Middle East’s Bizav Gold Rush Replaced by Long-haul Growth

 - January 3, 2012, 1:05 AM

Business aviation in the Middle East is expected to keep growing at a faster rate than that seen in North America and Europe, but slower than the more dynamic expansion now being seen in the emerging markets of Asia. This is the broad consensus among manufacturers and service providers for a region that is now emerging from a somewhat unsettled two-year period that has seen some fall-out from wider economic problems and the so-called Arab Spring political unrest.

According to Bombardier’s most recent market forecast, the Middle East will receive 1,175 new business jets between 2011 and 2030, with 410 to be delivered through 2020 and a further 765 between 2021 and 2030. This represents a compound annual growth rate of 7 percent–less than half the 18-percent increase that was achieved in the market between 2004 and 2010.

Honeywell’s latest Business Aviation Outlook, published in October 2011, also reveals signs that the Middle East market is maturing, with purchase expectations for the next five years down on record projections in 2009. Lowered fleet replacement rates are the main reason that expectations for Middle East have lost some momentum compared with the nearby Asian market.

The local bizav market is now at a crucial stage of development, according to Middle East Business Aviation Association chairman Ali Al Naqbi. Its value will reach $1 billion by 2018, he said at a recent seminar in Dubai.

The Middle East has been a happy hunting ground for Airbus, accounting for approximately half of all Airbus Corporate Jet sales and deliveries, partly due to a strong local preference for larger aircraft. “Initially we were dealing with a lot of government customers, but now we see more private clients stepping up,” said ACJ vice president François Chazelle. In his view, the European manufacturer’s ACJ318 has especially strong prospects in the region since it has no direct counterpart in the rival Boeing Business Jets camp and it competes well with more traditional corporate aircraft.

Gama Aviation’s subsidiary in the United Arab Emirates recently introduced a 14-passenger ACJ318 to its management fleet. This is based in Sharjah and is operated on behalf of its private owner.

Another new ACJ operator in the region is Rizon Jet, headquartered in Doha, Qatar. It is preparing to start operating an ACJ319 for its owner from 2013.

Meanwhile, Jet Aviation’s Dubai operation recently took delivery of an ACJ318 as part of its managed fleet. And in October, Aviation Link announced that it is to manage a pair of ACJ319s on behalf of clients from its base in Jeddah, Saudi Arabia. The Royal Air Force of Oman is another local ACJ operator.

“There was a lot of private aviation activity during the recent [Arab Spring] events, especially in the more stable areas,” added Chazelle. “Once the revolutions are over and the dust settles we expect to see new governments wanting to increase their international exposure, and aircraft will be a key tool for this. For instance, there is still huge potential in Egypt, once the situation is more stable there. It is a large country with concentrated wealth.”

Airbus also have several widebody A330s and A340s being outfitted for VIP use in the Middle East. Meanwhile, Chazelle confirmed that Saudi Arabia’s Prince Alwaleed bin Talal is anticipating delivery of the world’s first VIP A380, although still to be resolved is which company will be entrusted with the king-sized completions project.

At November’s Dubai Air Show, Dassault acknowledged that the fallout from the so-called Arab Spring political upheaval did, at least for a while, adversely impact business aircraft sales in the Middle East. However, according to Renaud Cloatre, the company’s Dubai-based sales director for the region, there has been “strong activity” since the end of Ramadan in August.

The situation for charter demand has been quite different. “Demand was accelerated and made more complex by the Arab Spring,” Cloatre told AIN. This trend has bolstered morale among the Falcon sales force, with Cloatre insisting that the Middle East remains a “strategic and promising area despite the financial crisis.”

In fact, the local market today accounts for 7 to 10 percent of Dassault’s business jet sales. “It is a mature market and most sales are from customers replacing older aircraft,” Cloatre said. The most important customer bases are now Saudi Arabia, the United Arab Emirates (UAE) and Oman. This is a big difference from two years ago, as Oman seems to have replaced Egypt in the top-three business aviation markets. A total of 60 Falcons are in service in the Middle East, up from 50 in 2009.

A fourth Falcon 7X has just been delivered to Saudi Private Aviation, a subsidiary of Saudi Arabian Airlines. The first three aircraft are already logging about twice the annual rate for the global charter fleet. Trickier, however, is the situation with Saudi operator National Air Services, which operates two Falcon 2000LXs. But the firm order it placed in 2007 for four aircraft (including the aforementioned two) and 20 options is still being “renegotiated.

From the perspective of Bombardier, the Middle East hasn’t been untouched by recent troubling economic times, but it still shows plenty of promise. “It seems to have been the last market affected by the downturn and the first market to start to regain some traction,” Bob Horner, senior sales vice president, told AIN.

The Canadian airframer’s larger jets have long proved popular in the Middle East, but in recent years it has seen growing demand for the more modest Learjets as the customer base has diversified with a more active charter fleet exemplified by Bombardier customer Qatar Executive, which has been spreading its wings in adjoining markets such as Russia.

As part of an ongoing expansion of its sales team in the region, Bombardier has just added another person and opened a new office in Dubai, from where its regional vice president runs local operations. The airframer has one of the more prominent business aircraft maintenance facilities in the shape of the ExecuJet Aviation operation, also in Dubai.

Rival Gulfstream has seen continuing growth in the more stable areas of the Middle East–for the most part in the Arabian Gulf states–albeit at a slower pace than four or five years ago. “The shift has been most noticeable in terms of who is operating the aircraft,” said Tarek Ragheb, senior regional vice president for sales for Europe, Africa and the Middle East. “At one time the aircraft were being operated mainly by royalty and other high-net-worth individuals, but more and more we are seeing them operated as business tools, as they are in the West.”

Like Bombardier, Gulfstream has seen demand expand beyond its larger models (the G550 and G450), with the midsize G200 and G150 gaining ground in the charter sector, with operators such as Gainjet and Falcon Aviation.

The expansion of Gulfstream’s product-support network in the Middle East has been channeled in large part through its General Dynamics sister company, Jet Aviation, which has bases in Dubai, Riyadh, Jeddah and Abu Dhabi’s new Al Bateen Executive Airport.

Sean McGeough, the Hawker Beechcraft president for Europe, the Middle East and Africa, also has seen a marked shift in the region’s bizav demographics–a move that he says has favored the U.S. manufacturer. “Ten years ago, this was very much a big aircraft market, although we did have success with the Hawker 800 and 900 lines, but in the past five years it has changed and we have seen more demand right across the Hawker and Beechcraft product lines,” he told AIN.

According to McGeough, security concerns triggered by the continuing Arab Spring political uprisings have spurred interest in private aviation, but also in other applications for business aircraft such as medical evacuation and aerial surveillance. By contrast, the corporate side market did slow down after 2008 and is only now seeing renewed signs of life, according to Hawker Beechcraft, for which the Middle East accounted for 22 percent of all aircraft deliveries over the past five years. It reported that for 2011 business aircraft movements in the region are up approximately 9 percent on 2010.

Once promising national markets, such as Egypt, are now viewed as being “on hold” due to continuing political turmoil. But others in the region, such as Lebanon, continue to thrive as Hawker territory and McGeough sees expanding prospects in the region for the new Hawker 4000 flagship.

Hawker Beechcraft recently strengthened its customer support network in the Middle East by partnering with ExecuJet, and has $10 million worth of parts warehoused in Dubai, where it Beechcraft sales vice president and a technical representative are based. It also has an alliance with Arabasco in Saudi Arabia.