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Emirates - Subsidy - Myths and Facts August

Emirates - Subsidy - Myths and Facts August

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Published by: arvindcac on Jun 28, 2011
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Emirates believes that the issue of ‘subsidy’ is alegitimate and important issue for any airline ormultinational corporation.Like other pro-competition and free-market voices inour industry, we are firmly and historically opposed tostate aid for airlines. Such policies can only encourageinefficiency, discourage open markets and areultimately not in the consumer interest.It is therefore a concern to Emirates that unsubstantiatedclaims of subsidy against our organisation continue tobe perpetuated by some competitors and from otherquarters. Despite no evidence, an oft repeated myth canultimately be accepted as conventional wisdom. Thisdocument therefore seeks to genuinely and crediblyrebut these various allegations.Let’s start first with what Emirates is, rather than whatit is not. The Emirates Group consists of more than 50specialist business units. At the heart of the group areEmirates Airline and Dnata.
• Emirates is the international airline of the United
Arab Emirates and its main activity is the provision ofcommercial air transportation services.
• Dnata, the ground handling agent at Dubai
International Airport, has grown into the biggestairport services provider in the Middle East and nowhas almost 30 related subsidiaries trading under itsname around the world.Emirates also provides external services like inflightcatering, cargo, engineering and training - as wellas being involved in hotel and resort developments.Crucially, all of these divisions are stand-alone profitcentres with their own business plans, financialobjectives and reporting structures. This document tackles head-on the myths and the factsrelated to government ownership and support, financialreporting, sources of finance, costs, landing fees andcharges, the environment, oil, airport infrastructureand inter-carrier comparisons. We hope you find ourtransparency thought provoking.
A little history…
Aer Lingus €200 million Irish Government capital injection in 1996.Air France €300 million and €580 million French Government capital injections in 1991 and 1992.€3 billion French Government capital injection in 1994.Alitalia €1.5 billion and €1.2 billion Italian Government capital injections in 1997 and 2005.British Airways GBP160 million UK Government debt write-off pre-privatisation in 1981.Concorde US$3.5 billion development cost write-off by British and French Governments in the 1970s.Iberia €560 million Spanish Government capital injection in 1996.Lufthansa €800 million German Government contribution to Lufthansa pension fund in 1995.Olympic Airways €2.6 billion Greek Government accumulated debt write-off in 2008/09.Qantas AUD$1.4 billion Australia Government debt write-off in 1992. TAP €1.8 billion package of Portuguese Government aid measures in 1994.
Recent subsidyor support
Alitalia benefits from state
aid amounting to €700
million over seven years
via a 2008 ‘Save Alitalia
Decree’ passed by theItalian Government – whichamongst other supportmechanisms, imposes
an airport tax of €3 per
passenger on all airlinesserving Italy.JAL received ¥300 billionof fresh capital in early
2010 from the Japanese
Enterprise TurnaroundInitiative Corporation (astate-controlled investmentfund), and an additional
¥600 billion line of credit
from the government-ownedDevelopment Bankof Japan. The European Commissionlaunched an investigation in
February 2010 into a CZK2.5 billion (€94 million)
loan granted to CSA - Czech
Airlines in 2009 by the state-
owned entity Osinek a.s.
Subsidy. The myths and factsabout Emirates and our industry
“We know there hasbeen clear evidence ofa progression towardsaeropolitical multilateralism
in the past 20 years. More
and more countries arerecognising that liberalair access has a multipliereffect on their economicsand protection of theirnational carriers no longerstacks up in the cost-benefit equation or servestheir national interest.
Unwittingly, they have been
subsidising their nationalcarriers through a fortressmentality of aeropoliticalprotection and theelimination of competition,and other primary sectorsof their economies havesuffered as a result.”
 Tim Clark, PresidentEmirates Airline
“Spearheading the region’s development strategy, and emblematic of the economic success of the UAE, Gulf carriers
benefit from financial support from their local state…”
Air France
Emirates is run as a fully commercial business, unlike many European carriers. It is certainly true that aviation is a
key strategic policy and sector in Dubai, as it is in many countries like Singapore, Hong Kong, Malaysia or Germany
- and that the Government of Dubai’s vision is to be a world leader in international aerospace. This comes throughopen skies policies, careful planning and pro-aviation policies (see pages one and eight).“The Emirates Group…has limitless access to capital and state money is used to build infrastructure megaprojectssuch as airports. Also, since there is no income tax, it is able to employ staff at a much lower cost...”
Air CanadaPilots Association
Emirates is the dedicated tenant of Dubai International Airport’s Terminal 3. However, Emirates did not fund theconstruction of the facility and pays for its usage in the form of airport landing charges and leases. In terms of the
staff costs which Emirates bears, US$500 million alone in expatriate benefits per annum is a significant number and
is evidence that although differently structured, our employee cost base is comparable to other international airlines(see pages one and seven).“The government is helping finance Emirates’ wide-body aircraft orders.”
 Transport Canada
Emirates operates on a wholly commercial basis and receives no funding or support for its aircraft orders from theGovernment of Dubai - facts corroborated by the world’s leading investment banks and finance companies. Rather,it is the commercial market which finances Emirates’ aircraft fleet, based on its confidence in our business model,strategy and long-term financial plan (see page three).
“(Emirates is) taking advantage of export credit guarantees to purchase the A380 they have ordered.“
Such export credit-backed funding is deliberately aimed at and used by numerous international airlines for aircraft
orders - is an internationally accepted export driver for both EU Member States as well as the US. European credit
agencies and represents only a relatively small proportion of Emirates’ total sources of financing (see page three).
“We have doubts on how Emirates can finance its A380s. Where are you going to get the money?”
Leo van Wijk,Ex-CEO KLM
Emirates sources finances in a fully transparent manner from commercial banks, bond issues, operating leases andvia asset-backed debt, as well as from other non-conventional sources such as Islamic funding and from outside
foreign investors. To date, US$22 billion has been raised from these sources (see pages three and four).
“(Dubai Government’s ownership of Emirates together with control over the airport authority, air navigationservices, ground handling agent, leading hotel groups, etc.,) results in non-transparent structures which most likelylead to significant beneficial treatments of Emirates compared to other airlines.”
Arthur D Little Consultancy
Emirates is treated the same as every other airline operating at the Dubai International Airport in terms of airport
and landing charges. Dubai has fully open skies. More than 130 international airlines today serve Dubai, suggesting
that inter-airline competition is both robust and welcomed (see pages three and four).“There are clear advantages based on the geographic location of Dubai - having some of the largest oil fields in its
direct surroundings (i.e. lower transportation, distribution/storage/logistics and refining costs).”
Arthur D LittleConsultancy
 There is minimum oil refining capacity in the UAE/Dubai. Both oil and jet fuel prices are traded globally, so the jet fuel
prices paid by Emirates in Dubai are similar to those paid anywhere in the world (see page six).“Emirates is unfairly advantaged by the benefits of oil revenues.”
Geoff Dixon, Ex-CEO Qantas
Oil accounts for only 4% of Dubai’s GDP, a figure which goes down every year. Emirates pays the same market
rates for jet fuel as Qantas and other international airlines around the world, as shown in our published accounts.
If Mr Dixon means this is because the UAE benefits from oil, the same can be said of Australia and its uranium or
natural gas or iron ore revenues (see page six).“The infrastructure in Dubai in terms of taxes and conditions is better than in Europe, which gives Gulf carriers anedge. There is widespread concern that there is an uneven playing field.”
German CAA
Dubai’s investment in essential airport infrastructure for the future mirrors what cities such as Bangkok, Kuala
Lumpur, Athens and Berlin have recently done - something which any growth-focussed city needs to do if it islooking ahead. The real uneven playing field though is between the aeropolitical protection often enjoyed by acarrier such as Lufthansa in Germany, compared to the fully open skies environment at Emirates’ base in Dubai(see pages seven and eight).
Myths vs facts
Emirates is 100% owned by the Government of Dubai
through its commercial investment arm, InvestmentCorporation of Dubai (ICD).
Emirates received US$10 million from the Governmentof Dubai in start-up seed capital in 1985 and US$88
million invested in infrastructure, which included
two B727 aircraft and the Emirates Training College
building. This has been more than covered by totaldividend payments to the Government of Dubai, which
have totalled US$1.75 billion to date. The Government
of Dubai and the management of Emirates haveconsistently made it clear that Emirates is required to beself-sustainable and profitable.Emirates has always raised funds on a commercial asset-backed basis. No financinghas been obtained from Investment Corporation of Dubai (ICD) or the Governmentof Dubai at concessional rates. The Dubai government does not act as guarantor forany Emirates’ loans - unlike some in our region who benefit from sovereign debtguarantees.
Emirates has raised a total of US$22 billion to date for financing of new aircraft
and other corporate finance requirements. Emirates finances its aircraft through a
wide range of sources, including operating leases, EU/US Export Credit Agencies
(ECAs)and commercial asset-backed debt as well as non-conventional sources suchas Islamic funding and equity from Japanese and German investors (as part oftax-based cross border leveraged leases).Export Credit Agencies are a legitimate and internationally accepted support mechanism to boost manufacturing
sectors and exporters in Europe and the US. Emirates, like many other airlines, uses ECAs as part of its broadfinancing structure. EU/US export credit agencies have supported just over 20% of Emirates aircraft financing to
date and are likely to remain in this range in the future.Emirates is fully and independently audited to the highest international standardsby external auditors PricewaterhouseCoopers (PwC), as well as by auditors from theGovernment of Dubai. The PwC audit is conducted in accordance with InternationalStandards on Auditing issued by the International Federation of Accountants.
Emirates’ accounts and annual reports have been published since 1993/94 and are
fully accessible on the internet at
.Dubai’s corporate model has its origins in the city’shistoric position as an entrepôt, which has free tradeand competitive open markets at its core. Whilst thereis a close relationship between the Government andmany of Dubai’s strategic commercial entities, Dubaiis at its essence driven by commercial entrepreneurialprinciples.Each commercial entity is an independent companywith its own profit targets and operational autonomy.Such a system is not dissimilar to the corporatestructures followed in Asia for example by Singapore,
Korea or Japan.
Government ownership and supportSources of finance Transparent reporting
Our accounts and annual reports have been reviewed and substantiatedby leading analysts from major international investment banks
“An overview of the audited financial accounts contains no material surprises once one gets used to seeingconsistent profits at an airline…Emirates’ key competitive advantage is its relative youth (the fleet and thecompany), the location and efficiency of the Dubai hub, and strong management.“
“We cannot find anything in Emirates’ accounts which indicates that the business is subsidised directly orindirectly or given any undue preferences”…“We are encouraged by the high level of disclosure that Emiratesoffers, even as an unlisted company.”
JP Morgan
Most recently, our accounts revealed that Emirates was not immune from the harsh economic impacts of the
financial crisis, by experiencing an 80% fall in net profits to US$268 million for the financial year 2008/09, andthe Emirates Group as a whole also experiencing a 72% fall in net profits during the same period.
Annual Report 2008-2009
 T he E m i ra te s  G r o u p
A n n ua l Re p o r t  200 9  - 20 10
 S ha p i ng  O u r W o r ld
“The charges of unfaircompetition from the likesof Lufthansa, Air France-
KLM and Air Canada fail
to stack up. Although itis government-owned,Emirates has been profitablein every year but onesince it started. Its fast-growing fleet…is financedconventionally. It pays thesame price for fuel as otherairlines and the same fees atits home airport.“
5th June 2010
US$22 billion financed over the last 14 years

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