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The Abu Dhabi government last year injected $2.5 billion into Etihad Airways, new funding that critics say proves the Persian Gulf carrier is unfairly subsidized by the state in violation of air treaties with the U.S. government.

The previously-undisclosed cash injection is detailed in state-owned Etihad's financial statements, which were made public on Monday by the Partnership for Open & Fair Skies, a lobby group led by the three biggest U.S. airlines.

The group, which includes several labor unions and U.S. carriers American Airlines Group Inc., United Continental Holdings Inc. and Delta Air Lines Inc., is pushing the U.S. government to limit the rapid growth of Etihad and its regional peers, Dubai's Emirates Airline and Doha-based Qatar Airways.

Etihad reported a net profit of $73 million last year on revenues of $5.86 billion, according to the airline's financial statements, which are audited by KPMG LLP. Earnings were boosted by a one-off sale of a subsidiary to another part of the group for $700 million.

"Etihad's own financials prove that it is not a commercially viable enterprise and owes its continued existence to massive government subsidies from the United Arab Emirates," said Jill Zuckman, chief spokesperson for the Partnership for Open & Fair Skies.

A spokesperson for Etihad said the airline had never hid receiving equity capital and loans from the Abu Dhabi government.

"That is completely normal for any business which has significant long-term capital commitments, for example for aircraft deposits," the spokesperson said. "These issues have all been addressed in our submission to the U.S. government."

The group submitted Etihad's financial statements as part of its latest legal submission to the U.S. government as part of its effort to prove the Gulf carriers harm U.S. airlines' operations.

Etihad's documents were filed by the airline to a corporate registry in Hong Kong last month and were obtained and verified by The Wall Street Journal.

The big three U.S. passenger carriers in January asked the U.S. government to renegotiate air treaties with Qatar and the United Arab Emirates, where Emirates and Etihad are based.

They allege the three state-owned Gulf airlines have received more than $40 billion in government subsidies since 2004 that allow the carriers to unfairly compete in the aviation market.

The U.S. Transportation, State and Commerce departments said they would review the allegations and opened regulatory dockets where any party could file information and lobby for either side.

Emirates, Etihad and Qatar have dismissed the U.S. carriers' claims, denied they are unfairly subsidized and filed rebuttals on the U.S. dockets.

FedEx Corp.'s FedEx Express delivery unit, Atlas Air Worldwide Holdings Inc., JetBlue Airways Corp. and Hawaiian Holdings Inc.'s Hawaiian Airlines have also said they oppose the big three U.S. carriers' submissions to the U.S. government.

The Abu Dhabi government's latest capital injection came as Etihad invested hundreds of millions of dollars investing in other carriers around the world, according to the airline's financial statements.

It wasn't immediately clear how the latest government funds were used, and Etihad declined to comment.

Etihad has minority equity stakes in eight airlines, and supports the carriers through investment in their loyalty programs, bonds and operations. It paid $543 million for a 49% stake in Italy's Alitalia and bought perpetual bonds worth $399 million issued by Germany's Air Berlin PLC. It also spent $150 million on a 50% interest in Jet Airways (India) Ltd.'s loyalty program.

The strategy has helped the airline, the smallest of the three Persian Gulf carriers, to achieve scale globally in markets where aviation rights are restricted or the carrier has faced fierce competition, particularly from its regional peers seeking to funnel traffic through their hubs.

The U.S. government has negotiated 117 "open skies" treaties with countries since 1992, allowing airlines from both sides to access any airport in both countries.

Write to Rory Jones at rory.jones@wsj.com

Subscribe to WSJ: http://online.wsj.com?mod=djnwires

(END) Dow Jones Newswires

August 24, 2015 18:55 ET (22:55 GMT)

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