Flying into trouble - Macleans.ca

Flying into trouble

The inside story of Canada’s fight with the United Arab Emirates and how it went so wrong

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Flying into trouble

Using its Airbus A380s, Emirates wants to offer daily flights to Toronto; Rovinescu accuses Emirates of being a foreign predator | Chris Ratcliffe/Bloomberg/Getty Images; Darryl Dyck/CP

In early October, Canada’s armed forces learned they had just one month to pack up and move a key Mideast military base used to support the war in Afghanistan. Located in the United Arab Emirates, Camp Mirage has been used primarily as a transfer point for Canadian Forces flying to and from Kandahar. For the past eight years, it had provided the Forces with a safe place to land and refuel hulking Hercules transport planes while weary soldiers relaxed at a makeshift camp, complete with a ball-hockey rink.

But the desert oasis, a short drive from Dubai’s beaches and air-conditioned shopping malls, ceased to be part of the military’s operations as of Nov. 3, following a high-level spat between Ottawa and the U.A.E. over commercial airline flights between the two countries.

It was an abrupt end to a long-standing strategic relationship between the countries, and it sent the military scrambling. “It’s a pain in the ass for all these guys who are supposed to be doing other things,” says Douglas Bland, the chair of defence management studies at the School of Policy Studies at Queen’s University. “Now they have to stop, pack up and move all of this equipment.” At no small cost: by some estimates $300 million.

So why, exactly, did Canada and the U.A.E. let an argument over business destroy nearly a decade of co-operation in the war against terrorism? Ottawa insiders say Prime Minister Stephen Harper was infuriated by the U.A.E.’s decision to try to use the base as leverage in a trade dispute. But there is also evidence to suggest Air Canada was able to convince cabinet ministers that the U.A.E.’s state-backed airline, Emirates, was a major threat bent on taking over the international market—even though what was really on the table were flights to just a few major Canadian cities.

Like everything in Dubai in recent years, Emirates is the product of the government’s lofty ambitions. The airline’s jaw-dropping growth over the past two decades—it’s in the process of doubling its fleet of nearly 150 aircraft—is closely tied into efforts to make Dubai a global hub for business and tourism. Already Emirates, which flies 14 double-decker Airbus A380s and has another 76 on order, flies to every continent (except Antarctica) with a business model built on frequent flights between big hub airports like London, Frankfurt and New York.

Canada, however, has proved to be a tough nut for Emirates to crack. The airline is currently permitted just three flights a week to Toronto. And despite more than five years of heavy lobbying that won support from consumer groups and even Alberta Premier Ed Stelmach, Transport Canada has consistently rebuffed requests to give Emirates permission to offer four more flights a week to Toronto and launch daily flights to Calgary and Vancouver. “We feel the rights under the current agreement meet the current demand,” says Transport spokesperson Patrick Charette. A spokesman for Transport Minister Chuck Strahl, meanwhile, said Ottawa would monitor air travel between the two countries and make changes as warranted.

It’s not the outcome the U.A.E. had been hoping for. Officials became agitated by the “protectionist” attitude of Canadian bureaucrats earlier this year, according to industry and political sources familiar with the negotiations. So, when Canada’s rent-free lease on Camp Mirage expired in late June, sources say the U.A.E. agreed on an extension providing that Ottawa take a fresh look at the issue. An informal committee was created in July and three Canadian representatives travelled to Dubai the following month for a meeting that apparently went nowhere. “It was terrible,” said one industry source. “They flew all that way and stated that [Canada] had nothing to offer. The U.A.E. was stunned.” Another meeting took place in Paris in September. Canadian representatives brought with them a revised offer, although sources say it was actually viewed by the U.A.E. as being worse than the status quo.

Sources say that House leader John Baird was a key player when it came to setting Ottawa’s tough tone throughout the negotiations. As a former transport minister, he presided over Air Canada’s liquidity crisis in 2009, which ultimately resulted in a $250-million government loan designed to keep the airline in the black. But it was during a meeting U.A.E. officials had with Foreign Affairs Minister Lawrence Cannon in late September in New York when tensions boiled over. “By all accounts it was a horrendous meeting,” says one person familiar with the U.A.E.’s approach to the talks. (Almost no one involved would speak on the record about the high-level discussions.) It was at that point that bilateral relations between the two countries broke down and it became clear there would be no more renewals of the lease on Camp Mirage, leaving the military to relocate operations to Germany and Cyprus. For his part, Cannon told Maclean’s that Canada expects to maintain a “positive” relationship with the U.A.E..

In early October, a C-17 jumbo transport carrying Defence Minister Peter MacKay (who was keen to find a resolution to the dispute), Gen. Walter Natynczyk and Veterans Affairs Minister Jean-Pierre Blackburn was denied the right to land at Camp Mirage on its way back from Afghanistan. The development was followed by rumours that Ottawa had banned cabinet ministers from flying on U.A.E.’s airlines—which government officials later denied—and a decision by the U.A.E. to require Canadians visiting the country to begin carrying visas.

It’s a resounding failure of diplomacy and trade negotiations on both sides. While it’s true, as Transport Canada suggests, that there isn’t a huge demand for travel between Canada and the U.A.E., observers say there is nevertheless a significant number of Canadians who would likely jump at the chance to use Dubai as a way to connect to destinations in the Middle East, Africa and the Indian subcontinent—regions of the world where Emirates operates an extensive network, but Air Canada doesn’t fly to directly.

Air Canada, however, convinced Ottawa that Emirates represents a mortal threat to many of its European routes—particularly from secondary Canadian cities like Ottawa, Halifax and Edmonton, which are padded with passengers who are trying to get to, say, India, but must first fly Air Canada to Frankfurt before connecting on Lufthansa, a Star Alliance partner. “What you would end up having is one or two fewer flights to London or Frankfurt out of Toronto, and no flights to Europe out of Halifax, Ottawa, Edmonton and Calgary,” said an industry insider familiar with Air Canada’s network. Of course, that assumes people in most of those cities would prefer to fly to Toronto to catch a flight on Emirates to Dubai, and then connect a third time to their final destination, as opposed to just making one connection onto Air Canada’s partners in London or Frankfurt.

Regardless, Air Canada CEO Calin Rovinescu commended Ottawa’s “backbone” for standing up to the U.A.E., arguing in a speech last week that Canada should only sign open skies agreements with countries where there is significant two-way travel. “We are not supportive of demolishing our hubs and gateways,” he said. Rovinescu has previously accused Emirates of being a foreign predator that intends to flood the Canadian market with cheap seats in a bid to steal market share, calling it “a state-owned carrier with access to virtually unlimited capital”—a charge Emirates emphatically denies.

Air Canada isn’t the only one complaining. Last month, Pierre-Henri Gourgeon, the CEO of Air France-KLM Group, told Bloomberg that Europe needed to “resist” the encroachment of Emirates and other Gulf carriers. He made the remarks prior to a meeting of the Association of European Airlines, where the heads of British Airways and Lufthansa were expected to discuss the issue further.

Still, industry observers wonder whether there was truly no middle ground between Canada and the U.A.E.. “If things had been left to run their course, I believe the U.A.E. would have come away with some enhanced access,” says Robert Kokonis, a Toronto-based airline consultant. He says the U.A.E.’s mistake was to link the issue of a military base to the dispute, a decision he argues was likely made because Emirates is under pressure to find homes for the huge number of planes that it ordered prior to the global recession. “That’s why they are taking such a bullying approach,” he says, adding that he thinks that Harper was right to take a hard line against such tactics.

But Ottawa is also partly to blame for this mess. One of the reasons Air Canada is fighting tooth and nail to keep Emirates out is because it knows it can’t compete with the Gulf carrier’s low-cost structure, which stems in part from Dubai’s decision to promote the airline industry, not treat it as a cash cow. Canadian airlines, by contrast, are saddled with steep taxes on jet fuel, security fees and an airport rent scheme that has made hubs like Toronto’s Pearson International Airport among the most expensive in the world for airlines to operate in—a criticism levelled by both Air Canada and foreign airlines alike.

What’s also being lost in the debate is what is best for consumers. Ottawa’s protectionist stance risks putting the country out of step with the rest of the world as it rapidly moves toward more open regimes that encourage competition and lower prices, and which has spawned a new generation of airlines that are eager to shake up the industry. “The world has changed,” says Andrew Parker, Emirates’ senior vice-president of public, government, and environment affairs. “It’s 1950s-era thinking that looking after a country’s flag carrier is in the national interest.” And it comes with a 21st century price tag, as our armed forces have just learned the hard way.