The widely held belief is that the Middle East has a thriving business aviation sector largely kept aloft by vastly wealthy individuals and corporations who are almost entirely immune to wider economic woes. After all, petrodollars continue to gush out despite the fall in the price of crude oil.
Of course, that is an overly simplistic analysis of the regional trends in business aviation. It may be home to the largest concentration of VIP airliners on the planet, but that does not mean the Middle East exists in glorious, moneyed isolation.
For instance, although much of the region shrugged off the effects of the downturn triggered by the 2008 financial crash, Dubai suffered its own economic crisis, culminating in holding company Dubai World restructuring its debts in 2010 as property investments went sour.
And as a recent survey by avionics and engines manufacturer Honeywell points out, the share of projected five-year global demand from the Middle East and Africa region has dropped below its historical range of 4 to 7% this year. Only 18% of operators are planning to make new aircraft purchases in the coming 12 months - down from 26% last year. Honeywell says the figures are "unsurprising" given that it has been "a year of significant political upheaval and ongoing conflict in the region" with the added burden of falling oil prices and the emergence of the Ebola crisis in Africa.
"Regional distress has taken a toll, with operators in the region scheduling their purchases later in the next five-year window than expected last year, with only 21% of purchases planned before 2017," says Honeywell.
Nonetheless, the drivers that made business aviation such a steady market in the first place have not disappeared overnight.
“While some operators may have been persuaded in the early years of the downturn to delay their expansion plans to adjust to the unpredictability of the financial crisis, this uncertainty didn't last long,” says Ali Al Naqbi, founding chairman of the Middle East Business Aviation Association – organiser of the biennial MEBAA show.
“Even the Arab Spring that swept through the countries of the Arab League between December 2010 and mid-2012 had little impact on business aircraft demand across the region,” he says.
According to MEBAA, the Middle East and North African business aircraft fleet represents around 4% of the entire global inventory and based on operator purchase plans, it says this share is likely to remain stable in the near term.
Flightglobal’s Ascend Fleets database lists the inventory of registered business jets and turboprops in the Middle East at 473, although that figure may understate the operational fleet as it does not include offshore-registered aircraft. And although there are VIP airliners in abundance, the majority of these, particularly the widebodies, are used by heads of state and their families, alongside a tier of wealthy businessmen.
What the Ascend fleet count also obscures is that the Middle East's inventory is heavily weighted to the higher end - that the only VVIP Airbus A380 was due to be delivered into the region tells its own story (and that it still rests at Toulouse after a change of ownership tells another, however) - with the bizliners and high-end aircraft from the likes of Gulfstream and Bombardier predominant.
In fact, the latter takes a bullish view on the region. In its latest industry forecast Bombardier predicts 1,095 business jet deliveries to the Middle East between 2014 and 2033 – an increase of around 7% year on year – driven by the continued global demand for oil and the investment by large businesses and wealthy individuals in other booming industries such as mining, agriculture, real estate and tourism.
This long-term positive outlook is good news for the region’s 40-plus business aircraft operators and service providers who are jostling to carve a greater slice of this lucrative yet increasingly competitive market.
“This is a great time for business aviation in the Middle East,” says Mark Pierotti, chief operating officer of one of the region’s largest VVIP aircraft operators Al Jaber Aviation (AJA).
The company opened its doors four-and-a-half years ago at Abu Dhabi’s Al Bateen executive airport and operates a fleet of five owned and managed business jets including a 19-seat Airbus ACJ318 Elite and two 19-seat Embraer Lineage 1000s.
AJA’s confidence in the long-term robustness of the Middle East’s charter market is illustrated its decision to add four ACJ319s to its managed fleet next year. Deliveries will begin in January with the remainder following at three-month intervals, says Pierotti. “These aircraft form part of our strategy to become a leading provider of international, long-haul, VIP charter,” he says.
But AJA’s ambitions are not confined to the VVIP charter market. This month it will launch the Middle East’s first point-to-point branded air taxi service. Called Sky Limo, to not only to reflect AJA’s high level of service, Pierotti stresses, but also to draw a distinction between the low-cost, no-frills air taxi operations seen in the USA and Europe.
“We have been looking to launch this service for sometime, but the opportunity came our way [in August] when a Hawker 800XP owner wanted to find a partner to do something with their aircraft,” he says.
Sky Limo is targeted at executives who are looking to do short, regional hops without the expense of the larger-cabin, longer-range jets.
“Many senior executives are looking to make quick day trips around the region for business – Bahrain to Baghdad, or Kuwait to Istanbul for example – and this ad hoc, point-to-point service is simply not possible with the airlines,” Pierotti says.
He suggests travellers have become sufficiently sophisticated to seek out the service - be that air taxi, charter or scheduled airline - that best fits their needs.
“With Sky Limo, there are no schedules. It fits around the customer’s timetable. This is a great concept. Air taxi’s time has finally come,” he says.
AJA admits the launch costs for Sky Limo are high and the service is not expected to generate large profits for the company, with it being viewed almost as a loss-leader. “Not only does Sky Limo expand our service offering for existing customers, it should also help to attract new business by lowering the entry barrier to private aircraft travel,” says Pierotti.
A second 800XP will join Sky Limo next year and AJA is also hoping to add managed Phenom 300s to the fleet as soon as the opportunity arises. “These high-performance business jets will get in and out of most airports in the Middle East,” he says. “By the end of the decade we hope to have 10 aircraft light and midsize business jets in the Sky Limo inventory,” Pierotti continues.
“I would also like to add the Beechcraft King Air 350 to our fleet, but I don’t think the Middle East [VIP traveler] is ready for twin-engined turboprops just yet. First, they need to be educated about the benefits of these versatile aircraft,” he says.
While its air taxi and VIP airliner charter/management offerings are core to AJA, the company is keen to broaden its portfolio. “Charter is simply not enough. You need multiple revenue streams to spread the risk,” says Pierotti.
With this in mind, AJA is strengthening its maintenance, repair and overhaul (MRO) business. New hangars will be built at Al Bateen to enable it to provide base maintenance on a wider range of business aircraft. “We offer line maintenance now on Airbus and Embraer types, but we want to take on more heavy work and more aircraft models such as the BBJ,” says Pierroti.
Boeing’s VIP single- and twin-aisle family accounts for nearly 20% of the Middle East-registered business jet fleet, according to Ascend, so it is not surprising the region is also home to the world’s largest BBJ operator.
Abu Dhabi International airport-based Royal Jet – arguably AJA’s largest competitor – operates half a dozen Boeing types and has embarked on a $700 million fleet upgrade programme for its VVIP charter business.
“We began operations 10 years ago and have been in profit for the last eight,” says Patrick Gordon, who was appointed Royal Jet’s chief executive in October, following the departure of Shane O’Hare.
The company announced plans last year to replace its BBJ fleet, and has been evaluating the Airbus ACJ319 and Bombardier CSeries alongside the latest BBJ family as possible platforms.
The 10-year-old company has so far acquired two BBJs for delivery to as-yet unspecified completions centres in September and December next year.
“We are still evaluating other models. No decision has been made yet,” says Gordon.
Unlike his predecessor, however, Gordon does not want to replace the entire BBJ fleet.
“If the economy continues to grow and demand increases, I would refurbish the aircraft and keep them in the fleet. I hate to get rid of assets that could generate business,” he says.
The BBJs are is good condition - since entry into service they have undergone "soft" refurbishments every two years and major refits every five.
Royal Jet is, however, replacing a pair of Gulfstream G300s it uses for charter and medical evacuation services and its Bombardier Learjet 60/XRs with larger Global 5000s. The first example was handed over last month and the second is scheduled to arrive in February.
In response to the growing demand for VIP charter, Royal Jet has begun to broaden its service offering. Late last year it joined forces with Air Seychelles - 40% owned by Abu Dhabi's Etihad Airways - to establish the country's first fixed base operation. The facility at Seychelles International airport is Royal Jet’s only FBO outside its Abu Dhabi base. It is a response, Gordon says, to the growing number of private aviation tourists from the Middle East, Europe and the Commonwealth of Independent States visiting the island nation.
The success of the operation has persuaded Royal Jet to expand its FBO portfolio, but Gordon will not disclose which destinations the company is evaluating. “It will be in one of the [145] countries that we currently fly to,” he says.
The decision to move into aircraft and passenger handling was made seven years by fellow business aviation charter company Gama Aviation.
The UK-headquartered firm established operations in 2008 in the tiny emirate of Sharjah – around 30km from Dubai – and set about turning its airport-based facility into a major regional hub for private aviation.
“We began operations at the height of the global economic downturn,” says Gama Aviation general manager for the Middle East Richard Lineveldt. “Right from the start we made sure that Sharjah – recognised then as a destination for cargo and low-cost carriers – was going to be a success.”
Gama spent the first two years building relationships with potential customers and establishing its brand, which was hitherto unknown there.
The hard work has paid off. Gama now has sales offices in Dubai and Jeddah and a recently opened exclusive executive terminal at Sharjah, from where it is performing above its target for weekly movements.
Lineveldt says the closure of one of the two runways at Dubai International (DXB) in May was a boon to its Sharjah operation. “Business aircraft movements to DXB were heavily restricted so Sharjah became a natural choice for those travellers wanting to access the northern Emirates quickly and effectively,” he says.
The company has now embarked on a six-month project to expand its hangar and maintenance provision at the site.
Gama is also planning to grow its charter and management fleet with an increased focus on the buoyant Saudi Arabian and UAE markets. “The business environment is favourable at the moment,” says Lineveldt. “More companies are being listed on the Dubai stock exchange, which means there is potentially an increase in charter and management opportunities there. Saudi also has huge potential,” he adds.
The latter is home to the largest registered business jet fleet in the Middle East and is widely considered to be one of the most promising markets within the Gulf Cooperation Council states. Saudi is also home to the Middle East's largest private jet operator NasJet, which boasts a fleet of 67 owned and managed aircraft including an ultra-long-range Gulfstream G650.
NasJet is also the region’s only fractional ownership provider. The company launched the programme in 2007 with fractional pioneer NetJets. The partnership was dissolved in 2010, however, following NasJet’s decision to go it alone.
Wael Al Sarhan, director of marketing for NasJet’s parent company NAS Holding says while aircraft purchases were delayed between 2008 and 2013, "at an operational level" the business was unaffected. “We were largely shielded by the [strong Saudi] economy,” he says.
“The market is now growing fast. The numbers of aircraft owners [outright and fractional] is on the increase as high-net-worth individuals and corporations turn their backs on first-class airline travel in exchange for the more flexible private jet experience,” Al Sarhan says.
The thriving economies of the six Gulf Cooperation Council countries – Bahrain, Kuwait, Oman, Qatar, Saudi and the UAE – are helping to drive demand for business aviation, he says.
A recent study by investment bank Alpen Capital endorses this view. It notes that although business aviation market in the GCC "is not at the same maturity level as that in the US or Europe, it has seen some traction in the recent past." It points to the growth of the business aviation fleet in the six member states over the 2010-12 period, rising to 400 from 380 in 2010 - a compound annual growth rate of 2.6%.
"Going forward, the sector is likely to grow in view of high wealth concentration and healthy economic growth in the region," it says. It predicts deliveries of around 1,200 business jets in the Middle East in the period to 2032, which, with retirements taken into account, will grow the fleet to around 1,420 aircraft by the end of the period - an annual average growth rate of 6.5%.
"With this, the business jet fleet per population of 100 million will rise to 407 from 158, during the projected period. Although Saudi Arabia accounts for a major proportion of the current demand for business aviation, other GCC countries, particularly the UAE and Qatar, are also expected to catch up."
For Comlux’s vice-president charter sales and aircraft management, Claire Brugirard, the GCC’s strategic geographical location – eight flight hours from two-thirds of the world’s population – is a key factor in the success of this thriving region.
“The Gulf is a key aviation hub – a vital link between the East and the West,” she says.
Comlux set up its base in Bahrain 2010 and has seen its business go from strength to strength. The Swiss-headquartered company operates three VIP airliners – a widebody Boeing 767 which was refurbished in 2013, an Airbus ACJ320 and an ACJ319 – and a super-midsize Embraer Legacy 650 used for shorter hops.
Brugirard argues that while demand has remained stable since its operations began four years ago, the nature of the market has changed. “In 2010 everything was user driven and revenues from pure charter services were high. Today, our business is more focused on the ownership model and we have adapted our business accordingly,” she says.
Comlux now offers a “one-stop shop” for owners – from buying the aircraft through to completing, maintaining and managing the asset. This is a great way to increase the fleet without the huge financial outlay, it says.
“The Middle East is a very important market for Comlux and there are a lot of opportunities for us here in the short, medium and long term,” says Brugirard.
To reflect its growing importance, Comlux is strengthening its fleet and reinforcing its regional sales team. “We want to add around three aircraft to the inventory – a midsize, long-range and airliner-size model – but we don’t want to get too big. In this increasingly competitive market, a high standard of service is vital if you want to differentiate yourself from your rivals.”
This sanguine outlook for the Middle East, particularly the UAE, is supported by Captain Mahmoud Ismael, chief operating officer of the region’s largest helicopter operator, Falcon Aviation Services.
“There is a sharp focus on business aviation in the UAE,” he says. “The [governments] have and continue to work hard to develop the infrastructure to allow this industry to grow,” Ismael continues.
He cites as an example of this dedication, the $32 billion investment in the Dubai World Central aerotropolis. DWC is home to Al Maktoum International airport and a host of business aviation facilities which will eventually include a dedicated private aviation terminal.
“This substantial commitment to business aviation coupled with the positive long-term outlook for the industry [in the Middle East], has convinced us that the time is right to put our growth strategy into action,” says Ismael. These plans include the Middle East’s first VIP completions centre.
Abu Dhabi-based FAS – which has a fleet of nearly 30 rotary- and fixed-wing aircraft – plans to break ground on the DWC-based facility at MEBA and open for business in early 2016.
The first completions project is expected to be a VIP-configured Bombardier CS300.
The company became the first UAE-based customer for the in-development regional airliner, when it placed an order for two of the type earlier this year.
“This region is home to a large and expanding population of business aircraft,” says Ismael.
“Currently [local] owners have to go Europe or the USA to get their aircraft completed or refurbished. In 2016 they will be able to get it done locally,” he adds.
Eight-year-old FAS already provides MRO services and has approvals from a number of airframers, including Embraer and Airbus Helicopters. "This is a natural expansion for our thriving MRO business," Ismael concedes. "We are also keen to add to our list of aircraft approvals.”
Source: FlightGlobal.com
