on the previous Congress’ Flags of Convenience Don’t Fly Here Act (H.R. 2150) and included in the House-passed FAA reauthorization bill, will
- Clarify that the Department of Transportation (DOT) must conduct a public-interest test before issuing a foreign air carrier permit.
- Revise the public-interest test to examine whether a foreign air carrier is a flag of convenience or is otherwise undermining labor standards in a way disadvantageous to U.S. workers and carriers. This broadened focus to include the erosion of labor standards is new and meant to prevent atypical airlines from operating to the United States.
- Ensure that new foreign air carrier permits issued by the DOT for EU airlines follow the labor chapter (Article 17 bis) of the U.S.-EU Open Skies agreement and uphold labor standards.
ALPA is building on last year’s success in getting a bipartisan amendment to the Senate’s FAA reauthorization bill on flags of convenience by finding the appropriate sponsors for a Senate companion bill. The Association will continue to work with Members of Congress to halt the migration of these business models into the American market, slow their growth internationally, and level the playing field for the U.S. airline industry.
Call Out Qatar for Its Assault on U.S. Aviation
By Frank LoBiondo, Contributing Writer and Former Chair of the House Aviation Subcommittee
In this era of divided government and divisive politics, the Trump administration’s unwavering focus on ensuring our past and future trade agreements are fair for American workers is one area in which Republicans and Democrats can and should readily agree. There is also bipartisan support for stronger enforcement of provisions than previous administrations have put forth, including labor standards and fair competition. At this moment Washington and Wall Street hopefully await a final trade deal with China while lawmakers review the trilateral agreement with our neighbors Canada and Mexico. As these deals near the finish line, the administration must now focus on enforcing existing agreements.
In January 2018, the United States and Qatar signed an important new set of understandings on their Open Skies agreement that would level the playing field for U.S. commercial carriers and their workforces. Key provisions included the eventual elimination of subsidies to Qatar’s state-owned airline, Qatar Airways, greater financial transparency through the release of financial statements audited using international accounting standards, and an understanding not to introduce fifth-freedom flights, which originate from countries (like those in the EU) to the United States without connecting through Qatari cities. However, Qatar isn’t living up to its end of the deal.
Illegal subsidies should be called out where they occur, even by our allies. The Trump administration continues to take aggressive action against unfair foreign subsidies, including in the aviation sector. Recently the United States announced it could levy $11 billion in tariffs on European goods by this summer due to Europe’s continued subsidizing of Airbus to the detriment of our aircraft manufacturers and aviation jobs. This was the correct measured approach to the decade-old dispute. Now, in response to Qatar, our government should take appropriate action as well.
In the past three years, Qatar has injected more than $2.3 billion in subsidies to its airline in the form of cash infusions, discounted fuel, forgiven loans, and free aircraft. U.S. airlines don’t fly to the Middle East and other international markets blanketed by Middle East hubs because they’re unable to compete against state subsidies, like those Qatar supplies to Qatar Airways. The negative impact is measurable: The U.S. aviation industry estimates that for every international route a U.S. carrier loses or forgoes, up to 1,500 U.S. jobs are lost.
Furthermore, with a presumed heavy-handed assist from its state sponsor, Qatar Airways purchased a 49 percent stake in the failing Italian airline Meridiana, rebranded it Air Italy, and funneled some of Qatar’s widebody fleet to Air Italy to launch flights directly to U.S. cities. For nearly a year, Air Italy has served in effect as a shell company, providing direct transatlantic service from Milan, Italy, to Chicago, Ill.; Los Angeles and San Francisco, Calif.; Miami, Fla.; and New York, N.Y., and all while eroding market share for U.S. carriers and jobs for U.S. airline workers.
Adding insult to our economic injury, due to the lack of financial transparency, these blatant transactions occurred in late 2017 as Qatar was finalizing its civil aviation commitments with the U.S., despite a clear understanding by all parties that new fifth-freedom flights would not be introduced.
Former President Reagan famously said, “Trust, but verify.” On other international agreements, President Trump has used aggressive executive action and Twitter to verify that commitments with the United States are honored. He must do so again now to support U.S. airlines and their workers.
The Trump administration can take two immediate steps to enforce the January 2018 commitments. First, the Department of State and the Department of Transportation must demand that Qatar comply with the financial transparency commitments it made by releasing audited financials so that the full extent of subsidies to Qatar Airways are known. Pressure on the Qataris to reduce subsidies will build once the cloak of secrecy is lifted.
Second, the State Department must directly engage with the Qatari government to stop the Air Italy end-run around the agreement not to introduce fifth-freedom flights. Secretary of State Mike Pompeo has rightly been outspoken in calling out Qatar for not abiding by the letter as well as spirit of its commitment to the United States. Other senior-level administration voices must be heard and supported by career diplomats if Qatar is truly to get the message.
From military support to antiterrorism efforts, Qatar has long been a good partner for advancing our shared goals. The United States remains committed to its strategic alliance and friendship with Qatar, but it will no longer be taken advantage of in this “three-card Monte” scheme. Friends should be trusted to honor their word and know they’ll be held accountable when they don’t.
The Honorable Frank LoBiondo was a former chair of the House Aviation Subcommittee and a former Republican U.S. representative. He now serves as CEO of LoBo Strategies and as an advisor to the Air Line Pilots Association, International.