House bill targets Qatar-linked ‘flag of convenience’ Italian airline

Targets ‘flag of convenience’ airlines from undermining labor standards

House Transportation and Infrastructure Chairman Rep. Peter DeFazio, D-Ore., joined a bill targeting low-cost foreign airlines seeking to fly to the United States. (File photo by Bill Clark/CQ Roll Call)
House Transportation and Infrastructure Chairman Rep. Peter DeFazio, D-Ore., joined a bill targeting low-cost foreign airlines seeking to fly to the United States. (File photo by Bill Clark/CQ Roll Call)
Posted July 16, 2019 at 11:25am

A House bill that would limit access of foreign airlines to the U.S. based on substandard labor conditions for their workers is the latest round in a long — and mostly successful — fight by U.S. airlines and aviation unions to keep low-cost foreign competition out of the U.S. market.

House Transportation and Infrastructure Chairman Peter DeFazio was joined by other committee leaders, including Republicans, in sponsoring the bill introduced last week and aimed at preventing “flag of convenience” airlines from undermining labor standards.

[Qatar has ties to Iran, but Trump eyes ‘investments’ ahead of talks with emir]

The long list of labor groups backing the bill has been campaigning for years to keep out carriers like Norwegian Air International and limit penetration by state-owned Qatar Airlines and Emirates, the United Arab Emirates’ flagship airline. Now the groups’ ire is focused on Air Italy, a small Italian airline owned 49 percent by Qatar Airlines.

“Today, foreign airlines can set up under a flag of convenience to exploit weak labor laws in other countries in order to save money and undercut competition,” the Oregon Democrat said in a statement. “And across the globe, there are attempts by foreign airlines to undermine important labor standards to get ahead.”

“Foreign airlines need to play by the rules or they shouldn’t be permitted to operate within the United States,” said ranking member Illinois Republican Rep. Rodney Davis. “Ignoring when they skirt regulations or labor standards in their home country only puts American workers and companies at a disadvantage.”

More than 10 U.S. aviation unions support the bill, but a trade association representing major airlines said it would take no position. Major U.S. airlines said they oppose new permits for proxies operating what they call subsidy-backed routes.

CEOs of United Airlines, American Airlines and Delta said in a July 12 op-ed in USA Today that state-owned airlines in cash-rich Middle East countries, including Qatar Air and Emirates, are a threat to their businesses.

“Qatar is perhaps most blatantly disrespecting its January 2018 agreement,’’ United’s Oscar Munoz, American’s Doug Parker, and Delta’s Ed Bastian said in the USA Today column. “The country pledged that its airline would not launch any flights directly between the United States and Europe. It quickly shrugged off the commitment by investing in a failing regional Italian airline and rebranding it as Air Italy, which is now being used as a proxy for new subsidy-backed routes between the U.S. and Italy.”

In January 2018, Qatar agreed with the State Department to enhance the transparency of the government’s relationship with the airline. U.S. airlines have charged that the airline wants to push flights through EU markets and on to the U.S., using subsidies to dominate trans-Atlantic traffic and drive U.S. carriers out.

But the Open Skies Coalition, largely made of U.S. cargo carriers as well as JetBlue Airways Corp., oppose the DeFazio bill. Their worry is that denying air carrier privileges to Air Italy or another low-cost European airline would invite retaliation against U.S. carriers seeking to go to Europe. JetBlue is planning to start a flight to London.

“This unnecessary bill only invites retaliation by our international Open Skies partners, with the flying public shouldering the greatest consequences. We strongly oppose this legislation and urge Members of the House and Senate to do the same,” the coalition said in a statement.

“At their core, these efforts are anticompetitive, which will only drive up prices and hurt consumers,” said Jenny Rosenberg, executive director of the coalition.

AirItaly response

Rossen Dmitrov, chief operating officer of Air Italy, questioned why the legislation would target the airline, which already has a permit to operate in the U.S. Air Italy is regulated by the European Union Aviation Safety Agency, as are other European carriers, some of which have U.S. investment, he added.

“We are a very small airline,” Dmitrov told CQ Roll Call. “If we are a cheap or unsafe airline in any way, then so are the other European airlines.”

Dmitrov said that the airline, which flies out of Italian bases in Milan and Sardinia, uses Italian flight crews working under Italian labor contracts. The airline’s 1,400 employees belong to seven different unions, he said.

Dmitrov said that Qatar is a minority shareholder and has no operational role. But its aircraft, only five of which are large enough to serve New York and Miami, are leased from Qatar. The airline plans to add service to Los Angeles and San Francisco in March 2020.

DeFazio introduced a similar bill in December 2016 after the Department of Transportation issued a permit to Norwegian Air International. That bill was never passed, but the committee news release drew attention to the NAI case.

“NAI is ‘Norwegian’ in name only, having established itself in Ireland to avoid Norway’s strong labor protections and employing crews on cheap short-term contracts governed under Singapore law,”  the committee press release said.

The department issued the NAI permit in December 2016 after three years of review and a European Union threat to take the matter to arbitration. Labor unions challenged the decision in court, only to lose when the U.S. Circuit Court of Appeals for the District of Columbia ruled that the Transportation Department had no grounds under the bilateral aviation agreement with the EU to deny the permission.

NAI’s share of the U.S. international market has fluctuated between 0.48 percent and 0.62 percent in the past six quarters for which data are available, according to the department. The carrier carried 138,098 passengers in the fourth quarter of 2017 and as many as 164,827 passengers in the third quarter of 2018.

The trans-Atlantic routes are dominated by the legacy U.S. carriers and their European joint venture partners. The threat of Middle East airlines and low-priced European ones to U.S. companies looks like a distant one on those routes. U.S. airlines are reporting record profits and holding their share of the market while enjoying the benefits of alliances with major European carriers protected by antitrust immunity.