washeelers747

Sen. Durbin, chalk him as another US3 cheerleader... How is that even possible with US3 enjoy limited competition, record-breaking profits, etc then make those silly claims such as risks to ORD operations.

http://aviationblog.dallasnews.com/2015/04/durbin-warns-that-if-true-state-subsidies-of-middle-eastern-airlines-threaten-chicago-airport.html/

eternaltransit

I very nearly also clicked "Don't Care" for much the same reasons - I find the debate academically interesting and the operational research quite an interesting diversion from the day job However, I did realise that given my post history, I clearly care a little bit: in that having evaluated all the information that's out there publicly, I just can't come to the conclusion where I can definitively say it is a "scam" - there are just too many plausible scenarios where it could be operationally profitable and on the balance of probabilities, I would say it isn't a "scam".

I would not though say it was the most profitable business to be in and if I had money to invest in airlines, it probably wouldn't be in EK

The moral judgement of whether it's right or not to run a corporation that accepting that there will be lower returns than theoretically possible is, I think, a related, but ultimately different matter.

GUWonder

As a customer, I would care whether or not the party selling me a product/service is going to financially scam me or not.

As there is no evidence of Emirates scamming its customers out of money and failing to provide service to any greater degree than the US3 or EU3 airlines, I don't see why anyone would objectively call EK a scam unless applying the same reference to American, Delta, United and the US3's cartel brethren in Europe.

You want to go where?

Agreed. The term 'scam' seemed wrong from the start. What the OP really seemed to be alleging was that EK was heavily subsidized. There was never any indication that it was trying to scam its customers (or its owners for that matter). The argument could be that it was trying to scam regulators. It was the question of whether EK is subsidized or not that I chose to answer when I voted.

Xlr

Link to new documents: http://www.openandfairskies.com/wp-c...Financials.pdf

I'll probably enjoy reading this tonight with a latte.

EDIT: The only portion concerning EK is on pages 983 through 1028, and they are basically EK's financials for two years (ending 1996 and 1997). These are cited in pages 35 and 36 of the white paper, and relate to Emirates' training building and other capital provided by the government, totaling $218m.

Not quite latte-worthy. However, there are over 900 pages of documents related to QR and EY, which, while not relevant to this thread, would make it far easier to analyze those companies.

iahphx

Anything relating to the fuel hedge losses in there?

As previously noted the case against Etihad and Qatar is a slam dunk: they are obviously huge loss-making enterprises propped up by their governments. The only question is how should the US respond to this. Either you say we don't care (cheap flights for everyone!) or you restrict their service in the name of unfair competition.

Emirates is way more difficult to analyze -- especially from the outside -- because the whole company (and perhaps the whole country) is an integrated shell game where you can allocate costs anyway you want to. The fuel hedge situation is perhaps a window into this creative accounting. Without carefully combing through their books -- and we'll see if Emirates lets the US government actually do this -- it's very difficult to tell if they're truly a "for profit" enterprise. I've always maintained that (without looking at the books) the best evidence that they're not a profitable enterprise is that they do things that nobody else in the aviation world could do and not lose tons of money. They fly 60 A380s, and have 80 more on order, operating out of a city of 2 million people. The USA has 320 million people and not a single airline has bought a single A380. Pretty weird, no?

lokijuh

Uh oh. Here we go again.

edy4eva

EK serve a 5-billion -at least global market with a single airport. It makes perfect sense to use the largest aircraft to maximise passenger flow on limited slots.

The US hubs have limited connectivity for through international traffic. The US airlines do not rely on carrying international passengers from A to Z via the US, and hence have little volume of said traffic that would require the A380. But hey, you're an expert on the US airlines, why do you think they have B77W (and had the B747), which isn't a much smaller aircraft than the A380.

iahphx

Yeah, and the Chicago Tribune has weighed in, too.

http://www.chicagotribune.com/news/o...421-story.html

Look, if you guys don't want to believe there's "something fishy" here, you don't have to. Trust me, I constantly run into Wall Street types who bet big money without good financial judgment. But if you've followed this industry for decades, you might appreciate how this doesn't pass the smell test, which is what prompted me to start this thread in the first place. Most folks seem to draw the same conclusion after they've studied it a bit.

Except here on Flyertalk. But heck, that doesn't bother me a bit. We'll all see how it ends.

edy4eva

EY and QR are not private enterprises propped up by public money. They are public enterprises funded by public money. Unfair competition might be valid if the US3 were based in AUH/DOH using private money trying to stay afloat.

The unfair action would be to label the ME3 operations as as scam and to call for restrictions because that would be punishing their owners (citizens of the UAE and Qatar) to at best claim a theatrical victory for the privately owned US3 enterprises.

But enough talking about imaginary scams. The real financial scam is much closer to your home (and investment portfolio). One cannot help but wonder how AA while claiming bankruptcy, managed to turn around, merged with US and delivered staggering returns to their shareholders to the tune of 11 billion dollars.

edy4eva

That's Richard Anderson, remains an opinion piece. Not an independent journalist perspective.

Xlr

Nope, nothing related to fuel hedge losses in the 1000+ pages released today. The fuel hedge is from 2009, the documents today are from the '90s.

I think we all agree that EK isn't purely for-profit in the sense of maximizing the monetary returns to the shareholder alone. Much of what they do involves promoting Dubai as a stopover destination, which benefits the shareholder in indirect ways (tourist money).

EK happens to (claim to) be profitable and pay dividends to its shareholder. EY and QR don't. I'm inclined to believe them because EK's shareholder doesn't have much money (in fact, it's in debt).

washeelers747

paid or "winky-winky" op-ed by US3 or their apologists friends. it's obvious that US3 PR teams coordinate with newspaper company from UA/AA hub city and come up with awkward family photo-op & heavily-biased article.

look at this quote - "The U.S. airlines haven't said what kind of relief they want; that would come later, anyway." lame if they cant come up with anything after spend 2 years worth of "money that could greatly improve their OWN service/products" against ME3

eternaltransit

I was also looking forward to seeing if there was anything new in the report, out of the 1028 page 42.8MB pdf document released, 486 pages of it are scanned Qatar Airways accounts and returns submitted to various company registrars across the world - e.g. Companies House in the UK (hardly a difficult place to uncover information!) and various Securities Regulators e.g. Australian Securities Commission

The next 500 pages are Etihad's accounts and Articles of Association etc.

That leaves about 40 pages for Emirates. These consist of:
- 1996 accounts, showing profit of 80 million AED on 2.7 billion AED revenue (2.9% net margin)
- Depreciation properly accounted for by aircraft over 15 years, aircraft parts etc. 5-15 years, buildings over 5-20 years and other equipment etc. 5-15 years
- arrangements with dnata specified: however, I would agree could be some scope for transfer pricing abuse here, at least in the way things were structured in 1996, not in 2015, but as their auditors say, the effect on results would be immaterial. We already covered why this would be implausible in previous posts (what would be the point of making Emirates more profitable at the expense of dnata, from the perspective of the 100% owner of both companies? A marginal reduction on interest rates?)

- 1997 accounts with similar revenue and profit margins (111 million AED on 3.2 billion).

So, given that these accounts were not publicly available at the time and have allegedly been difficult to obtain, and that they show profits: is the allegation now that EK management at the time were still producing fraudulent accounts to present to their owners? That makes absolutely no sense!

Either these are accurate and true representations of the company and EK is making a report to its owner - and at the time, no one else - or the allegation is that EK has been defrauding its owners and lenders for 20 years. Really?

- in an annex to the report, it shows performance from 1993-1997:
low seat factors: 66.9-71.1 and correspondingly low profits:
1993: 11 million AED on 1.8 billion revenue (0.60% margin)
1997: 112 million AED on 3.292 billion revenue (3.4% margin).

And that's it.

It is telling that in the 2 page executive summary that the paper has only this to say about Emirates:

They are quoting themselves in a previous (as we have analysed here) puff piece! Hardly compelling evidence.

It would be interesting if the derivatives counterparties to the hedge allegation involved would be willing to divulge terms.

Come on now - I expect this line of propaganda/argument to be made by lobbying groups, but it is unfortunate that it gets a hook in the public consciousness:

The gist of what you are saying is: we couldn't find any evidence, but this lack of evidence makes it more certain that they (EK) are up to fraudulent behaviour.

This is quite unfair and smacks of the idea that one has already made up one's mind about the issue and no amount of information, illustration of analyses or different perspectives will change one's mind. Which raises the question of why bother sparking the discussion in the first place, unless there is some other motive.

That is not really a way to create a rigorous argument and why Flyertalk (and this thread specifically) balk at that line of thought, is because this forum seems to be made up of rather disinterested readers and contributors who need to be moved with evidence, not looking for cherry-picked facts to support a presupposed thesis - as many of us here say, none of us have any skin in the game, or money on the line, so what would be the point of having a conclusion already set before coming here and not willing to be open to other information?

The allegation that Emirates (and an insinuation that the entire emirate) is a "shell game" where you can allocate costs anywhere you want - how does this even work, given the fact that in the end, someone has to pay all this, and the emirate itself runs at a deficit and have minimal revenue compared to its neighbours.

What the deeper allegation here is that the entire company and to some extent the government are running a sustained fraud. Where is the evidence for this, considering that the evidence that points to this theory being plausible is rather lacking. The absence of evidence is not a valid answer here, clearly...!

Let's take Emirates though - the allegation is that it has hidden costs, funded by its owners. We have annual reports showing profits, so the question is: where do you transfer the costs to?

How do you transfer the costs out, considering that many of its costs occur in foreign countries?

You can't possibly be saying that Emirates has to incur the costs of airport construction - BA would be rather unhappy considering LHR T5 cost 4.5 billion GBP and that terminal is just for them - or perhaps Emirates doesn't pay for airport charges. At all. Anywhere. But then Dubai Airports and dnata don't handle all the destinations, so that doesn't really hold water anyway.

Fuel costs? But fuel is bought on the open market at half the destinations they run to from publicly traded companies. Dubai can't offer any of them any cheap oil exploration licences because it hasn't got any. So where's the incentive for oil traders and oil majors to give them below market price fuel?

And even then, if all the points where there are possible fraudulent cost leakages are patched up and normalised based on publicly traded network carriers, the cost base for EK is still 21% lower than legacies. So they can still make money on lower fares. http://centreforaviation.com/analysi...king-it-147262

I just don't think it's plausible to orchestrate a sustained campaign of fraud - given that EK publishes accounts publicly and has foreign debt - that would have to encompass so many players, both in the UAE and abroad, for so little return. It is much more plausible and is backed up by independent statistics and manufacturing statistics and price data for fuel and passengers, that actually these big wide-bodies are more cash-flow sustainable than at first glance, and that the rather narrow band of variables that let these big planes be profitable at long haul or ultra-long haul routes are satisfied for Emirates: massive source markets, very high load factors, premium yield for parts of the aircraft, low unit costs.

As others have said before, the only route that you could conceivably regularly put an A380 on in the US which would take advantage of peak A380 fuel efficiency would be LAX-NYC (4000km), but the capacity discipline and frequency argument wins out there in terms of lower risk profits - and no one has the money to rock the boat and go up against the majors. Yet. The market is just not big enough, compared to EK's source market reach.

DYKWIA

Do you realise how silly this sounds?

No matter what is put before you, nothing will change your mind. So why do you keep bothering with this thread?