Jordan's privatisation programme, which has been running for about a decade, is widely viewed as one of the most successful in the Middle Eastern region and the kingdom, after a period of uncertainty, is finally preparing to relinquish its hold on flag carrier Royal Jordanian Airlines.
Long-awaited, the sale of 74% of Royal Jordanian will complete a process initiated in 2000 when a new law endorsed transfer of the airline and its non-core businesses to a government-owned public shareholding corporation. But while the duty-free and catering activities were quickly acquired, by Aldeasa and Alpha Airports respectively, unrest in the Middle East and a weakening global economy dampened prospects, particularly for the airline, and 9/11 effectively killed hopes of a near-term sale.
One of the Royal Jordanian divisions, Jordan Airline Training and Simulation (JATS), fell victim to the political instability, when original suitor FlightSafetyBoeing - now Alteon - pulled out of acquisition plans. But JATS has started expanding after Amman-based investment company Eastern Group last year bought 80% of the company. "As soon as they came in, the management was flexible," says JATS general manager Nasri Nowar. "They took a good decision to acquire a new simulator."
TRAINING ENHANCED
The Airbus A320 simulator, inaugurated in September, enhances JATS's capabilities by providing training for both International Aero Engines V2500- and CFM International CFM56-powered aircraft its predecessor could only simulate CFM56 operations.
JATS has older Airbus A310 and Boeing 727 devices, but Nowar says, as a commercial organisation, it needs to consider future revenue streams. He says the company is considering two cases: taking on Boeing 787 simulators, with a view to securing custom from Royal Jordanian, S7 Airlines and other future 787 operators, or moving into regional jet training because of the introduction of Embraer types by EgyptAir and Saudi Arabian Airlines.
But JATS also wants to broaden its client base, by securing approval as a European type rating training organisation, says Nowar. He says that there are tentative plans to float JATS, with perhaps 40-50% of the company eventually being placed on the stock market.
ENGINEERING SEPARATION
Royal Jordanian's engineering division was separated into two units: Jordan Aircraft Maintenance (JorAMCo), which deals with airframes, was acquired by Dubai's Abraaj Capital in 2005. "We're a big believer in privatisation," says JorAMCo general manager Bashir Abdel Hadi. "The government's role is to regulate, monitor and support. The real work should be done by the private sector, and the government left to do what it's supposed to do. There's a conflict of interest when the government is providing services."
Hadi says Abraaj "totally empowers the management" and is "very open to investment. From any angle you look at it, it's been beneficial. In the two years since privatisation we've had almost a 50% increase in headcount. From the employees' point of view there are more opportunities and better income - bonuses and shares of profits. We've never had a quarter that was not profitable since becoming a standalone company."
Hadi says the Jordanian government has also gained from the sale. "This facility never paid rent it was treated as part of the government. Now we pay rent, taxes and so on."
Royal Jordanian used to account for 90% of JorAMCo's business. That proportion has fallen to less than a third this year, despite an increase in the airline's size. About 40% of its work consists of European third-party contracts and another 30% is from Asia. JorAMCo handles all Airbus types except the A380, plus Boeing 737s and 727s, Embraer 195s, and some Lockheed L-1011s. "Older aircraft tend to come to JorAMCo as the size of the labour work is huge. We can offer a real advantage of lower labour costs, sometimes half those in the European Union," says Hadi.
JorAMCo has steered away from offering Boeing 757 and 767 capabilities, citing a lack of popularity for the type in the region. But it is examining the Airbus A350 and Boeing 787 for future business, and is working to develop greater composite experience. The company has also relieved capacity constraints with a new hangar with room for three Airbus A340s.
"All MRO firms give a similar level of airframe maintenance," says Hadi. "So the difference is in the small things."
JorAMCo has also established an academy, in co-operation with Air Service Training of Scotland, to provide European Aviation Safety Agency-qualified engineers. Hadi says: "People are the most important asset in this business. We need to have the highest possible standard." But he admits that, even with the academy, there "might not be enough engineers for the expansion we're looking for". Deregulation in the Middle East, the development of budget carriers, Jordan's adoption of open skies and airline growth in the Middle East and the Indian subcontinent point to expansion in the maintenance sector, while overhaul in Europe is likely to become more expensive, he says: "Airframe work will continue to flow south."
NICHE BUSINESS
Jordan Airmotive (JALCo) is the former Royal Jordanian engine overhaul activity and has just completed its first year as a privatised company after being sold to local investor Aviation Technological Academy. Before then its capabilities had largely been dictated by its parent's fleet - Rolls-Royce RB211s from L-1011s, and Pratt & Whitney JT3s and JT8s from Boeing 707s and 727s - and it developed a niche third-party business servicing these types, even as Royal Jordanian phased out the aircraft.
JALCo marketing director Isam Farhan says: "There's not much competition on the RB211. Rolls-Royce is busy with Trents, and I have customers who've been directed by Rolls-Royce to us." But he says that, while the business is generating enough sales to retain its 100 staff, fuel prices are taking a toll on older aircraft types and this is forcing the company to consider its commercial future. He adds: "I deeply feel that we cannot survive for the 10 years to come without other capabilities. The issue is the continuity of the business."
JALCo's outgoing general manager Qassem Omari says: "Before the sale to investors the government was reluctant to invest. With the new investors we've been studying the market, and looking at three tracks."
The favoured option is introduction of V2500 capability these engines are popular on Middle Eastern Airbuses. Addition of V2500s would require investment of $10 million. But JALCo is also looking at the R-R T-56, which is used on military Lockheed C-130s in the region. While it would need only $3-4 million to put the capability in place, there are questions about the size of the market. The Royal Jordanian Air Force has few C-130s, and the investment could only be justified for a larger customer such as the Royal Saudi Air Force. A third option is the CFM56, which could be added to a V2500 operation for $5 million.
Royal Jordanian's board has "more things to worry about than the engine shop", he says, and claims privatisation has enabled JALCo to double revenues and profit. But Omari adds that JALCo also lost some of the security it had under the carrier, saying the airline "did not consider" JALCo when selecting its new fleet.
Jordan's aviation privatisation effort has extended to the civil aviation authority, notably through the 25-year concession agreement to modernise Amman Queen Alia International airport, awarded earlier this year to an Aeroports de Paris-led consortium that will construct and manage a $500 million terminal handling 9 million passengers a year.
But Royal Jordanian is still seen as the most prestigious activity, and its sale will make it one of the few Middle Eastern flag carriers to come under private ownership. Privatisation has been a long time coming, but the delay has allowed Royal Jordanian to join the Oneworld alliance, renew its fleet and become consistently profitable - which will encourage those to whom the airline is ultimately delivered.
Source: Flight International
