The representative body for Arab carriers including Emirates and Etihad Airways seeks to quash a US proposal to remove a longstanding tax exemption for foreign airlines – a punitive measure it claims would hike costs for passengers and damage global networks.
The Arab Air Carriers Organisation (AACO) – whose 30-strong membership network also features Gulf Air, Oman Air, Air Arabia, Kuwait Airways and Saudia – raised concerns with global industry bodies this week, AACO's secretary-general Abdul Teffaha told The National via telephone.
“The notion of imposing income tax on foreign carriers belongs to the first half of the last century, not today’s globalised world,” Mr Teffaha said.
“We have communicated with the International Air Transport Association (IATA) and the United Nations’ International Civil Aviation Organization (ICAO) on the matter and are talking to other stakeholders and governments, as this could be very dangerous.”
An amendment to the US tax code proposed last week by US Senator Johnny Isakson of Georgia calls for airlines headquartered in foreign countries to pay corporation tax if the carrier’s home country has fewer than two arrivals and departures per week operated by major US airlines, and/or the carrier’s country does not already have an income tax pre-agreement with the US.
Under such treaties, companies from foreign countries are either exempt or pay a reduced rate on their income.
There are additional income tax exemptions for certain foreign airlines and these would be removed under Senator Isakson’s amendments, which relate to the state of Georgia.
“If this happens, it could set a precedent for other states to follow suit,” Mr Teffaha said. “That would raise costs for airlines significantly, dismantle the global network and deprive customers of choice.
“Ultimately, it would turn back the clock to a pre-Open Skies era when countries used to impose restrictions on carriers to balance their [involvement in the domestic market].”
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If implemented, the new rules would deepen the rift between the three largest US airlines – United, Delta and American Airlines – and their Arabian Gulf counterparts, Emirates, Etihad Airways and Qatar Airways.
For years, the US carriers have lobbied federal government to curb Gulf carriers’ expansion in the states, which they claim represents “unfair competition” and breaches Open Skies agreements. Delta is headquartered in Atlanta, which sits within Senator Isakson’s constituency.
Reflecting a recent escalation of the dispute, the UAE’s flag carrier Etihad Airways said this month it will cancel all flights to Dallas-Fort Worth in Texas next year after American Airlines said it will terminate its codeshare with the Abu Dhabi-based airline in March.
Imposing tax on foreign airlines would be a “highly counterproductive move”, as the extra costs would end up being passed on to air passengers, Mr Teffaha said. “We would ask the relevant authorities to help international aviation operate unhindered, and not burden airlines with extra taxes that will ultimately be reflected in costs to passengers, hurting them.”
A spokesman for Etihad Airways said in a statement to The National: "Etihad Airways is aware of the language in the Senate tax reform bill, which is widely agreed to be inappropriate under US law and contrary to several international agreements.
“We are working with a broad coalition of industry representatives to inform lawmakers on this issue, which appears to be the result of continued anti-competitive efforts by one or more of the ‘Big Three’ US legacy carriers.”
Emirates declined to comment on the proposals.
IATA said it "does not support" the Isakson provision a spokesperson said in a statement to The National. The seamless experience of air travel "is possible only because governments cooperate across borders on rules and regulations that govern the industry," the spokesperson said. "Reciprocity between governments on taxation is a vitally important part of this cooperation. If enacted, the Isakson provision would upend decades of precedent--which the US has long supported--on the taxation of international aviation. It would directly impact multiple airlines from multiple countries. Foreign governments – even those not directly affected by the proposed language – could be tempted to follow the U.S. example and impose reciprocal taxes in return."
Senator Isakson was contacted for a response.
Mr Teffaha was speaking after AACO’s annual general meeting in the UAE on Tuesday, at which the membership body released its latest annual report, covering statistics from 2016.
AACO members’ operating revenues increased by 6.4 per cent year-on-year in 2016 reaching US$62 billion, the report said, with members serving 421 destinations in 126 countries with 3,991 average daily flights over the year.
The Arab air transport market grew by 9.9 per cent year-on-year in 2016 compared to the previous year, reaching 284 million passengers, the report added.
The number of passengers using Arab airports in 2016 increased by 4.9 per cent to 340.6 million passengers, while cargo handled at Arab airports increased by 5 per cent in 2016 to 8.11 million tons, AACO said.
“What is notable is the resilience of the Arab aviation market against increased geopolitical unrest in the region and persistently lower oil prices,” the secretary-general said.
“Growth has continued unabated despite these crises, with average RPKs (revenue per passenger kilometres) of member airlines going up 12 per cent in the last six years and substantial future growth possible due to the strategic geographical location the region occupies, its young, mobile population and value for money our airlines provide.”
He forecasts 250 million new passengers would enter the regional aviation market within the next decade as the sizeable under-25 demographic “comes of age”.
Zayed Sustainability Prize
Mohammed bin Zayed Majlis
COMPANY%20PROFILE%3A
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A new relationship with the old country
Treaty of Friendship between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates
The United kingdom of Great Britain and Northern Ireland and the United Arab Emirates; Considering that the United Arab Emirates has assumed full responsibility as a sovereign and independent State; Determined that the long-standing and traditional relations of close friendship and cooperation between their peoples shall continue; Desiring to give expression to this intention in the form of a Treaty Friendship; Have agreed as follows:
ARTICLE 1 The relations between the United Kingdom of Great Britain and Northern Ireland and the United Arab Emirates shall be governed by a spirit of close friendship. In recognition of this, the Contracting Parties, conscious of their common interest in the peace and stability of the region, shall: (a) consult together on matters of mutual concern in time of need; (b) settle all their disputes by peaceful means in conformity with the provisions of the Charter of the United Nations.
ARTICLE 2 The Contracting Parties shall encourage education, scientific and cultural cooperation between the two States in accordance with arrangements to be agreed. Such arrangements shall cover among other things: (a) the promotion of mutual understanding of their respective cultures, civilisations and languages, the promotion of contacts among professional bodies, universities and cultural institutions; (c) the encouragement of technical, scientific and cultural exchanges.
ARTICLE 3 The Contracting Parties shall maintain the close relationship already existing between them in the field of trade and commerce. Representatives of the Contracting Parties shall meet from time to time to consider means by which such relations can be further developed and strengthened, including the possibility of concluding treaties or agreements on matters of mutual concern.
ARTICLE 4 This Treaty shall enter into force on today’s date and shall remain in force for a period of ten years. Unless twelve months before the expiry of the said period of ten years either Contracting Party shall have given notice to the other of its intention to terminate the Treaty, this Treaty shall remain in force thereafter until the expiry of twelve months from the date on which notice of such intention is given.
IN WITNESS WHEREOF the undersigned have signed this Treaty.
DONE in duplicate at Dubai the second day of December 1971AD, corresponding to the fifteenth day of Shawwal 1391H, in the English and Arabic languages, both texts being equally authoritative.
Signed
Geoffrey Arthur Sheikh Zayed
What should do investors do now?
What does the S&P 500's new all-time high mean for the average investor?
Should I be euphoric?
No. It's fine to be pleased about hearty returns on your investments. But it's not a good idea to tie your emotions closely to the ups and downs of the stock market. You'll get tired fast. This market moment comes on the heels of last year's nosedive. And it's not the first or last time the stock market will make a dramatic move.
So what happened?
It's more about what happened last year. Many of the concerns that triggered that plunge towards the end of last have largely been quelled. The US and China are slowly moving toward a trade agreement. The Federal Reserve has indicated it likely will not raise rates at all in 2019 after seven recent increases. And those changes, along with some strong earnings reports and broader healthy economic indicators, have fueled some optimism in stock markets.
"The panic in the fourth quarter was based mostly on fears," says Brent Schutte, chief investment strategist for Northwestern Mutual Wealth Management Company. "The fundamentals have mostly held up, while the fears have gone away and the fears were based mostly on emotion."
Should I buy? Should I sell?
Maybe. It depends on what your long-term investment plan is. The best advice is usually the same no matter the day — determine your financial goals, make a plan to reach them and stick to it.
"I would encourage (investors) not to overreact to highs, just as I would encourage them not to overreact to the lows of December," Mr Schutte says.
All the same, there are some situations in which you should consider taking action. If you think you can't live through another low like last year, the time to get out is now. If the balance of assets in your portfolio is out of whack thanks to the rise of the stock market, make adjustments. And if you need your money in the next five to 10 years, it shouldn't be in stocks anyhow. But for most people, it's also a good time to just leave things be.
Resist the urge to abandon the diversification of your portfolio, Mr Schutte cautions. It may be tempting to shed other investments that aren't performing as well, such as some international stocks, but diversification is designed to help steady your performance over time.
Will the rally last?
No one knows for sure. But David Bailin, chief investment officer at Citi Private Bank, expects the US market could move up 5 per cent to 7 per cent more over the next nine to 12 months, provided the Fed doesn't raise rates and earnings growth exceeds current expectations. We are in a late cycle market, a period when US equities have historically done very well, but volatility also rises, he says.
"This phase can last six months to several years, but it's important clients remain invested and not try to prematurely position for a contraction of the market," Mr Bailin says. "Doing so would risk missing out on important portfolio returns."
