Etihad CEO flays western airlines on export credit

Airlines in Europe and North America do not have a "colonial right to rule the world", says James Hogan, Etihad's chief executive.

2010 James Hogan, CEO of Etihad Airways speaking at the Etihad Airways Financial Roadshow in London.

European and North American airlines do not have a "colonial right to rule the world", says the chief executive of Etihad Airways.

And James Hogan says those carriers should seek reform of the global aviation industry, rather than lobby against the expansion of Gulf carriers.

Mr Hogan told The National that the industry needed liberalising to free it from outdated rules and ensure a free market for airlines.

"There isn't a truly open skies environment," he said. "I think there's a more compelling argument in regard to truly open skies than trying to target a group of Gulf carriers."

Mr Hogan's comments came as a decision looms before the end of the year about a review of global rules controlling the availability to airlines of export credit assurance, an important source of funds in the industry for buying aircraft.

The financing instruments can make bank loans cheaper and easier to arrange, but some western airline executives have said export credit gave Gulf airlines an unfair advantage.

"Why do European and North American airlines have the colonial right to rule the world?" said Mr Hogan. "We have to be careful that one or two airline CEOs with vested interests don't blow this issue out of proportion."

Export credit guarantees represent about 14 per cent of the mix of aircraft financing Etihad uses, with the remainder coming from commercial, leasing and Islamic lending markets.

With the carrier due to take delivery of 106 aircraft by 2020, it would like to keep the option of using the source of funds.

Airlines will be closely watching the outcome of the review, being overseen by the Organisation for Economic Co-operation and Development, after a split developed between carriers about what changes they would like to see.

A group of 24 European and North American airlines are unhappy with the existing rules, saying they gave an unfair advantage to Gulf airlines by offering better access to export credit assistance than airlines receive from countries where Boeing and Airbus aircraft are made.

They want to limit export credit agency-backed loans to 20 per cent of any airline's or lessor's aircraft deliveries, and raise the cost of such financing.

But Etihad and other airlines that are beneficiaries of such support are strongly against any such caps, saying they will reduce the attractiveness of export credit.

The dispute escalated on Thursday when Etihad and Emirates Airline, along with eight other carriers including the budget Irish flyer Ryanair and Korean Air, set out their opposition through the newly formed Aviation Alliance.

Mr Hogan said a more important challenge was reviewing some of the rules governing the industry.

The Convention on International Civil Aviation, also known as the Chicago Convention, which co-ordinates and regulates global air travel including the use of airspace, is more than 60 years old, he said, and there were issues about foreign ownership of airlines and bilateral agreements involving national flag carriers that needed to be looked at.

Governments from several western countries, including the US and the UK, signed a series of bilateral agreements as far back as the 1940s to determine the access flag carriers receive to each other's countries. Such agreements have been criticised as being at odds with the principle of open skies.

Etihad, along with other Gulf carriers, has faced difficulties increasing flights to some regions as airlines in Europe, North America and Asia lobby their governments to restrict access.

The Aviation Alliance is in support of other airlines' calls to scrap the so-called home country rule, which prevents UK, French, German and Spanish airlines from accessing export credit assistance for aircraft that are made in the US.

But it said caps and higher fees would lead to a greater mismatch between aircraft order commitments and the availability of financing, and could be harmful in the event of a future financial crisis.