We have recently seen a lot of discussion and condemnation of the export credit guarantee regime operated by Europe’s credit agencies and by the USA’s Ex-Im Bank. Some of our counterparts in Europe seem quite intent on creating a misleading perception of the airline industry’s competitive environment, particularly in relation to the Gulf-based carriers.

For the record, Etihad would be very happy to see the removal of the Home Country rule, which would level the playing field and encourage competition, to the benefit of consumers. But the airline suggests it is a leap from there to the type of blatant protectionism being suggested.

A recent opinion piece by Etihad Chief Executive Officer James Hogan explains our position in further detail:



In late October, airlines from across the Middle East gathered in Cairo for the AGM of the Arab Air Carriers Organization.

Amongst aviation colleagues, all of us determined to play a part in intensifying the dynamism, innovation and customer focus of the global airline business, what has really struck me is the paucity of fair-mindedness being applied by some of our competitors in the debate around European air rights and aircraft financing regulation.

Just prior to the AGM, and in advance of a meeting of the Association of European Airlines, Air France-KLM chief Pierre-Henri Gourgeon sought to create a very misleading perception of our industry’s competitive environment, particularly in relation to his Gulf-based competitors.

European airline chiefs have been united in their condemnation of the export credit guarantee regime operated by Europe’s credit agencies and by the USA’s Ex-Im Bank. Frankly, I agree with some of their objections. The Home Country rule currently prevents British, French, German and Spanish airlines from accessing the export credit guaranteed financing markets for aircraft that are manufactured in the US, and vice versa.

For our part, Etihad would be very happy to see the removal of the Home Country rule, which would level the playing field and encourage competition, to the benefit of consumers.

But it is a leap from there to the type of blatant protectionism being suggested.

Export credit guarantees represent just one finance instrument used by prudent airlines as part of a diverse portfolio of financing sources. By 2010 year-end, for example, just 14 per cent of Etihad’s aircraft finance will have been supported by export credit guarantees, with the remainder financed in the commercial, leasing and Islamic markets.

Why is export credit financing critical for the industry? Because it exists to support the market in times of market distress, acting counter-cyclically to balance the squeeze on capital, and as an important source of financing for those airlines that find themselves unable to access other markets in those conditions.

It has been an invaluable tool for the aircraft manufacturers and their many suppliers, helping to create and protect tens of thousands of jobs across Europe.

Mr Gourgeon’s claims that Gulf carriers are “trying to buy our jobs", and that they need a strategy “that gives them a chance to resist”, ultimately fail to consider Europe’s big picture.

There is some irony in the indifference of the usually patriotic Air France, amongst others, towards the fortunes of Airbus, its partners and suppliers and, indeed, Europe’s banking sector.

Where would Europe’s aviation manufacturing and financing industries be without the strong support of non-European carriers, and non-legacy carriers? How many French, German and British jobs would be lost by the cancellation of 10, 20 or even 50 Airbus wide-bodies? What of its suppliers and component manufactures and future maintenance providers?

But the protestations coming from European airlines are not really about export credit financing. Rather, they reflect a determination to cling to expired oligopolies.

They now want more regulation to protect them. But do they need, or deserve, protecting?

They are businesses built upon years of bilateral agreements designed specifically to protect them as national ‘flag-carriers’.

They are members of the major airline alliances that collectively control 70 per cent of all global international air traffic.

So why the current protests?

Perhaps it is because the consumer’s expectations have permanently shifted – both on the convenience of a network and on the quality of the flying experience. Consumers have had enough of tired, congested airports and lacklustre in-flight service. They’ve had enough of uncertainty over industrial action. They’ve had enough of brands that perhaps take them for granted.

And, through circumstances largely beyond their control today, European airlines are largely unable to change to meet these expectations.

Many people would say the combination of hefty debt obligations, antiquated and inefficient fleet and an inflated cost structure – particularly legacy labour and systems arrangements – means they cannot offer the best and most efficient fleet and service.

Secondly, their geographic location precludes them from being “at the crossroads” they still believe is their backyard. To most of the world in 2010, Europe is no longer a hub, but an endpoint. While once all economic activity and innovation emanated from the USA and Europe, and therefore all roads led there, much of today’s growth is within the BRIC bloc.

Then, take a look at Gulf carriers. We are relatively new, non-legacy businesses with employees that are passionate about building world class airlines. We are equipped with new fleet with low operating costs. We are at the new centre of the world, both an increasingly relevant endpoint ourselves, but also perfectly placed to transfer the new world traveller: passenger flows between South America and Asia; Europe and Australasia; North America and the Subcontinent. And we open up new markets, flying east from Dublin, Milan and a host of other European cities – a network no single European carrier operates.

We make no apologies for the fact that the product we offer is far superior.

We have had our own challenges. We’ve had to build infrastructure and systems and brand identity from scratch. We’ve had to source and train staff. We’ve entered markets starting with zero product awareness. We operate in an Open Skies regime in our home country.

But instead of complaining about the other guys and insisting the world was still flat, we got on with the job of building agile, smart airline businesses that could offer the consumer real choice.

So why should European air travel be re-regulated?

So, like in years past, fares can be higher, schedules can be less convenient and product and service can again be synonymous with moribund rather than innovative?

By all means, let’s look at removing the Home Country rule. But let us not allow the correction of an anomaly become the Trojan Horse in an attack on real competition – for the consumer’s sake, if for nothing else.
 
James Hogan is the Chief Executive Officer of Etihad Airways, the national airline of the United Arab Emirates.