Senate’s tax bill would hit Delta’s Mideast rivals

Atlanta carrier says Persian Gulf nations subsidizing airlines.

For the past two years, Delta Air Lines has spearheaded a campaign to get Washington policymakers to punish some of its fiercest fast-growing competitors from the Persian Gulf.

The Atlanta-based carrier’s push has been largely fruitless so far — but that may soon change if a provision tucked into the U.S. Senate tax bill becomes law.

U.S. Sen. Johnny Isakson, R-Ga., added language to his party’s tax overhaul plan earlier this month that would crack down on income tax exemptions provided to some of Delta’s international competitors. The provision is seen as specifically targeting a trio of airlines based in Qatar and the United Arab Emirates: Etihad, Emirates and Qatar Airways.

Delta and its two biggest U.S. competitors, United and American Airlines, have been pressuring the federal government to intervene against the three foreign carriers for several years. The push has ignited an increasingly spiteful trans-Atlantic battle that’s reverberated from Doha to the runways at Hartsfield-Jackson International Airport.

The U.S. carriers say their Persian Gulf counterparts are unfairly subsidized by their oil-rich governments, violating the spirit of international aviation trade pacts that essentially function as free trade agreements. They and their allies from Georgia and elsewhere in Congress allege that subsidies totaling more than $40 billion are keeping ticket prices artificially low and giving the three foreign carriers an unfair advantage over private American companies, particularly in the fast-growing Asian, European and Middle Eastern markets.

“Foreign airlines should not receive preferential tax treatment

if their countries choose not to open their markets to U.S. companies,” said Isakson, a member of the tax-writing Finance Committee. He said the provision would help “protect Georgia airline employees.”

“Tax reform is all about leveling the playing field for Americans and our businesses,” he added.

Executives from the Persian Gulf airlines have disputed the characterization, saying American companies are also subsidized and that they are trying to bully their way out of a problem.

The provision as authored by Isakson would require foreign airlines to pay American corporate tax rates if their home country doesn’t have an income tax treaty with the U.S. and American carriers fly there less than twice a week. It’s still unclear whether the language could affect airlines from non-Persian Gulf countries.

The three Persian Gulf carriers currently do not pay U.S. corporate taxes.

Congressional scorekeepers estimate the amendment would force foreign airlines to pay some $200 million in additional taxes over the next decade, money that Senate Republicans are counting on to help pay for corporate and individual tax cuts elsewhere in the bill.

Delta declined to comment, as did the Partnership for Open & Fair Skies, a group set up by U.S. airlines and allied trade organizations to fight the Persian Gulf carriers.

Tense competition

If the language in the Senate bill becomes law, it would surely heat up an increasingly testy relationship between airlines from the U.S. and the Persian Gulf.

Qatar Airways CEO Akbar al Baker has chastised the U.S. carriers for providing “crap service” and reducing capacity “to keep prices high against the interests of the customers.”

Al Baker and some of his counterparts have said that U.S. carriers get subsidies too, in the form of Chapter 11 bankruptcy protection, federal loan guarantees after 9/11 and other preferential treatment from state and local governments. Top U.S. carriers say bankruptcy protections do not count as subsidies.

The relationship between Delta, which has led the effort among the three U.S. airlines, and Qatar Airways has become particularly acrimonious in recent years.

“Ironically, Delta is complaining about our subsidy while fighting with the state of Georgia about the continuation of its fuel tax breaks,” al Baker said in 2015, referring to a fight that year in the state Legislature.

Tensions rose further last year when Qatar Airways launched a route between Doha and Atlanta, right at Delta’s doorstep. That led to a dispute over gate space — Qatar’s inaugural flight was blocked from docking at the gate after Delta said it couldn’t make room for Qatar’s plane — and Delta to pull its sponsorship of the Fox Theatre after the venue hosted a Qatar Airways launch party.

Not all American airline and travel interests are on Delta’s side in this particular fight.

The U.S. Travel Association, which represents the travel industry, has said U.S. carriers are attempting to quash competition that could help to lower fares and increase consumer choice. And Boeing, which sells its airplanes to Middle Eastern carriers, wants the skirmishes to end.

Georgia support

In Georgia, however, there are few questions about where the state’s political leaders stand.

As Delta lobbied the Obama and then the Trump administrations for help, Isakson and Gov. Nathan Deal wrote to the departments of Transportation and State asking them to help the U.S. carriers by enforcing international aviation agreements.

“If the Gulf carriers are allowed to continue their subsidy-fueled expansion unchecked, more hardworking Americans in Georgia could lose their jobs,” Deal wrote this spring in a letter to Secretary of State Rex Tillerson and Transportation Secretary Elaine Chao.

Isakson has worked the issue from Capitol Hill.

“International flight routes are extremely competitive, and we fear that these subsidies may have led to market distortions,” Isakson and 20 other senators, including Georgia’s David Perdue, wrote in a letter to Obama administration officials in June 2015. “If so, failure to take action could cause harm to the U.S. passenger airline industry and the broader U.S. economy, including significant job losses.”

Delta is a political force in Georgia and has been a major campaign contributor to Deal, Isakson and others.

There is still a long way to go for the language in the Senate bill to become law. The Senate must first pass the bill, which leaders are hoping to do in the weeks ahead, and the provision must be added to any final House-Senate compromise plan. The language was not included in the Housepassed bill.