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Saturday, June 26, 2010

Emirates, which had already ordered 58 of the world's largest passenger plane, wants Berlin to grant it greater access to the huge German aviation market. Lufthansa argues that its home market of 80 million people shouldn't be thrown open to a carrier from one of the United Arab Emirates. Dubai has a population of roughly 3.5 million people. Carriers from the UAE may now serve at most four German cities.

Lufthansa has effectively lobbied Berlin not to raise the limit, so Emirates is playing a new card: jobs. Emirates is one of Airbus's biggest customers. Its new total of 90 A380s on order accounts for almost 40% of the 234 orders Airbus has signed for its two-deck plane.

The fight between Emirates and Lufthansa pits service jobs against manufacturing employment and shows how hard it can be to define markets in a global economy.

Airbus, a unit of European Aeronautic Defence & Space Co., says that the A380 program in Germany supports more than 30 suppliers and creates 40,000 jobs directly and indirectly. Each Emirates A380 generates €20 million ($24 million) in work for German suppliers, an Airbus spokesman said. He declined to comment on the spat between its customers.

Lufthansa says it supports far more German employment than Emirates does.

"It's up to the government to decide whether they want to create jobs here or export them," said Lufthansa Chief Executive Wolfgang Mayrhuber.

Andrew Parker, Emirates senior vice president for international affairs, said the airline chose to announce its order at the Berlin Air Show "to illustrate pretty powerfully that we're a big part of Airbus's future."

German Chancellor Angela Merkel on Tuesday visited the air show, where A380s of both Emirates and Lufthansa were on display. Ms. Merkel posed holding a Lufthansa A380 model with Mr. Mayrhuber and later attended the Emirates' contract-signing ceremony. She didn't comment on the carriers' dispute.

A spokesman for Germany's federal transport ministry said the government has no plans to allow Emirates to fly to more than four cities.

Emirates' rivals say it unfairly benefits from government support that has allowed it to grow far larger than its home market would allow by poaching foreign traffic. Officials at the fast-growing airline deny the charge.

Emirates is owned by the government of Dubai, which also owns the emirate's airports. The ruling family has developed its aviation policies to promote Dubai as a global hub connecting far-flung markets. It allows almost any airline to land at its airport, which charges low fees. Dubai has no income tax or corporate tax. The low costs help Emirates against rivals in higher-cost markets.

Emirates, established in 1985, has expanded quickly over the past decade with giant orders from Airbus and U.S. rival Boeing Co. In addition to the A380 orders placed Tuesday, Emirates has 143 aircraft on order, with a catalog value of $48 billion, although large customers such as Emirates generally receive large discounts.
Emirates officials say they haven't faced trouble funding their operations amid Dubai's recent financial woes. The largest carrier in the Middle East, Emirates last month posted a fivefold rise in full-year net profit to 3.5 billion United Arab Emirates dirhams ($953 million) and said it expects double-digit growth to continue this year.

A large part of Emirates' growth has come as global aviation liberalized in recent years. Germany and the European Union have deregulated air travel with many foreign markets, but have kept some longstanding restrictions in place.

"We are more liberal than many European countries," Mr. Mayrhuber said. Lufthansa officials say restrictions on flights from the UAE should remain because the markets are so different in size.

Mr. Parker at Emirates said a more valid comparison is the rivals' regional markets. "Lufthansa is a European carrier, and there are 400 million people in Europe," he said. "We're a Middle Eastern carrier, and there are 200 million people in the Middle East."

The fight in Germany is mirrored in Canada. That country has moved to deregulate aviation with many big markets, including the U.S. and Japan. It last year signed an aviation treaty with the EU that is one of the world's most liberal. But Air Canada has lobbied to keep limits on Emirates.

"The current rights more than satisfy demand for point-to-point traffic between Canada and Dubai, and that is the test," said Air Canada Chief Executive Calin Rovinescu.

"The fact that they've purchased all these A380s and have all this capacity means they're basically manufacturing seats in massive quantities," Mr. Rovinescu said. "In any other industry, this would be considered dumping."

Aviation isn't covered by World Trade Organization rules, so ordinary dumping criteria don't apply.

Mr. Parker at Emirates said the opposition from Air Canada and Lufthansa is a result of outdated thinking about airline markets. "It's predictable that the same-old, same-old is bandied about by legacy carriers. We just get on with it," he said.

Separately, Airbus said Brazilian carrier TAM S/A had ordered 20 A320 model planes and five A350s, with a catalog value of $2.9 billion.

—Patrick McGroarty, Kirsten Bienk and Stefania Bianchi contributed to this article.

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