New Saudi Airline Plans Gain Momentum

 - September 19, 2022, 9:00 AM
Moves to establish a new airline in Saudi Arabia are partly based on the view that current flag carrier Saudia has not kept pace with the growth achieved by Gulf airline rivals Emirates, Etihad, and Qatar Airways. (Image: Saudia)

Plans for a new Saudi Arabian airline appear to be gaining momentum, according to several sources close to the anticipated development. Backers of the move hope it will bolster the country's air transport sector in its struggle to compete with more successful carriers in neighboring Gulf states, such as Emirates, Etihad, and Qatar Airways.

“The plans for the inauguration of the new airline and its sister leasing company will progress as planned,” Abdullah Aljawini, CEO of Riyadh-based aviation consulting firm Dawli Aerospace, told AIN.

On June 30, Saudi sovereign wealth fund, the Public Investment Fund (PIF), announced the creation of a new aircraft leasing company, Avilease, but, to date, no official statement has been made on the airline plans, AIN understands. At the time, the PIF said its assets under management totaled $620 billion.

“‘​AviLease’ will offer leasing, trading, and asset management services for the latest generation of leading manufacturers’ aircraft,” the PIF announcement said. “The company will scale through purchase-and-lease-back transactions, secondary portfolio acquisitions, direct orders from aircraft manufacturers, and corporate acquisitions.”

An outfit with ready access to new metal would obviously accelerate plans for a new airline, an entity that would be more or less mandatory if Saudi Arabia is to achieve the targets that it is setting itself. The expectation is that after an initial flurry of narrow-body deliveries, the new airline will have a preference for widebodies.

“Friends in the PIF say it’s serious; they have already rebranded aircraft for the new Neom airline,” said a Western lawyer based in Saudi Arabia, speaking with AIN condition of anonyity. Neom is one of three massive tourism and lifestyle projects planned for the country’s barren north-west Red Sea coast.

“Once the new carrier is officially announced, I’m sure you will [find] the right people to speak with,” Fahd Al Cynndy, CEO of maintenance group Saudia Aerospace Engineering Industries (SAEI), told AIN in January, at a company briefing in Dubai. “At the moment, it’s still a work in progress.”

According to the Saudi-U.S. Trade Group, airport development will be a key facet of Saudi Arabia’s plans to boost passenger throughput. “Saudi Arabia has earmarked $147 billion to enhance its airport facilities to serve 330 million air travelers by 2030, expand its transport sector and boost plans to launch a new national airline alongside the established Saudia, Flynas, and Flyadeal,” it said this month.

A new ‘Saudi Airport Exhibition‘ is due to take place in the capital, Riyadh, in November. The appetite for international events in the country is high, and a local source told AIN that a military airshow outside Riyadh in March was as big, if not bigger than, the Dubai Airshow last November. 

Saudi Arabia’s national investment strategy calls for the investment of $7 trillion in the next decade, and the manufacturing, renewable energy, transport and logistics, tourism, digital infrastructure, and healthcare sectors are expected to receive high attention.

Aljawini told AIN last year the airline would help Saudi Arabia reach a target of 100 million tourists a year, by modeling itself on Etihad Airways, Emirates, or Qatar Airways. In May, Saudi tourism officials announced plans to spend $1 trillion over the next decade to meet this objective by 2030.

“The ‘new airline’ model was the advice of professional consultants charged with advising on whether Saudia could be salvaged, concluding that it had too negative an image to compete with Emirates or Etihad. Mixed feelings remain within PIF on whether the new investment is sound,” the lawyer said.

The perception is that the existing flag carrier has been unsuccessful in matching the range and quality of service of the ‘Big Three’ Middle East airlines. However, with a fleet of over 150 aircraft, over 90 of them wide-bodies, it is too big to ignore. Low-cost carriers Flyadeal and Flynas are engaged in building their fleets and do well both domestically and regionally but have yet to reach an international scale. Between them, the three have 130 aircraft on order, but only three of them are wide bodies.

“Saudia was, as I have heard, asked to move its headquarters from Jeddah to Riyadh, which it resisted; hence an internal decision at high levels to repurpose Saudia for pilgrimage only, and to replace it for all other purposes with a new airline on the model of Emirates,” the lawyer told AIN last year. “It’s been quiet in recent months, though there’s no reason to believe that this doesn’t remain the plan.”

In addition to tourism, Islamic pilgrimage is also expected to be a draw. By 2030, the Hajj and Umrah events are expected to account for 30 million tourists a year. The PIF said in a strategy document it teamed up with other investors to acquire a 55 percent stake in French company AccorInvest, an owner and operator of hundreds of hotels worldwide largely focused on Europe, in 2018.

Technical know-how is also on the rise in the country. Saudi Arabian Military Industries has signed memoranda of understanding with defense contractors Boeing, Lockheed Martin, Raytheon, and General Dynamics. It has also signed joint ventures with what it called “top-tier global companies,” including the U.S.’s L3 Harris, Belgium’s CMI, and France’s Thales Group.

Talk of the new airline has sparked a flurry of interest on pilot internet forums. “[De facto ruler, Crown Prince Mohammed bin Salman] envisions Riyadh being transformed into a global hub by 2030,” a poster on one forum said. “Regarding East-West connectivity, the nation is a sleeping giant. Imagine how much revenue 1-2 percent of passengers annually traveling between the west and the east will generate in 2030 when more than 25 percent of the world’s population is Muslim.”

Aljawini said a number of salient challenges faced the Saudi air transport sector as a new airline was contemplated. “What will make it or break it is meeting in due course the challenges related to the upgrading of our international airports' infrastructure to match the future expected increase in air traffic,” he said. “Such air traffic is expected to be generated by the formation of the new airline, other existing Saudi-based airlines, and international airlines alike.”

Saudi Arabia has four international airports at Riyadh, Jeddah, Dammam, and Medina. Aljawini is calling for a change in the revenue models these airports employ. A preferable revenue framework was one that was not only associated with a reduction of airport fees and levies but also encompassed the formation of a number of other revenue-generating outlets that were designed to minimize the impact on an airline’s bottom line or the budgets of passengers traveling through Saudi international airports, he said.

“I believe that such a best practice business model must be examined by the respective authority and executed as soon as possible in an effort to boost the competitiveness of Saudi international airports versus other international airports in the region,” he concluded. “At this point in time, the switching of business models is a necessity and not a luxury.”