What some call the biggest trade dispute in history may be over. Late Monday, the governments of the United States and the United Arab Emirates announced a resolution to a three-year disagreement on who can fly where. The deal mirrors an agreement U.S. and Qatari officials signed this year.
So what’s this airline dispute all about, anyway? Here are four things to know:
1) U.S. airlines rely on a kind of free trade pact.
American, Delta and United Airlines accuse their Gulf rivals — namely Emirates, Etihad and Qatar Airways — of receiving billions in government subsidies. These subsidies allegedly allowed the Gulf airlines to flood the U.S. travel market, driving down airfares and putting U.S. competitors and their allies at a disadvantage.
Such behavior, U.S. carriers claim, violates the spirit of bilateral air service agreements. These agreements, commonly known as Open Skies, are essentially free trade pacts. They give airlines from signatory countries (mostly) unfettered access to one another’s markets. But airlines aren’t supposed to offer fares that are artificially low, thanks to government subsidies.
2) What does the new deal require?
Emirati carriers will now publish financial statements that are “consistent with international recognized accounting standards.” Fiscal opaqueness has long been a sticking point for U.S. carriers. America, Delta and United allege that the lack of accounting transparency in the Gulf has allowed local airlines to hide billions in government handouts.
Emirati carriers also commit to make no plans to add certain flights, most notably between the United States and Europe. Emirates operates in several of these routes.
Over the years, the addition of these flights has drawn the ire of U.S. carriers keen to protect their share of the lucrative transatlantic market. Earnings on these routes are bolstered in part by antitrust immunity laws. These laws allow U.S. carriers and their partners to coordinate flight schedules, capacity — and, most importantly, airfares — without fear of penalty.
3) Who are the winners and losers from this deal?
Both U.S. and Gulf carriers are claiming victory. The Partnership for Open and Fair Skies — which represents the interests of American, Delta and United Airlines — said the agreement is “a win for American jobs and shows that President Trump stands up to countries that violate our trade agreements.”
The Emirati government, which owns both Emirates and Etihad Airways, hailed the new agreement as a preservation of the status quo. The UAE’s economic minister pointed out that Emirates and Etihad Airways can “plan and begin new service . . . without limits and consistent with the [original] agreement.”
4) The bottom line? It’s a mixed outcome.
After spending millions on lobbying efforts, American, Delta and United Airlines have been desperate for a win. Whether this agreement counts as one is debatable. Claims that Open Skies treaties have been violated required proof that Gulf airlines offer consumers “artificially low” prices as a direct result of subsidies. However, U.S. carriers have — despite valiant efforts — never delivered such proof.
This may explain why the new agreement doesn’t explicitly curb Gulf carrier growth into U.S. markets. For example, while Emirates and Etihad say they have no plans to expand their transatlantic services, nothing in the agreement stops them from doing so. This reality runs counter to what U.S. airlines sought — namely, a “freeze” on Gulf carrier services into the U.S. market.
The light touch by the Trump administration may also reflect the realities of globalization. Smaller U.S. carriers have become increasingly reliant on the UAE’s aviation infrastructure to fuel their own economic growth. Both JetBlue Airways and Alaska Airlines rely on Dubai-based Emirates Airlines to “feed” their domestic networks with overseas passengers. Dubai also serves as an overseas hub for U.S. shipping giant FedEx Express.
Reneging on Open Skies agreements with the UAE would economically hamstring these companies — and this would challenge President Trump’s pro-business agenda. Gulf carriers have also spent billions buying U.S.-made airplanes. Emirates, for example, operates the largest fleet of Boeing-777 jetliners, with over 160 in service and another 160-plus on order.
Trump himself has previously acknowledged the economic contributions of foreign airlines. “They come with big investments, in many cases those investments come from their governments, but they are still big investments,” he noted last year.
Ashley Nunes studies regulatory policy at MIT’s Center for Transportation & Logistics.