In trade fight, Etihad alleges US airlines got $70B in bankruptcy benefits

The three largest U.S. airlines received $70 billion in benefits from bankruptcy reorganization since 2000, according to research that rival Etihad Airways released Thursday.

The report is the latest salvo in a raging dispute over whether three Persian Gulf airlines – Emirates, Etihad and Qatar – receive unfair subsidies from their governments that totaled $42 billion in the last decade.

In rebuttal, Etihad argued that the U.S. airlines – American, Delta and United – got benefits including $35.5 billion from restructuring under the bankruptcy code and $29.4 billion in pension-fund bailouts from the federal Pension Benefit Guaranty Corp.

"We do not question the legitimacy of benefits provided to U.S. carriers by the U.S. government and the bankruptcy courts," said Jim Callaghan, Etihad's general counsel.

But he added the airlines benefit "from a highly favorable legal regime" that is "generally only available to U.S. carriers."

U.S. airline lawyers have dismissed comparisons between bankruptcy concessions and government subsidies, saying their carriers returned to profitability through painful cost-cutting.

The dispute with the Gulf carriers began in January, when the U.S. airlines asked the government to open formal consultations over so-called Open Skies agreements with the governments of Qatar and United Arab Emirates.

The U.S. airlines want the alleged subsidies to end and have also asked the government to block additional flights from the Gulf states until the dispute is resolved.

The departments of Transportation, State and Commerce have begun collecting comments about the allegations "for the foreseeable future," but a detailed review is expected to begin later this month.

The U.S. carriers' allegations are basically that their Gulf rivals get no-interest loans and subsidized ground services from their governments. The Gulf airlines have vigorously disputed that, saying they get no unfair favors and that U.S. airlines are trying to prevent competition.

"There is no evidence whatsoever of any harm caused by Etihad Airways to any of the three big U.S. airlines," Callaghan said.

Etihad asked for the report in an effort to counter the drumbeat of opposition from U.S. airlines and their unions.

"This is to try and bring some balance to the debate," Callaghan said. "We're not calling them subsidies -- this has to be a wider debate. Where else in the world can an airline go into a court and get tens of billions of dollars written off?"

Etihad's study by The Risk Advisory Group based in London, which says it guides clients through complex international regulatory issues, said:

-- United got $44.4 billion in benefits, largely from debt relief through bankruptcy court and terminated pension benefits.

-- Delta got $15 billion in benefits.

-- American got $12 billion in benefits.

The airlines are likely to dispute report's findings.

For example, the report characterizes $5.6 billion in fuel-tax breaks as "fuel subsidies," because commercial carriers pay 4.4 cents per gallon tax on fuel, while non-commercial customers pay 21.9 cents per gallon. But all airlines enjoy the tax break.