Last updated: 04:44 PM ET, Fri May 15 2015

Is There A Difference Between Subsidy and Equity?

Airlines & Airports | Rich Thomaselli | May 15, 2015

Is There A Difference Between Subsidy and Equity?

Image courtesy of Thinkstock

As U.S. congressmen call on the Obama administration to step up the efforts to re-examine the Open Skies Agreement with Qatar and the United Arab Emirates, a dilemma has occurred in the wake of comments by Qatar Airlines CEO Akbar Al Baker.

Is there a difference between subsidy and equity?

While the big three U.S. airlines of American, Delta and United allege that the three major Persian Gulf carriers have received government subsidies totaling $42 billion over a 10-year period, Al Baker said Wednesday that is not the case.

“We don’t receive handouts,” Al Baker said. “We don’t receive subsidies. The government is the owner (of the airline) and that is not unique. It’s owned by the state and operates absolutely independently.” 

But in a remark that many have said is a splitting of hairs, Al Baker added, “Qatar Airways is receiving equity. We don’t get this equity on a daily basis.”

According to Investopedia, a subsidy is “a benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy is usually given to remove some type of burden and is often considered to be in the interest of the public.”

Seems simple enough, sort of like subsidized housing, or how he U.S. government subsidizes Amtrak.

Equity is not so simple.

Once again looking to Investopedia, we see that equity is defined as “a stock or any other security representing an ownership interest; on a company's balance sheet, the amount of the funds contributed by the owners (the stockholders) plus the retained earnings (or losses). Also referred to as 'shareholders' equity'; in terms of investment strategies, equity (stocks) is one of the principal asset classes. The other two are fixed-income (bonds) and cash/cash-equivalents. These are used in asset allocation planning to structure a desired risk and return profile for an investor's portfolio.”

Qatar admits it is state-owned but sees a difference between the government subsidizing the airline and the government acting like any other stakeholder and investing equity back into the company.

That will be for the Obama administration to sort out, a decision which should come by the end of the month. However, on Thursday, 19 members of the House Judiciary Committee from both sides of the aisle sent a letter calling on the administration to answer questions about Open Skies no later than May 20.


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