Dubai Inc.

Dubai, established in the early 19th century, is one of the seven emirates that form the United Arab Emirates.

Despite being along the eastern edge of the Arabian Peninsula, Dubai is located halfway between the financial capitals of London and Singapore, giving it access to a vast number of people within a short distance. [1] Due to its business environment, Dubai has become an attractive hub for multinational corporations helping it transform from a pit of sand along the Persian Gulf into the Singapore of the Middle East.

The start of "Dubai Inc." dates back as early as 1985 when the Prince, having had his flight canceled at the last minute, called Maurice Flanagan demanding to know how much it would cost to start up his own airline. "Ten million dollars," replied the Brit. The first plane took off in the same year, and the airline Emirates now has a fleet of over 230 aircraft, flies to over 140 destinations in 80 countries, and has over 1500 planes departing from Dubai Airport every day earning it the 5th spot on the list of the world's best airlines. [3]

The prince behind this movement was one of the most – if not the most – influential visionaries behind the formation of Dubai's portfolio. Mohammed bin Rashid Al Maktoum, known by his people as "The Boss", assumed practical control of Dubai in 1995. (Aside from Emirates, Sheik Mohammed has refashioned Dubai by increasing tourism, finance, and media related businesses along with Sultan Ahmed Bin Sulayem who was placed in charge of Dubai Ports (DP) and Mohammed Al Gergawi, who took over Dubai Holding. The three individuals worked hand in hand for the transformation of Dubai.

Dubai oversees a vast portfolio of local and state-owned companies with some of the biggest organizations including Dubai World, Dubai Holding, and the Investment Corporation of Dubai (ICD).

Dubai World

Dubai World is a global holding company centered on strategic growth in areas such as transport and logistics; urban development; dry-dock and maritime; and investment and financial services.

Dubai World therefore is the parent company of several subsidiaries that include:

Dubai Drydocks is the Middle East's largest shipyard facility [1].

Problems and controversies

Anticompetitive practices allegations

In 2015, the Partnership for Open and Fair Skies, a coalition of the three largest US airlines—Delta Air Lines, United Airlines and American Airlines—alleged that Dubai's airline, Emirates, along with Qatar Airways and Etihad Airways, has received billions of dollars' worth of government subsidies to compete in the growing airline industry. In terms of Emirates specifically, the Partnership alleged that "coordination between Emirates and its government owner, the Emirate of Dubai, is particularly brazen."

US airlines' argument

The ownership of Emirates by the Dubai government, and the government's corresponding policies and activities, allows Emirates to operate in pursuit of its government's own economic objectives, rather than by market forces like other commercial airlines.

A smaller example of this subsidy can be demonstrated through the recent TV commercial featuring Jennifer Aniston. This commercial, costing an estimated $20 million, depicts Jennifer attempting to locate the shower on a generic U.S. airlines flight. The three flight attendants laugh and tell her there are no showers on board. The scene cuts to Jennifer waking on the Emirates A380, describing her “nightmare” to the bartender while sipping a martini.

American brands like American Airlines, Delta Air Lines, and United Airlines must be careful with money since they can't use taxpayer money similar to the European carriers. The multimillion dollar ad was only the tip of the iceberg when it comes to the amount of subsidies Emirates is receiving from the government: “If you're Emirates, based in Dubai, you can install showers, butlers, and bars on your A380s because your government owners deliver wheelbarrows of subsidy cash”. Whereas U.S. airlines, or their European counterparts, must take costs into consideration and spend prudently as they themselves do not have access to state treasuries. Emirates has spent over $11 billion in the purchase of goods and services, $2.4 billion from the government's assumption of fuel hedging losses, and $2.3 billion from subsidized airport infrastructure. This mass subsidizing creates an increasingly tilted playing field for which airlines cannot compete. Not to mention, it violates the provisions of the two “Open Skies” agreements, which allowed the UAE open access to the U.S. aviation market in exchange for fair competition. This results in not only the violation of the agreement, but also harms American jobs.

Emirates' response

Emirates has since responded to allegations of subsidies and unfair competition, claiming that the allegations of these three airlines are incorrect and accusing them of having "launched an aggressive lobbying campaign in January, in a protectionist bid to restrict consumer choice, and restrict the growth of international flights to the USA operated by Emirates and other Gulf airlines." Emirates denies that it has received subsidies, and the president of the airline Tim Clark stresses that the company has "been profitable for 27 years straight". Therefore, all subsequent growth has been sourced from the company's own cash flow. Emirates says it's successful because of better business practices and a model that uses geography and long flights. Emirates estimates that the total amount of government investment since its foundation has been $218 million, an amount that pales in comparison to the $6 billion accusation made by the US airlines. This amount is also negligible for a business that earned $23.6 billion in revenue last year, and Emirates claims that the initial investment has been repaid many times over through dividends.

Furthermore, Clark argues that the US airlines have built their argument on the wrong legal standards, stating that the World Trade Organization's anti-subsidy rules are not applicable to international aviation, nor are they incorporated in US Open Skies agreements, making their claims fundamentally wrong. Clark argues that the US has "framed their complaint in terms of their own narrow interests" adding that their Open Skies agreements are favoured only when they "work to their financial advantage".