Focus on the Middle East

By PrivatAir

Last year was certainly an interesting year for the aviation industry. Record crude oil prices of $147 a barrel, stock market crashes, reduced lending facilities and plummeting passenger demand due to the global financial crisis, led to many airlines reducing capacity, cutting routes, laying off staff and, in the case of more than 30 airlines, going bankrupt and ceasing operations.

For private aviation too, the past year or so has presented its own set of challenges. In some regions of the world, particularly the traditional industry strongholds of the U.S. and Western Europe, customer demand has weakened as the 'credit crunch' has made its impact on all echelons of society. At the same time, for many other people, chartering an aircraft has proven to be a huge asset at a time when large numbers of airlines are reducing their services and making passenger travel much more inconvenient and time-consuming.     

One region that continues to buck the ill-effects ailing some of the rest of the world's aviation industry is the Middle East. Since the turn of the century, on the back of rising oil prices, urban development and double-digit GDP growth rates, the Gulf has witnessed one of the most phenomenal economic expansions in recent history. Alongside this, the region has developed an insatiable appetite for private air travel, which is yet to show any signs of diminishing. In fact, market predictions suggest that the Gulf's current fleet of approximately 380 aircraft could rise to almost 900 during the next five years.  So, does that mean that the private aviation industry in the Middle East will be immune to the economic crisis?

Without a doubt, when the rest of the world was struggling against last year's record-breaking oil prices and now faces a downturn in passenger numbers, it must be reassuring to know that you control a majority of the world's oil supply and have billions of dollars in oil revenues sat in government reserves. However, this is by no means the end of the story.

Dubai, for example, has built its success not on oil, but on the financial, business, leisure and tourism sectors instead - all highly susceptible industries to changes in the global economy. And, although, the city's crane-speckled skyline, notorious traffic jams and busy airport terminals do not suggest a recession is just around the corner, its dependence on international trade and inward investment makes Dubai more vulnerable than many of its oil-rich neighbours.

If recent events are anything to go by, then the aviation industry certainly believes that the region will continue its impressive growth. According to a survey conducted by Terrapin earlier this year, amongst more than 400 top aviation executives from around the world, 90 per cent of respondents remained upbeat about the future of the Middle East aviation industry. Fifty per cent stated that the main reason for this is the high level of government support, followed by the region's geographic location (43.5 per cent), the strength of regional economies (35.5 per cent) and consumer purchasing power (37 per cent).

Likewise, last year's Middle East Business Aviation show, which took place in November in Dubai, indicated the same depth of sentiment. The event was three times bigger than the previous years, with visitor numbers reaching 5,500 and business deals totalling US$1.5 billion. With a vast majority of the aircraft sales at the top end of the market, the show highlighted the importance of the Gulf region to the wider global industry.

The UK-based premium online market intelligence service, ACAS, believes that the next few years will herald further scope for such large transactions, as the process of aircraft replacement intensifies across the Gulf. Some parts of the region continue to rely on ageing fleets for corporate and private transportation and this is likely to change over the next few years. At the current time, Iraq, Iran and Syria have the oldest fleets with an average age of 30 years, 28 years and 27 years old respectively.

Moreover, in January this year, the government of the UAE moved to ban all Russian-built An-12 aircraft from its skies after an incident occurred at Sharjah airport in January. In November, another An-12 plane crashed in Iraq killing seven people. These incidents have thrown the issue of older, less reliable aircraft into the spotlight across the region and are likely to have a significant impact on some of the Gulf's charter and freight operators which rely on ageing fleets.

In the current jet market, Saudi Arabia is the biggest user of business jets, with 113 in total. The UAE is second with a total of 76 jets, and Bahrain and Iran both have 18. It is these figures - and their potential for growth - that are arousing interest in the region from business aviation manufacturers and associated industry services. 

The majority of the region's aircraft falls into the category of large business jets and airliners. Most of the world's Boeing Business Jets are stationed in the Middle East, Airbus ACJs are increasing in number year-on-year, and Gulfstream G450 and GV/550 aircraft also hold a considerable market stake.

As such, these manufacturers have invested heavily in the Gulf over the past year or so. Airbus, for example, which claims more than 50 per cent of the market share in the Middle East, has recently set up a materials and logistics centre in Dubai, in addition to its local training, technical support, customer relations and sales and marketing activities, demonstrating its ongoing confidence in the region's growth potential.  

Likewise, other Western companies have continued to flock to the region to service the ever-growing industry demand. Britain's Avisa Aviation Safety Systems has recently teamed up with Al Jaber Aviation to provide Gulf-based companies access to safety training and certification support. Likewise, Australia's Hawker Pacific Group has opened an avionics maintenance centre in Dubai - its first such base in the region.

It really comes as no surprise that the private jet industry is thriving in the Gulf. During the last decade, governments in the region have invested heavily to create one of the most efficient business aviation infrastructures in the world. Private terminals have sprung up in most of the major centres, and increasingly liberalised open skies policies have made the region very attractive to operators. The Gulf's geographical location also provides a well-positioned, one-stop connectivity gateway to North America, Europe, Africa and the Asia-Pacific region. Within the region itself, there has also been a significant short-haul travel boom, driven predominantly by the growing pace of liberalisation amongst the Gulf States, mounting business opportunities in new industry sectors, and rising affluence.

New investments in the region are set to provide a further boost to the industry. The development of new, state-of-the-art private jet facilities, touted to rival the likes of those at Paris' Le Bourget Airport and Teterboro in New York, will ensure that the Middle East continues to play an increasingly significant role in the global market.

Firstly, thanks to a US$56 million investment by the Abu Dhabi Airports Company, the former military airbase of Al Bateen, just 10km from the UAE's capital, will be converted into a dedicated, full-service business jet airport, offering VVIP and VIP passenger terminals, airport services, maintenance, repair and overhaul, fuel, handling and all other fixed-base operational services. Its 3,200 metre runway will accommodate aircraft ranging from smaller corporate jets to Boeing Business Jets (BBJs).

Just down the road too, in Jebel Ali, close to Dubai, the massive Dubai World Central is also under construction. A central part of this new urban land development is a brand new airport - set to be the largest in the world (by land size) by the time it's fully completed and operational in 2017. The first flight from the airport is due to take off by the end of 2009 from the first of the airport's six planned runways.

According to His Highness Sheikh Ahmed Saeed Al Maktoum, Chairman of Dubai City of Aviation Corporation - Dubai World Central, the Middle East business aviation market is expected to reach $800 million by 2012*. As such, the new airport will have a dedicated executive terminal. Due for completion later this year, this new terminal will have an eventual capacity of 100,000 private flights a year.

At present, it is clear that the UAE and Saudi Arabia remain at the forefront of business aviation in the Middle East, but other states are catching up - and fast. In April last year, the region's largest private aviation terminal opened at Kuwait's main airport. The 10,000m² facility includes boutiques, a restaurant and several lounges. Increasing Kuwaiti oil revenues have led to the country's elite to look abroad for investment opportunities and this has spurred on the development of the country's burgeoning business aviation industry.

Beirut too, which has been a popular regional leisure destination for many years, has recently unveiled a new private aviation hangar at Rafic Hariri International airport, and Egypt is now heavily marketing itself as a key aviation hub, connecting North Africa with Europe and the rest of the world.

Overall, the outlook for Middle East business aviation looks upbeat. However, as with all global industries, there are some elements that cannot remain altogether unscathed by the effects of the economic crisis. Most notable of these is the inevitable impact, caused by the closure of corporate flight departments and aircraft cancellations and deferrals, on the worldwide used-aircraft market.

The recent 'boom' years of aviation have created a backlog of aircraft which the manufacturers assumed would see them easily through any tough times. However, the announcements of cancellations and scheduled delivery-date deferrals over the past few months though have cast a shadow over the market. At the Middle East Business Aviation show in November, the UBS Business Jet Update noted that of the inventory of 2,564 used business aircraft, 176 were actually new aircraft delivery positions, pointing out that the fast-growing used-aircraft inventory would be likely to freeze new aircraft orders even as the current backlog is shrinking.

The inventory for the following month was no more hopeful, stating a 19 per cent increase in the number of new aircraft delivery positions - five times higher than that for the same period the year before. Most worrying of all though was the report's observation that the recent surge of delivery-slot listings reflects a combination of reduced customer demand and difficult financing conditions. As a result, asset prices for aircraft have plummeted across the world, including in the Middle East.

In addition, the region's heavy reliance on oil wealth may well have some bearing on customer demand moving forward. At the time of going to press, the oil price was hovering at just over US $40 a barrel, and there is speculation that if the price remains so low, regional economies could well be hit hard by the depleted value of one of their biggest assets.

"It remains to be seen exactly what the future holds for the business aviation industry in the Middle East, but the outlook remains very positive," says Greg Thomas, CEO at PrivatAir, which has over 30 years of experience in chartering aircraft in the region. "The momentum that has built up in the sector over recent years has established business aviation as an integral part of doing business here, and this will be hard to stop - whatever bearing the economic crisis has on the region and further afield. Indeed, in light of recent airline cutbacks, the benefits of private aviation - speed, efficiency and discretion - have been brought even closer to the fore, not just in the Middle East, but throughout the world."

* MEBAR Middle East Business Aviation Review, 2008.

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