The Wall Street Journal has a fascinating article on Dubai's flagship carrier Emirates buying 32 more Airbus A380 superjumbos from EADS, the European aerospace consortium. While the emirate of Dubai is obviously in the dumps as its real-estate megaprojects are finding few financiers and takers at the current time, its airline is doing just fine, thank you. Certainly, the advantageous location of Dubai between Europe and Asia is a considerable advantage.Importantly, the article points out that the announcement of this $11.5B purchase was held in Berlin. Apparently, the (money-losing) German carrier Lufthansa is reluctant to allow Emirates more slots in Germany as it would increase the competition for this unprofitable carrier. It's the same old story: look at these furriners stealing our airline jobs! Landing rights have been a point of contention between Dubai and Germany for quite some time now. What Emirates wants to make clear is that, contrary to Lufthansa's brand of protectionism, manufacturing these planes will create jobs in Deutschland:
Dubai's Emirates Airline ordered 32 additional Airbus A380 superjumbo jetliners, and deliberately announced the $11.5 billion deal in Germany's capital to fight a trade battle with flag carrier Deutsche Lufthansa AG.A similar spat is ongoing between Air Canada and Emirates as Canada deregulates its market. Air Canada's Chief Executive Colin Rovinescu even makes a risible analogy to Emirates dumping [!] on the Canadian market of Emirates' gains in seating capacity:
Emirates, which had already ordered 58 of the world's largest passenger plane, wants Berlin to grant it greater access to the huge German aviation market. Lufthansa argues that its home market of 80 million people shouldn't be thrown open to a carrier from one of the United Arab Emirates. Dubai has a population of roughly 3.5 million people. Carriers from the UAE may now serve at most four German cities.
Lufthansa has effectively lobbied Berlin not to raise the limit, so Emirates is playing a new card: jobs. Emirates is one of Airbus's biggest customers. Its new total of 90 A380s on order accounts for almost 40% of the 234 orders Airbus has signed for its two-deck plane.
The fight between Emirates and Lufthansa pits service jobs against manufacturing employment and shows how hard it can be to define markets in a global economy. Airbus, a unit of European Aeronautic Defence & Space Co., says that the A380 program in Germany supports more than 30 suppliers and creates 40,000 jobs directly and indirectly. Each Emirates A380 generates €20 million ($24 million) in work for German suppliers, an Airbus spokesman said. He declined to comment on the spat between its customers.
Lufthansa says it supports far more German employment than Emirates does. "It's up to the government to decide whether they want to create jobs here or export them," said Lufthansa Chief Executive Wolfgang Mayrhuber. Andrew Parker, Emirates senior vice president for international affairs, said the airline chose to announce its order at the Berlin Air Show "to illustrate pretty powerfully that we're a big part of Airbus's future..."
A spokesman for Germany's federal transport ministry said the government has no plans to allow Emirates to fly to more than four cities. Emirates' rivals say it unfairly benefits from government support that has allowed it to grow far larger than its home market would allow by poaching foreign traffic. Officials at the fast-growing airline deny the charge.
Emirates is owned by the government of Dubai, which also owns the emirate's airports. The ruling family has developed its aviation policies to promote Dubai as a global hub connecting far-flung markets. It allows almost any airline to land at its airport, which charges low fees. Dubai has no income tax or corporate tax. The low costs help Emirates against rivals in higher-cost markets.
Emirates, established in 1985, has expanded quickly over the past decade with giant orders from Airbus and U.S. rival Boeing Co. In addition to the A380 orders placed Tuesday, Emirates has 143 aircraft on order, with a catalog value of $48 billion, although large customers such as Emirates generally receive large discounts.
Emirates officials say they haven't faced trouble funding their operations amid Dubai's recent financial woes. The largest carrier in the Middle East, Emirates last month posted a fivefold rise in full-year net profit to 3.5 billion United Arab Emirates dirhams ($953 million) and said it expects double-digit growth to continue this year...
"The fact that they've purchased all these A380s and have all this capacity means they're basically manufacturing seats in massive quantities," Mr. Rovinescu said. "In any other industry, this would be considered dumping." Aviation isn't covered by World Trade Organization rules, so ordinary dumping criteria don't apply.There are any number of interesting questions here that trade wonks haven't really looked at pertaining to the airline industry. Litigation at the WTO has concerned state support for commercial aircraft manufacture (most prominently Airbus vs Boeing but also see Embraer vs Bombardier), not for airlines. Let's begin with accusations levelled against Emirates by Lufthansa and Air Canada:
Mr. Parker at Emirates said the opposition from Air Canada and Lufthansa is a result of outdated thinking about airline markets. "It's predictable that the same-old, same-old is bandied about by legacy carriers. We just get on with it," he said.
- Does Dubai's funnelling of state funds into Emirates together with tax breaks and other incentives constitute "actionable subsidies"?
- Does increased seating capacity in excess of that necessary to serve the "domestic market" (howsoever defined) constitute "dumping"?
- Can the UAE take on Emirates' case against German or Canadian restrictions on landing rights?
- If the UAE prosecutes a WTO case against Lufthansa, what effect would that have on Emirates' order for 32 superjumbos?
