Middle East’s bizav community reports growth is no mirage

 - November 12, 2009, 6:52 PM

Around the time of the last Dubai Airshow in November 2007, the prospect of getting into the Middle East’s burgeoning business aviation market must have seemed like a license to print money. Even though financial storm clouds had already gathered over North America at that point and seemed very likely to cross the Atlantic to Europe, the consensus in this part of the world seemed to be that the business-aviation party had only just started and nothing was going to stop it.

Two years on, it has become clear that the Middle East was not immune to the fallout from the global financial crisis and this has undoubtedly impinged on the region’s extraordinary growth rates. But it has by no means smothered business aviation growth in the region, even though it has resulted in this happening at a more measured pace, according to business aviation companies interviewed ahead of the show by AIN.

Back in January 2008, the Middle East Business Aviation Association (MEBAA) was estimating that the sector would grow by as much as 15 to 20 percent annually, according to the group’s chairman, Ammar Balkar, who also is CEO of Dubai-based charter/management operator Elite Jets (Stand C110). He acknowledged that 2009 subsequently has seen a drop in charter activity of 30 to 40 percent.

“But the economic situation here is not the same as in the U.S. and Europe,” Balkar insisted. “There has not been such a big loss of wealth. What we now see is a period of anticipation, with people waiting to see what will happen in the market. Some are cutting down [on private jet use] and in some cases downsizing [the type of aircraft they charter], but they are not going back to the airlines.”

Despite the adjustment in the fortunes of the Middle East bizav market, Balkar pointed out that it has taken a big leap forward over the past decade. “Back in 1999 there really was only one [business aircraft charter] operator and now there are at least 25,” he said, while adding that some operators have had to slow down their fleet growth plans. “Ten years go, [business aviation] was purely for royal families and VIPs, but despite the growth the market is still not saturated; it is very immature and there is plenty of room for more growth.”

Elite Jets now has six aircraft in its fleet: a Cessna Citation CJ3, Hawker Beechcraft 850XP, Gulfstream G450, Dassault Falcon 900B and a 900DX (the first of its kind in commercial service in the Middle East). The company is due to take delivery of a Falcon 2000 by the end of this year. It is currently flying about 50 hours of charter each month, compared with 75 to 95 each month before the downturn. However, four or five months ago, this figure had fallen to just 35 hours per month, confirming a widespread view that demand has picked up.

MEBAA now has almost 120 members, including several Western companies. According to Balkar, the association has built good relations with civil aviation authorities in the Middle East, starting here in the United Arab Emirates and also doing diplomatic work in states such as Bahrain and Saudi Arabia to make the regulatory environment more user-friendly for business aviation.

Balkar said that infrastructure is improving for business aircraft operators in the Middle East. For example, Abu Dhabi’s Al Bateen Airport has been made available for their exclusive use, plus there is a new business aviation terminal in Kuwait and another is due to be built in Qatar. 

Next year MEBAA will again host the biennial Middle East Business Aviation show here at Dubai Airport Expo (www.meba.aero) from December 7 to 9. Like the Dubai Air Show, this event is organized by Fairs & Exhibitions.

ExecuJet Aviation (Stand E370) has long been established in the Middle East business aviation market, legitimately laying claim to having pioneered sales and support here. So it takes a long-term view of how the market is developing and the challenges it faces.

“The trend in the Middle East is exactly what we have seen in rest of the world,” said ExecuJet Middle East managing director Mike Berry. “Some people have been in denial [about the downturn] and the growth may be delayed. There was a lot of hype about new aircraft sales and deliveries, and this has definitely slowed down.”

At ExecuJet Middle East’s headquarters here at Dubai International Airport, the company has seen the downturn’s impact mainly on its charter activities but also in the reduced number of aircraft movements handled by its purpose-built executive terminal. But Berry believes the company can weather the economic storm because it offers such a diverse array of products and solutions for those wanting to use business aviation.

“A lot of new players have had to reassess their entry into the market, delaying aircraft deliveries in some cases,” said Berry. He predicted some consolidation in the marketplace, hinting that not all new entrants have grasped what is required to get established. “It takes a lot to understand the infrastructure required to set up an operation here,” he added.

In ExecuJet’s view, there are still growth opportunities, most notably in the field of aircraft management where there has been some shakeout among operators getting out of the business. “There are still more people wanting to buy aircraft here, and these aircraft need homes,” Berry said. Having said that, he acknowledged that there has been a slowdown in aircraft sales inquiries, partly because finance companies have made it much harder to get funding by requiring larger downpayments. 

Berry remains convinced that, despite setbacks to the once-stratospheric growth of the local economy, Dubai remains the forerunner in business aviation’s spread within the Middle East. He predicted that the sector will recover quicker here than elsewhere.

“For ExecuJet, this has been a good time to consolidate our operations and improve internal processes, looking again at the customer service proposition,” said Berry. The company has also sought to reduce its costs and has not expanded its workforce as earlier planned. The exception was the appointment last month of Quintin Cairncross as the company’s operations director.

ExecuJet’s maintenance operation in Dubai has long provided support for the complete family of Bombardier business aircraft and it recently extended its capability to cover the Gulfstream G150 and G200. Last year, the base got approval from the European Aviation Safety Agency to support aircraft registered in Europe. The company is now looking to extend its engineering capability to cover other makes of business aircraft and it also wants to be able to support operators in nearby Pakistan.

ExecuJet Middle East’s fleet, which is unchanged from a year ago, consists of 20 various Bombardier models, all of which are operated under management contracts. However, only four of the jets are currently available for charter as a consequence of market conditions. 

“We are hoping that the airshow will create some new interest and that the first quarter of 2010 will show an upturn in the market,” said Berry. He had expected 2009 to see an unrelenting downturn in the business but is no more optimistic about being able to meet sales targets for a financial year that will end on June 30, 2010.

Just 75 miles north of here, in Abu Dhabi, Royal Jet (Chalet A57) has also been dealing with a general deceleration in business aviation market growth but still sees plenty of grounds for longer term optimism. According chief executive Shane O’Hare, the downturn has been less pronounced in Abu Dhabi than in Dubai, which has been more exposed to problems in the property development sector. However, it too has seen the impact of a 30-percent downturn in corporate demand for charter flights. From his perspective, a lot of firms have simply cut back on activity that would require charter flights, while others have downgraded their executives to airline service or they are making greater use of videoconferencing.

“We are still very buoyant at the large [aircraft] end, with demand from governments, heads of state and high-net-worth individuals,” said O’Hare. Ironically, government conferences held worldwide to address the global economic crisis have directly generated charter bookings for Royal Jet. The company is also busy with emergency medical flights and expects to meet its profit and revenue targets for this year.

In June, Royal Jet moved into the Saudi Arabian market through a new alliance with Jeddah-based ground-handling group Arabasco. Royal Jet will be basing one of its five recently refurbished Boeing Business Jets, and later a Gulfstream G300, in Saudi Arabia and will make use of Arabasco’s local aircraft operator’s certificate.

According to O’Hare, the gray market for charter [in which private operators allow their aircraft to be used by third-party customers for payment] has been very prevalent in Saudi Arabia, forcing charter prices down by as much as 40 percent below what commercial operators would have to charge. In his view, the growth of charter in what is potentially a very lucrative market has been further stunted because a virtual monopoly exists there because there are only two commercial operators in Saudi Arabia.

“The government there is keen to open up the market in a measured way,” said O’Hare. “Arabasco is the first operator of its kind but the pace of change is much slower [in Saudi Arabia]. The shift from the gray market will take time and there needs to be a re-education of the market [to understand why genuine commercial operators need to charge more for flights].”

By comparison, the business aviation market in the UAE is maturing quickly, according to O’Hare, but it remains very immature compared with other parts of the world. “There are many new operators coming and going here, and this will continue to happen for the next two to four years and then there will be a consolidation resulting in a smaller number of players,” he predicted.

Royal Jet has opened its own charter brokering division in order to be able to arrange flights for clients when its own aircraft are not available or not suitable for the desired mission. “We have already achieved our year-end goal for this and we deal only with selected operators that we have audited,” said O’Hare.

In addition to the BBJs, Royal Jet’s fleet includes two G300s, a GIV-SP, a Bombardier Learjet 60 and a Challenger 604. The company, which started life as the Abu Dhabi Emiri Flight, had expected to have a fleet of some 20 aircraft by around 2012 or 2013 (including nine widebodies) but the downturn has prompted it to slow its growth plans by around 18 to 24 months.

Over the past year, Royal Jet has been working with brand and service consultancy Performa Global to revamp its customer service benchmark and provide comprehensive training for all staff so they can measure up. One aspect of the program has been the introduction of optional personal chefs who can fly with customers to ensure that their catering requirements are always met precisely. “There is now a very distinct Royal Jet standard of service that has allowed us to more clearly differentiate ourselves in the market,” said O’Hare.

The company is building a new hangar–due to open in summer–at Abu Dhabi International Airport to expand its in-house maintenance capability. It has also committed to start operations at the city’s downtown Al Bateen Airport, which now is dedicated to business aviation traffic. Royal Jet’s FBO at Abu Dhabi is currently handling about 350 movements per month.

Flight planning and support group Jetex Flight Support (Chalet A40) also witnessed a marked dip in activity in the first eight months of 2009, with charter flights down by as much as 30 percent on the previous year. But according to CEO Adel Mardini, aircraft owned by private individuals and companies are still just about as busy as ever.

“This [week’s] airshow will demonstrate that Dubai is still the hub [for Middle East business aviation] and that the industry here will recover and will be stronger than before the crisis,” said Mardini.

In fact, the ambitions of Dubai-based Jetex extend beyond the Middle East. Earlier this year, it opened its first full-service FBO at Paris Le Bourget Airport–one of Europe’s busiest business aviation gateways. Now the company is looking at options to open another FBO in the Far East, with Macao and the Philippines under consideration as venues. “FBOs allow us to deliver service directly to our customers,” said Mardini.

Closer to home, Jetex has an agreement with Dubai Aviation City to develop another FBO at the new Al Maktoum International Airport at Jebel Ali. It would also like to have an FBO in Beirut, Lebanon. The firm also has established a flight-planning and support team in Ukraine with 27 employees dedicated to serving customers in the countries of the Commonwealth of Independent States.

In Mardini’s opinion, business aircraft operations in the Middle East have become more straightforward in recent years, with fewer restrictions on where and how operators can fly. He said the only tangible division between the business aviation industry here and in other parts of the world is that here customers generally want larger aircraft.

Much farther north in Jordan, Ahmad Abu Ghazaleh, general manager of Arab Wings (Stand E744) freely acknowledged that business aviation in the Middle East has felt the chill winds of economic downturn. “It was a very slow start to the year and at times the charter market was almost dead,” he told AIN. “Aircraft purchasers were defaulting on orders they had placed because they could not finance them, and for those that already had aircraft, the charter revenue from them was drying up. To some extent the Middle East has been a more speculative market [for business aircraft] than other regions, and especially in the Gulf.

“A lot of new operators have disappeared and have canceled aircraft orders,” claimed Ghazaleh. “One operator had ordered 12 aircraft and received one [before trying to cancel the order] and is not trying to sell that jet. This is not a market for new, small players.”

But in more recent months the charter market has picked up. Arab Wings has taken the opportunity of time available during the hiatus in demand to invest in improving its systems, establishing dedicated quality and safety standards. The Amman-based operator chooses to adhere to the elevated technical standards of the European Aviation Safety Agency even though it is not required to do so.

Over the past year, the Arab Wings fleet has grown to include four Bombardier Challenger 604s, a 605 and a Learjet 60, as well as a Cessna Citation Sovereign and a CJ1+, and a pair of Hawker Beechcraft 800XPs, a couple of King Air 200 twin turboprops and a Beech 1900.

“This is a good time to expand,” said Ghazaleh. One factor that has worked in company’s favor has been that the downturn has stopped costs from escalating at a frantic pace as they had been in recent boom years. “Salaries were going through the roof,” he said.

Last year, Arab Wings–which is arguably the oldest business aircraft operator in the region, having started back in the 1970s as a division of Royal Jordanian Airlines–opened a new office in Sharjah, here in the UAE. The office was audited by aviation authorities in October and is about to be issued its own aircraft operator’s certificate. This will allow the company to base its Challenger 605 in Sharjah as part of a concerted plan to expand in the Gulf states.

Tough market conditions often present both threats and opportunities and the situation for business aviation in the Middle East is no different. “It really is a double-edged sword,” said Paras Dhamecha, CEO of Dubai-based Empire Aviation (Stand C202). “The charter market has seen a dramatic decrease in demand and has been about 35 to 40 percent down across the board in the region. People are now more conscious of travel budgets. But at the same time the prices of aircraft are depressed, which is creating buying opportunities for those with cash to invest.”

The result for Empire is that it has been busier than expected since last November’s MEBA show in what it thought would be a difficult year. “We are purely an asset manager and we tailor solutions for aircraft owners in any situation,” Dhamecha explained, while adding that it has slowed its projected growth rate.

Empire has been careful to manage the expectations of its managed aircraft clients in terms of possible charter revenues to offset their costs. It always makes it clear to customers that charter income cannot be guaranteed and that they are very unlikely to ever turn a profit on their aircraft through this business model.

“Demand [for charter] is so erratic that you can’t make decisions around it,” said Dhamecha. “It was a very tough time for charter until April and since then we’ve seen some of the best months since 2007, but with record months being followed by sudden slowdowns in August.”

According to Dhamecha, business aviation has been spreading north from its heartland in the Gulf states as companies and individuals have embraced this mode of transport in countries such as Jordan, Egypt, Lebanon, Qatar and Bahrain. Empire Aviation has recently expanded its aircraft management horizons to be able to remotely manage aircraft based outside the UAE, such as in the UK and Africa.

Three months ago, Empire Aviation took delivery of the new Hawker Beechcraft Hawker 4000. “This is a fantastic aircraft,” said Dhamecha. “It can fly five passengers from London to Dubai direct, or from Dubai to Paris or Geneva. It has a much larger cabin for the same operating costs as [the smaller BAE 125]. With [Hawker Beechcraft’s] Support Plus guaranteed maintenance program it is a hassle-free proposition and the aircraft is almost as big as a [Dassault] Falcon 900.”

The company now has 15 aircraft under management contracts, including a Bombardier Learjet 60XR, a Challenger 300 and a 604; three Hawker Beechcraft 800XPs, an 850XP and a 900XP; a pair of Embraer Legacy 600s; a Dassault Falcon 900EX; a Gulfstream G450 and a pair of Cessna 208 turboprops that are used for tourist flights to islands off the coast of Abu Dhabi. It is a Hawker Beechcraft distributor in the Middle East.