Is a Global Aviation Trade War About to Break Out?

The EU’s emissions trading scheme could trigger a full scale global aviation trade war within weeks. A total of 30 countries which signed the Moscow Joint Declaration in February – including Russia, India, and the US – have threatened to retaliate. But China has upped the stakes by warning that it is prepared to impound European aircraft, if the EU punishes Chinese airlines for non-compliance, according to Reuters.

China says it wants to avoid a trade war. But as Chinese airlines only have until mid-June to submit carbon emissions data – having failed to meet a March 31 deadline – a trade war looks certain, unless the EU Commissioner for Climate Action, Connie Hedegaard, backs down and agrees to negotiate a global agreement.

European airlines could face the closure of Russian, Indian, and even US airspace. This would probably force European airlines to close most of their routes to Asia – or incur considerable extra cost diverting flights. Less drastic measures include imposing levies on EU carriers using the airports of the Moscow declaration signatories.

A trade war would come at the worst possible time for the European airline industry, as the euro-zone crisis comes to a head. Already under threat from punitive taxes and rising airport and air navigation charges, many airlines were already expected to go bust this year – as Spanair and Malev have already done.

European airlines could lose $1.1 billion this year, says the International Air Transport Association, which had forecast $600 million of losses only three months ago. But unless the EU reigns in the fanatical Hedegaard, it’s not far fetched to imagine that the whole sector could be wiped out.