KATE SARSFIELD / LONDON
The Gulf is keen to promote industries such as tourism and IT to dilute its reliance on oil, but terrorism and unlicensed charter operators threaten to undermine confidence
These are interesting times for business aviation in the Middle East. Faced with bloody conflicts, extremist organisations and turbulent politics, this innovative industry is challenging the traditional role of corporate aircraft in the region and has begun to re-invent itself to meet the changing demands of executive flyers.
Sales of business aircraft have traditionally originated from the region's wealthy elite, notably the ruling classes and royal families with their fleets of large and often opulently configured business jets.
Saudi Arabia, with its vast oil resources, is one of the wealthiest countries in the region. The country has the largest installed base of turbine-powered business aircraft in the area, with 107 aircraft, according to the latest statistics from data research company BuchAir UK. However, the recent spate of suicide bombings in Riyadh, plotted and implemented by a group with ties to the region, has jolted consumer confidence. It is feared further sustained attacks will take a toll on the country's long-term investors and throw into question the presence of foreign firms, some of which operate business aircraft, or are at least considering purchasing them.
"The Middle East market has been slow," admits Mike Fahey, Bombardier regional vice-president for Asia, Africa and the Middle East. "We have sold a number of aircraft, but the traditional buyers haven't been out there, particularly in Saudi Arabia, where we have seen a tremendous decrease in sales over two years," he says.
The lack of confidence by traditional owners is not limited to Saudi Arabia, however. Elsewhere in the Gulf region, where the business aircraft concentration is highest in the Middle East, the volatile oil markets, coupled with the ever-increasing threat of terrorism, continue to create unease among consumers who are reluctant to embark on multi-million dollar spending sprees for executive aircraft and have begun to look elsewhere for a solution to their transport needs.
Charter shift
"We are seeing a shift towards charter," says Fahey, singling out Qatar and the United Arab Emirates (UAE), which have taken the lead in establishing and encouraging new industries, such as information technology and tourism, to minimise the region's reliance on oil revenues.
Dubai, for example is aspiring to be a major presence in IT, education and tourism. In October, the emirate announced a $5 billion investment to create a comprehensive tourism, leisure and entertainment city, dubbed Dubailand, which is scheduled to open its doors by 2006, achieve a critical mass by 2010, and help the emirate attract its goal of 15 million tourists annually, three times its current total.
Added to this, the Madrid-based World Tourism Organisation predicts 70 million tourists will visit the Middle East a year. "Of course, not all of these people will be candidates for business aircraft charter," says Tilmann Gabriel, chief executive for fledgling charter operator Royal Jet, "but the investors and private sector companies are candidates." Indeed, Dubai is selling a lifestyle and charter operators are keen to exploit this opportunity.
"The market for charter has never been so good," Gabriel says. His optimism and enthusiasm is justified.
Royal Jet, Abu Dhabi's first commercial business aviation charter company, was launched in May by joint venture partners Abu Dhabi Amiri Flight and helicopter charter and offshore operator Abu Dhabi Aviation, to plug the gap in luxury charters within the Gulf. Gabriel says: "We began operating with a single Boeing Business Jet [BBJ] and in August took delivery of the first Gulfstream G300, becoming the launch operator of the large-cabin business jet."
He adds that Royal Jet has been "stretched to its operational limit", with its business originating both from within and outside the Gulf. In September, the company took delivery of a medical evacuation-configured G300 and launched its Royal Med medical evacuation programme. Royal Jet's success has been phenomenal, Gabriel says. To keep up with the demand, the charter company plans to buy two aircraft next year and add up to two aircraft a year every two years.
First-class service
The key to this success, Gabriel suggests, is its focus on a luxury, first-class service. "You are selling a high-end brand and a lifestyle," he says, "and you have to get it right". Royal Jet is studying a number of commercial ventures, including aircraft management and links with "high-end" brands.
At the Dubai air show next week, the company will launch a new luxury travel package in conjunction with hotel and hospitality company Jumeirah Group. The partnership will initially involve passenger transport between the Jumeirah-operated Burj Al Arab in Dubai and the Lowndes Hotel in London, but may be expanded to include Jumeirah's portfolio of luxury hotels, Gabriel says.
"The commercial operator is not only selling a first-class service, with new-generation aircraft, but one that is fully regulated and protects the passengers it is carrying," says Sakeer Sheik, manager of Bahrain Executive Air Services (Bexair), which in 2001, backed by Saudi Arabia-based Arabian Support and Services, became the first commercial executive aviation company to be registered in Bahrain.
Like Royal Jet, Bexair operates to European JAR OPS-1 standards with its Cessna Citation Bravo, Citation Excel and Bombardier Challenger 604. The company also plans to take delivery of a second Challenger this month and a third in the second quarter of next year. Sheik argues that the grey charter market, which consists of the hire of unlicensed private jets, is threatening to undermine the legitimacy of the licensed charter market in the Middle East. "They can often price a trip up to 40% cheaper than a licensed operator," Sheik says, but they often do not have adequate insurance. This practice, he adds is fuelled by a host of aircraft brokers, which turn a blind eye.
Jeremy Palmer, director and partner of international charter broker Hunt & Palmer, says: "We lose a lot of business to the grey market, but we don't use them." Palmer says the grey market is dominant in Saudi Arabia, where it is difficult to obtain an air operator's certificate (AOC). "The market is heavily protected in favour of the national airline Saudia."
Grey market
This view is supported by John Davie, director of UK consultancy Vector Management, which was commissioned by Bexair before its launch to investigate the charter market in the Middle East. Although the findings of the study are guarded for commercial reasons, Davie's investigation found the region's grey market dwarfed the legitimate operators.
"In 2001, there were only three licensed operators, including NetJets Middle East, which is run by National Air Services, and one of the few operators granted an AOC by the Saudi authorities."
Vector's study revealed that the growth prospects for corporate aircraft charters in the Middle East are in excess of $1 billion. It cautions, however, that "it will take several years of very good and consistent marketing to develop this huge market opportunity. In the meantime, the region's aviation authorities must ensure that charter operators are fully licensed and commercially registered if the executive air charter market is to succeed."
To assist in this task, licensed operators are increasingly being selected by the region's governments as an alternative to maintaining a costly fleet for ministers. Royal Jet's Gabriel says 20% of his company's business is the transport of government officials and Bexair also sees this market accelerating over the next few years as fleets age and are ripe for replacement.
For the original equipment manufacturers (OEM), the transformation of business aviation in the Middle East marks a huge opportunity. Gulfstream says its has 64 aircraft in service throughout the region, while six green aircraft have been delivered and are in various stages of completion. Bombardier has sold 33 out of a total of 124 business aircraft purchased in the region in the past five years, through its partnership with TAG Aeronautics, sales agent for the Global and Challenger range of business jets and ExecuJet Middle East, Dubai-based agent for the Learjet series. ExecuJet says it is the first independent business aviation company to receive permission to operate aircraft charter flights from the UAE.
Significant growth
"Between 10% and 15% of our sales are for charter. The market is in its infancy now, but we expect it to grow significantly," Fahey says. He agrees charter will capture "new blood" or concept buyers into the industry. "We have always done well with the emerging entrepreneur and we have the right products to exploit this opportunity."
Fahey says the bigger business jet owners, large corporations for example, "are still out there" and the Global 5000 is well positioned to "take out the GIII and GIV".
Yet the Canadian manufacturer is keen to exploit the market for mid-size jet aircraft. Making their debuts at the Dubai air show are the Learjet 45XR, ideal, Bombardier says, for hot and high performance, and the super mid-size transcontinental Challenger 300, of which it has sold four in the region, including India. "There's a middle tier developing," Fahey says, as the market for regional transport, prompted by industrialisation and tourism, takes off.
Gulfstream, which dominates the large business jet sector, says it is also keen to tap the market for mid-size jets and will display its G200 super-mid size model at the Dubai show alongside the large-cabin G300 and long-range G550.
While the Gulf region, particularly the UAE, is a focal point for operators and OEMs alike, other markets around the Middle East are emerging as potential growth areas, including Egypt, Libya and Iraq. The latter, blighted by war and ongoing internal conflict, could be on the verge of a new era as a rebuilding programme in put in place, bringing in private, foreign investors with a requirement for business aircraft travel.
The prospect of a huge international operation to rebuild Iraq prompted Kuwait Projects (KIPCO) to launch United Aviation, Kuwait's first business jet charter airline. "Iraq is a major focus for regional and international businesses seeking to be involved in rebuilding the country," KIPCO managing director and chief executive Faisal Hamad al-Ayyar said at the operator's unveiling. "Our new airline will be in the leading position to provide a premier service for swift and comfortable access to the Iraqi business centres, once all official permissions are given."
The demand for air services is likely to be considerable, United Aviation says. "We can offer a journey time of around 45min from Kuwait to Baghdad. Over land the journey takes around 8h, with all the attendant security risks. It's cowboy country at the moment." United operates two Embraer Legacy business jets.
Bexair and Royal Jet admit there is a demand to fly to Iraq, mostly from companies or individuals with US-registered aircraft, but the operating restrictions, including remaining on the ground for no more than 30min and the difficulty in obtaining insurance, has made the operation too costly and restrictive.
Saudi step
Royal Jet's Gabriel says the company's next step is to establish a sales base in the Saudi Arabian cities of Jeddah and Riyadh, where business is thriving. "We are committed to deliver several hundred hours of charters to the region, starting in January next year," he says. The operations will be carried out under the company's UAE air operator's certificate.
As the network of aircraft and passengers increases, the support structure surrounding these operations is also growing. Royal Jet's partners Amiri Flight and Abu Dhabi Aviation are building a dedicated fixed-based operation (FBO) at Abu Dhabi International airport to house the Royal Jet operation. It will also be home to a fully authorised maintenance facility and will be open in 2005, says Gabriel.
Bexair has built a $2 million fixed-base operation at the international airport based in the Bahraini capital, Manama, to support its operation, while Bombardier and joint venture partner ExecuJet are scheduled to open a Bombardier-owned and branded service centre in Dubai next April.
Meanwhile Jet Aviation, which has been supporting business aircraft at its Saudi Arabian bases of Jeddah and Riyadh since 1979 and 1984, respectively, plans to establish a maintenance and FBO facility next year at Dubai International Airport.
The demand for business aircraft in the Middle East will continue to rise as industry expands and diversifies and the new wave of licensed commercial operators offering high-end luxury transport could set an industry standard for charter.
"Ten years from now," Fahey says "the Gulf will be a big player in the charter business and charter could overtake individual ownership as the biggest element of aviation in the region".
Source: Flight International
