US3 vs ME3

The rhetoric has calmed down since the earlier days, from accusations of complicity in 9/11 to massive subsidies and the inability to compete against rich states to the US3 just requiring the US government to seek consultation with the UAE and Qatar regarding subsidies to the ME3.

The rhetoric included issues ranging from subsidies to labor unions and gay rights.
It appears that subsidies are like beauty, strictly in the eye of the beholder. While the ME3 talk about equity the US3 talk about subsidy and then Chapter 11 is thrown in the mix as an undue advantage accorded to US industry. The US3 counter and rightly so that this is the law of the land but then without it the US3 would not be with us today.

As for labor unions; the ME3 employ expatriates who sign up for a package that  pobably is superior to whatever they can get at there home countries, so why would they care about unionizing.  But then labor unions are governed by each country's law, just like Chapter 11 I guess.

Similarly, the anti gay issue has nothing to do with fair competition. The ME3 have gay people in their staff, and as long as they do not break any pertinent country laws, they remain employed. But then do the US3 want the US government to discuss labor unions and LGBT rights laws in the UAE and Qatar, of course not, then why bring it up other than to muddy the waters. After all the track record in the USA when it comes to these two issues is not the most pogrssive, with laws enacted in individual States that roll back the rights to unionize and gay rights.

The position of the US3 is opposed by almost all segments of the industry from Aircraft manufacturers', OEM's, the travel and tourist industry, airports and cities. Then why all the screaming?
The US3 are making record profits and there is very little overlap in the international routes they operate with those of the ME3. Is it an anticompetitive sentiment and a myopic view of what constitutes competition? Partly yes, look at the postion taken against Norwegian 's application to operate to the USA or the stance of Delta against the EXIM bank as an indication. The ME3 counter with; compete on  service; invest in new modern aircraft, state of the art IFE systems and customer service on board and on the ground and passngers will come back.

The issue that really scares the US3 and their EU Lgacy airlines partners is 5th freedom rights from Europe and the ensuing comptition on the North Atlantic market. FedEx and that segment of the market oppose the US3 position because they do not want any changes to these 5th freedom rigths. Emirates Airline's Milan/New York route was opposed by both the US3 and the EU Legacy airlines because it directly affects North Atlantic traffic. Tim Clark, Emirate's president intimated last week that the airline might exercise its 5th freedom rights under the bilateral if it proves profitable. He basically declared if a European city asks Emirates to operate because they feel there isn't enough capacity to the USA then subject to profitability Emirates will operate. Etihad has that option but then they do not really need the bilateral to operate on the North Atlantic, they have their own EU approved equity partners; Alitalia, airberlin to name a few.

Welcome to the global travel market.

Royal Jordanian, Uncertain Future

Royal Jordanian (RJA) is facing liquidation since its losses have exceeded 75% of its capital. For this reason, the airline has not issued its 2013 financial results or had its share holders general meeting yet. In reality, the government who is the major share holder will not allow its liquidation. It is a matter of national pride and to a certain extent national security. There are talks of restructuring and a government bail out, but this is a hot topic because of the economy and the deficit. It appears like a lot of political jockeying is going on.

The airline was listed in the Amman Stock Exchange in December 2007 and since then it had very mixed results. It sustained losses in 2008 (34.7 M USD), 2011 (81.6 M USD) and 2013 but had moderate profits in 2009 (40.3 M USD), 2010 (13.6 M USD) and 2012 (1.6 M USD).  

In all fairness to Royal Jordanian the geopolitical situation in MENA has not been very favorable and still is not; between fluctuating fuel prices, the Arab Spring, Libya and now ISIL, the airline had to indefinitely suspend lucrative routes like Damascus, Aleppo, Tripoli, Benghazi, Misrata and now Mosul; Cairo, Baghdad and Erbil were suspended on and off for security considerations. RJA also suspended flights over Syria which added almost an hour to an hour forty five minutes to the Beirut flight without an appreciable increase to fares. However, RJA has just announced a code share agreement with Middle East Airlines to start in mid October 2014, allowing RJA to cancel two of its four daily flights. But the most interesting reason cited is the aggressive competition from the Gulf three (Emirates, Etihad and Qatar Airways).

In an attempt to reduce its costs RJA inked code share agreements with Gulf Air, Oman Air and SriLankan to operate Amman to Bahrain, Muscat and Colombo  and has suspended or plan to suspend flights to what it terms as losing routes, like Delhi, Mumbai, Alexandria, Accra, Lagos, Brussels and Milan.

Not withstanding geopolitics, the airline did not react quickly enough. While canceling unprofitable routes is a good thing, overcapacity is not. It leaves part of the fleet idling while still incurring lease and loan payments. Rationalizing staff levels is not be the greatest option in a politically charged country with a very high unemployment rate. 

RJA has already returned 2 A321s and with the B787 deliveries it is planning to rationalize the fleet composition by the end of 2014 to include the following:

B787, 5 operating aircraft;

A340, completely phased out (4 aircraft) ;

A330, 2 operating aircraft down from 3;

A321, 2 operating aircraft down from 4;

A320, 6 operating aircraft down from 7;

A319, 4 operating aircraft, no change;

E195, 4 operating aircraft down from 5;

E175, 3 operating aircraft, and

A310F, 2 operating aircraft, no change.

A net change of 5 passenger aircraft all of them single aisle aircraft, but with a more fuel efficient and modern fleet.

In a nutshell, the airline board and management acted, just like in the old days, like a government entity. This has caused the share price to go down from a high of 4.09 JOD {5.76 US$} on 16 March 2008 to 0.38 JOD {0.53 US$} on 15 September 2014. RJA would have certainly benefited of the equivalent of a Chapter 11.

RJA needs to act in a more agile and proactive manner, after all that was the reason the airline was privatized. The plans for the fleet and route reductions were too late and too little. There is a need to come up with innovative solutions that increase revenue and not only reduce cost. After all, cost reduction is subject to the law of diminishing returns but with revenues, the sky is the limit. 

While RJA may have not lacked leadership, it requires a different kind of leadership. One that not only looks at fleet and routes but one that looks at the management structure and how management approaches risk assessment and especially mitigation. A management that looks at new opportunities for expansion amid the chaos. If this means replacing senior managers, then so be it.

Royal Jordanian has survived for 50 years among the geopolitical chaos; the dilemma today is how to survive and thrive in the same chaos as a publicly listed company. This is a totally different set of rules that RJ may not be yet equipped to handle.

EX-IM Bank Again...

EX-IM Bank is again in the news; Delta, A4A and ALPA are adamant about defunding it because it stifles competition by providing export facilities to competing airlines especially the Gulf carriers. The fact that Korean, a SkyTeam partner of Delta or GOL obtained an EX-IM guaranteed bond financing to support its engine work at Delta TechOps is of no consequence. Delta's assertion is; EX-IM Bank allows carriers like Emirate, Qatar and Etihad cheaper financing therefore allowing them to offer cheaper fares which creates unfair competition. Hence the defunding campaign, regardless of the requirements of any other economic sector such as Aerospace,Nuclear energy, etc. It would have been better for Delta to lobby for tighter rules on guarantees for aircraft purchases.

EX-IM Bank and Boeing have maintained that defunding is akin to unilateral disarmament. Airlines will just buy from Airbus and utilize whatever the European credit agencies have to offer. Defunding will not change the level of competition, just the type of aircraft used.

Delta has been risk averse when it comes to buying new technology aircraft. Delta's CEO is on record for the "preference of proven technology". They feel that buying at the end of the development and production cycle allows them to purchase aircraft at lower prices. Others, including the Gulf carriers prefer to be launch customers with all the technology risks and possible delays this entails. Being a launch customer allows an airline a greater say in the aircraft design, aircraft mission requirements and most importantly a much lower price ever.

Delta's acquisition and/or lease of older aircraft like the MD80s and B717 provides them with lower asset costs, their use on short and low utilization sectors offsets the fuel price and when maintenance is due the aircraft is parted out or retired. The preference to refurbish older aircraft with the latest interior and cabin IFE and Wi-Fi in Delta's thinking provides an equal level of comfort to newer technology aircraft and most importantly better profitability. This maybe true in the short term but cabin noise levels, ability of the aircraft systems to support modern IFE and  new ATM requirements and overall reliability will eventually catch up.

To put the unfair competition of Gulf carriers in perspective, out of the 180 million international passengers that travel to and from the USA approximately 6 million (3.33%) hail from the Middle East of which 2.4 million (41%) are carried by US carriers and 3.6 million (59%) are carried by International carriers. There are seven carriers that operate non stop services to the USA; Etihad, Emirates, Qatar Airways, Saudia, Egypt Air, Royal Jordanian and Royal Air Maroc. Out of these, four are members of an alliance, but all of them code share with a US carrier for travel within the USA.
- American code shares with Etihad, Qatar Airways and Royal Jordanian (the latter two are members of
  OneWorld);
- Saudia code shares with Delta (a SkyTeam alliance member);
- Egypt Air code shares with United (a Star alliance memeber); and
- Emirates, Etihad and Royal Air Maroc code share with Jet Blue.
They bring revenue to the cities they serve in terms of employment, tourist traffic, use of the airport facilities (dedicated lounges) and most importantly better connections to the rest of the world.

All these MENA carriers come from relatively small countries with little or no domestic travel and have always relied on transit traffic that caters to holiday traffic, visiting friends and relatives and yes to the immigrant communities in the USA. For some reason US carriers do not pay much attention to the rising numbers of immigrants from MENA, India, Pakistan and Asia. these groups constitute the bulk of the traffic carried by these carriers, especially the Gulf Carriers. They compete on service, advanced entertainment systems and passenger amenities, high technology aircraft with high fuel efficiency and ultra long flights (12 to 16 hours/sector) that lower the asset cost per flight hour and most importantly very few or no ancillary fees.

US carriers have gained profitability in the last few years by:
- exercising capacity control (a 2% growth at best) while the Middle East was expanding at double digit
   rates (10% to 15%);
- lowering their labor costs, sometimes at the expense of customer service on ground and in flight;
- utilizing older aircraft (it was not until the last three to five years that US carriers embarked on fleet
  renewals, Delta not as much, and cabin upgrades); and of course
- escalating ancillary fees.

Hardly the stuff of fierce competition.

The Gulf carriers will expand into the USA by virtue of the open skies regimes they have with the USA and their global presence. They will compete with Delta and others; whether they use Airbus or Boeing aircraft is not an issue for them.

RAK Airways, Full Circle.

On January 1, 2014 RAK Airways suspended operations for the second time, citing rising costs, the conditions of the aviation industry and geopolitics. The airline indicated that the board will review the state of the airline and decide whether the airline will resume operations.

As usual things move fast in MENA. On February 2, 2014 Ras Al Khaimah Directorate of Civil Aviation signed an agreement with Air Arabia, designating it the National Carrier of Ras Al Khaimah. This morning February 4, 2014 Adel Ali, Air Arabia Group CEO confirmed to Dubai Eye that Ras Al Khaimah will be the airline's fourth hub and will be basing its aircraft there to operate to destinations in the Middle East and the Indian Sub Continent.

RAK Airways was founded in 2006 as the fifth UAE national carrier based in Ras Al Khaimah. It started operating in 2007. By 2009 the airline suspended operations. It announced the resumption of operations in 2010 but actually restarted in 2011. The second time around the airline was more organized and operated to ten (10) cities  (Abu Dhabi, Riyadh, Jeddah, Doha, Amman, Peshawar, Lahore, Islamabad, Calicut and Katmandhu) using two A320s in two (2) class configuration 8 Business and 160 in Economy.  RAK Airways operated to Abu Dhabi and had a code share with Etihad to London Heathrow, Manchester, Dublin, Geneva and Bangkok.

RAK Airways never had a defined business plan, other than the usual rhetoric of development of tourism and aviation in Ras Al Khaimah, and if it did it was never published. The airline had 7 CEOs in as many years.

Ras Al Khaimah is emerging as a tourist destination with 1.2 million visitors last year and global hotel chains like Hilton, Waldorf Astoria, Crowne Plaza, Rotana and others opening hotels and resorts in the emirate. These tourists preferred to fly to Dubai, since the majority of them came from destinations not served by RAK Airways.

Ras Al Khaimah government realized that going it alone in the Northern Emirates with their 800,000 inhabitants is not going to work out. Developing tourism using limited regional destinations does not work when most of the tourists hail from Europe and North America.

The question that raises itself now is how would Fujairah react to all of this, if at all? The emirate is developing into an important oil terminal with oil related industrial activities after the inauguration of the pipeline from Abu Dhabi to Fujaira. It boasts tourist areas like Khor Kalba, Massafi and the proximity to Khor Fakkan, the Sharjah resort on the Gulf of Oman. It is linked by a modern super highway to the major cities of the UAE, reducing travel times.

Another interesting issue will be the Ajman International Airport (under construction) which is in close proximity to Sharjah International Airport and Dubai International Airport and is raising ATM concerns within the UAE.

We wait and see

Anniversaries

It appears that everything I was involved with in my professional life has an anniversary and a milestone this year.

• Royal Jordanian (RJA) is celebrating its 50th Anniversary
• Air Arabia (ABY) is celebrating its 10th Anniversary
• Etihad (EY) is celebrating its 10th Anniversary
• Al Jaber Aviation (AJA) celebrated its 5th Anniversary

My involvement with each organization varied but I always managed to learn  and contribute.

I joined RJA at a time when the airline was expanding its fleet with new B727s, B747 and L1011s. A new cycle of  B707 heavy maintenance (D) checks was starting and the decision was made to bring the capability inhouse. The planning was done and the new hangar at QAIA was used before the airport was completed. It was an exciting time, then capabilities for B727 and L1011 was developed, it felt like routine. The next milestone was the introduction of the A310s and A320s into the fleet.

Of course there were other challenges some good others not so good. The development of third party contract maintenance that went a long way to cover the Maintenance and Engineering Department costs. Then the first Gulf War that shut down the airlines for four (4) months; but every challenge is an opportunity we performed a B727 D check and B707 D check for a customer. RJ has a pioneering spirit, it was always a tad bureaucratic, but when the chips were down everyone came together and made things happen, a real can do attitude.

At the age of 50 the airline still has this attitude, it has the ability to rebound from challenges; most of them global geopolitical (wars, uprisings, financial crisis, etc.).

RJ brought home the value of "if there is a will there is a way" and doing great things on a budget. I spent eighteen (18) years there and made life long friends.

Start ups are messy affairs. They are hard work and require focus, perseverance and resilience, and all that before first flight. Once operations start it is even messier.

I was at GAMCO now ADAT at the time Air Arabia and Etihad started. I was tasked to ensure an MCC and a scheduling unit are operational at the time the airline begin operations. Both airlines started within a week of each other, ABY on 28 October and EY on 5 November 2003. Small beginnings leading to greater things.

Working for an LCC is a life changing experience. I joined Air Arabia on November 1, 2004, a year after commencing operations. An LCC is a way of life that looks at value for money, efficiency and productivity in a way no legacy airline ever does. I worked for RJA and we were frugal, ABY took that to a higher standard.

Legacy airlines ignored ABY at first as a flash in the pan and an experiment that is bound to fail. Until they felt the heat and then we felt the pressure. Ten profitable years later, ABY is there to stay, true to its business model when others came and failed or changed.

I joned Al Jaber Aviation in October 2008 going from an LCC to a VVIP Corporate Jet Operator. Getting an AOC must be one of the most challenging things a person can do. I heard stories in ABY of working out of a few offices in Sharjah Cargo Building. Well at AJA it was a few offices out of Al Bateen Airport when it was still an air base. Having GCAA inspections while still building offices and  getting manuals approved and licenses accepted before starting operation requires staying power. The first aircraft, an Embraer Legacy 600 was delivered three weeks before the AOC was issued. The proving flights and final GCAA inspections were performed and the AOC was delivered on June 1, 2009 at the time of the second Legacy 600 delivery. The AMO Certificate was issued on 28 May 2009. Operating business jets is totally different than scheduled carriers. There is no schedule and flights are launched at relatively short notice, because even planned flights change at short notice as clients' change plans.

Thirty Five years later, I am starting all over again. Start ups are still messy and require focus, staying power and resilience.

Well 2013 is definitely a year of challenges and milestones. These four (4) airlines regardless of their age still face challenges some are internal but most are external. They all need to look internally and determine what is needed for them to thrive in the next decade. What brought them so far may not and probably is not what will take them forward. After all, successful companies fail because they insist on doing what made them successful in the first place, ignoring the ever changing environment they operate in. Things change and so should organizations.

For now, Happy Anniversary to all four airlines and to my friends and colleagues who are still there, moved on or retired. We all shared experiences, challenges and yes good times. Looking forward to the continued success of Royal Jordanian, Air Arabia, Etihad and AJA.

Sustaining The Growth, MENA's Airports

MENA is the fastest growing region in terms of Passenger growth, around 15% against a global average of 6% and Air Freight growth of 14.7% against a global decline of -1.5%. To sustain this growth most of the airlines of the region are still taking deliveries of aircraft or have just concluded fleet renewals and expansions. However, this is only part of the sustainability picture, the other part being infrastructure.

Airports or lack of them have been the industry's biggest problem, but not in MENA. In March/April 2013 two (2) major airports would have come online and;

1. Amman Queen Alia International Airport (QAIA) opened the new terminal on 14 March 2013  

    providing a  nine (9) million passengers annual capacity. The final phase will bring that capacity   

    to twelve (12) million passengers.

2. Doha's Hamad International Airport (HIA) will open Concourse B from 1 April 2013 with ten (10) 

    airlines operating (Air Arabia, Air India Express, Biman Bngladesh Airlines, flydubai, Iran Air, 

    Nepal Airlines, Pakistan International Airlines, RAK Airways, Syrian Air and Yemen Airways) thirty 

    two (32) passenger flights daily. Qatar Airways will move to Concourse A by the end of this year.

3. Sharjah International Airport having handled seven and half (7.5) million passengers in 2012 is 

    working on a new master plan for the airport expansion by the end of this year and sign the 

    contract for the expansion.

4. GACA in Saudi Arabia is accelerating the building of a new modern world class airport at the 

    coastal city of Jazan to replace the existing airport.

On the other hand, it was announced that a new route linking Aqaba directly to Istanbul starting in April 2013 to boost tourism to Aqaba, Petra and Wadi Rum areas.

Gulf Air Restructuring, The Final Version

Following the appointment of the new Board; the Chairman, the Executive Restructuring Committee and the GF Management have been working on a balanced restructuring strategy. The startegy is designed to reduce losses, improve customer services and better serve the Kingdom of Bahrain.

The new strategy was announced in mid January 2013. It reaffirmed the strategy adopted earlier. The strategy focused on the following:

1. A realigned network that puts emphasis on MENA operations to better serve the customers. It also aims at reducing losses by shedding unprofitable stations, eight have been closed down already.

2. A simplified modern fleet; GF has previously come to a agreement with Airbus to change the A330 order into A320 and A320NEO aircraft to meet the regional operation requirements. It also reduced its B787 order from 28 to12 to 16 aircraft. 

3. A right sized workforce through a performance based review and individual job assessments against business requirements. The aim is to simplify the organization. Gulf Air management has met in mid January 2013 to brief the unions and the Ministry of Labor on their down sizing plans.

The plan is aimed at reducing costs by 24% by the ned of 2013 and increasing revenue by 9%.

The Board will meet on a monthly basis to review the restructuring progress.

The new restructuring policy is no different than the one adopted in the last three years

Aviation Safety Culture

Dubai Civil Aviation Authority (DCAA) organized the Aviation Safety Culture 2013 (29-30 January 2013), an event that is designed to create a safety culture amongst the users of Dubai's Airports and to strength its position as a leading airport in terms of application of aviation safety standards.

The seminar, for want of a better word, discussed the Safety Management System (SMS) design and implementation which has been mandated by ICAO and picked up by national aviation authorities. It is not about the Policy Statement or the actual writing of the manual to satisfy regulatory requirements. It is about instilling a common safety culture. especially in multicultural work places with expatriates coming from more than 160 nations, with differing national cultures and levels of education.

An SMS manual looks at the practical side of things however, during implementation it fails to reach the grass roots, the people at the workplace. For SMS to be effective, its safety message has to be communicated to the employees that carry the organization. They are the people that need to be mentored, coached and motivated, who need to understand the safety message and how it affects them, their colleagues, the organization and their customers. They need to learn how to deal with pressures before they deal with processes and technology, it is about behavioural safety and consistent implementation. It is about an Organizational Culture that is able to override a National Culture when it comes to safety.
A good SMS  relies on people's competence and supports them in order to be able to recover from serious failures, especially those unusual and unpredictable.

A safety culture has several elements; Informed, Reporting, Just, Flexible and Learning. The toughest one is Just, the ability to balance between accountability and learning. It is the balance between the organization's need to learn from errors and the accountability of people committing them.
It is a fine line that is hard to draw, but in all cases it has to be transparent and consistent.

Of course, more aspects of Safety Management Systems were discussed. Clearly SMS is not only about a policy or a manual or processes, procedures and technology, it is about communicating the safety message to all the right people.

2013 a Game Changer

The year 2012 had many interesting events but 2013 will see the impact of actions or inactions taken in 2012.
Things to look forward to will have an impact not only regionally in MENA but globally:
1. Dubai, the fourth busiest airport in the world is destined to become the second busiest in 2013 with the
    opening of Concourse 3, the only dedicated A380 terminal in the world by early 2013 and the relocation
    of the Qantas hub from Singapore to Dubai will help achieve this target.
2. Etihad will make a decision on investment in an Indian carrier in two (2) weeks time, regardless of the
    airline, probably Jet Airways. The decision will change the dynamics in the Indian airline market and inject
    a higher degree of competitiveness.
3. The fate of Kingfisher Airlines is still hanging after failing to get its flying permits reinstated. Bankers do not
    seem to agree with the proposed funding of the operation as put forward by the airline. Until the airline
    resumes operation, and there is a great possibility that it might not, there is a void in the market that is
    going to affect fares and costs.
4. Qatar Airways joining Oneworld, Emirates code sharing with Qantas a Oneworld member, Etihad's equity
    stake in Airberlin a Oneworld member and possibly Jet Airways which might end up as a Star Alliance
    member coupled with its extensive code share agreement with Air France-KLM a Sky Team member will
    change the dynamics of the three major alliances. How, no one seems to know. And if we add a possible
    merger of American  Airlines a Oneworld member with US Airways a Star Alliance member then the
    world alliance dynamics are anybody's guess.
5. The privatization of Saudi Arabian Airlines and the award of two (2) operating licences to Qatar Airways
    and Gulf Air will certainly change things in the Saudi market, injecting a new level of competitiveness.
    How this would affect the turnaround efforts of Gulf Air remains to be seen. The airline is changing and a
    lot hinges on who the new CEO will be.
6. Kuwait Airways is on its way to privatization, Iraqi Airways is on the rise and Royal Jordanian is hoping
    for a turnaround.
7. Low cost carriers in MENA are on the rise and they are expanding their market share putting additional
    pressures on legacy airlines.

These are events that we already know about, what other surprises 2013 brings, is anybody's guess.
We live and see.

2013 A Year of Transformation In KSA

As 2012 winds down, good news from the region continue, with Etihad passing the ten (10) Millions passengers carried mark.

However, the most exciting news are GACA in Kingdom of Saudi Arabia (KSA) awarding two (2) operating licenses not one (1) to Gulf Air and Qatar Airways.

KSA is the biggest market in the region with a population of 28 millions and 27 airports and boasts the largest domestic market in the region. The operating license will authorize both domestic and international destinations. Recently, GACA also looked at fuel prices and it is expected that airlines will be allowed to raise fares by 10%.

The market is currently dominated by Saudia (government owned) and NAS AIR a low cost carrier. The government wants to privatize Saudia and has been selling parts of some of the airline divisions like Cargo and Catering.

2013 should see the transformation of the aviation market in KSA with the entry of Qatar Airways and Gulf Air, both with extensive networks, very competitive, with immense resources and very experienced. Both Saudia and NAS AIR will face competitive pressures in terms of levels of services, passenger feeds and pricing. Competition will not be only on the domestic routes but will spill over into international markets as the new entrants are awarded international routes from their KSA hubs and they integrate their KSA networks with their own, providing massive passenger feeds in both directions.

A Happy and Prosperous New Year to you and your loved ones,"live long and prosper".

Middle East Business Aviation

Business Aviation in MENA is starting to pick up, the sector was adversely affected by the financial crisis in 2009. According to the Middle East Business Aviation Association (MEBAA) the sector is worth one Billion USD annually and expanding. As a precursor to any further discussions, a look at the regulatory environment in MENA is required in order to understand the challenges and problems facing the sector.

Most of the countries in MENA with the exception of the Kingdom of Saudi Arabia (KSA), have adopted the EASA EU-OPS as the basis of their regulations. GACA in KSA have the FAA regulations as the basis of theirs.

The FAA has developed different regulations to cater for different sectors of the industry Part 91 (General operating and flying rules), Part 125 (Operations of large aircraft greater than 20 passengers or 6000 lbs payload when common carriage is not involved), Part 135 (Regional and Commuter airlines) and Part 121 (Air carriers). Commercial operations are authorized through an AOC under Parts 121 and 135. Private operation is authorized under Parts 91 and 125, however Part 91 has provisions for operations allowing a certain amount of charges to be collected and to allow Netjets and time sharing. The definition of private carriage and common carriage is defined in FAA AC120-12A. Private carriage operator do not  have to adhere to the same strict operating rules that are mandated in Parts 121 and 135.

EASA on the other hand has EU-OPS1 that is the equivalent to FAR Part 121 and 135. Except for a few provisions that are related to the number of passengers carried on board or the aircraft maximum take off weights all "common carriage" operators require an AOC and have to adhere to strict rules. In essence a corporate jet operator engaged in "common carriage" operates to the same rules as a legacy or a low cost carrier.

These differences in regulatory regimes have posed challenges for Business Aviation of commercial and safety implications, subjects that will be addressed later.

2013 Round The Corner

Having survived the Mayan Apocalypse and we are assured of a 2013, it is a good time to look
at what is happening in the MENA region now and what will shape events in 2013.

1. Australian Regulators tentatively approved the Emirates/Qantas agreement to relocate the Qantas
    Singapore hub to Dubai and code share.

2. Etihad is rumored to be looking at purchasing 49% of Kingfisher or maybe 24% of Jet Airways, either
    way it is looking for big time expansion in India.

3. Qatar Airways joined Oneworld and started operating the B787.

4. Saudi Arabia's GACA postponed the third airline license until 2013. However, it is reported that domestic
    fares will rise by 10% in 2013. This has been a sticking point with the new entrants.

5. The CEO of Gulf Air will be leaving by the end of the month and the Deputy CEO has been appointed
    acting CEO, until such time the Board decides on a permanent replacement. He is expected to be a
    Bahrain national. The last Gulf Air PCE from Bahrain was Mr. Ibrahim Al Hamar now Managing Director
    of Bahrain Air who was replaced by James Hogan. The airline scaled down their B787 and converted the
    A330 orders into A320s.

6. Iraqi Airways took delivery of its first A330-200 and B737-800. Now that the dispute with Kuwait
    Airways over damages resulting from the first Gulf War in 1990 has been settled, Iraqi Airways is
    expected to expand.

7. The privatisation of Kuwait Airways has been launched with the formation of a company to manage the
    airlines fleet renewal and staff issues. Certainly, the resolution of the dispute with Iraq will help matters
    specially that the airline will get half of the award as a cash infusion ($250 millions).

8. Royal Jordanian is counting down towards its 50th anniversary and took delivery of the last A320 in its
    fleet renewal plan.

Of course there are many many other exciting stories about the airlines of the region that will certainly unfold in 2013.

MENA Airlines... Are Things Looking Up?

Notwithstanding, the violence in Syria and the potential political and security fallout into neighboring countries,  Europe in a near meltdown, The BRIC economies slowing down and the USA in a slow recovery, 2012 has been a year of recovery for the MENA airlines. 

H1 results for the region's airlines and airports have been on the whole positive with double digit growth. The disruptive effects of the Arab Spring have somewhat subsided at the same time as fuel prices went down.

Tourist and business flow into the region and within the region is on the increase.

Passenger traffic increased in 2012 H1 is as follows:

Dubai 14 %, Abu Dhabi 22.8 %, Ras Al Khaimah 67%, Amman 18.4%, Bahrain 13%, Beirut 8.88% , Doha 22%, Muscat 20%, Cairo traffic is back at pre 2011 figures and Dammam 16.2%. 

The airlines drove that traffic with higher passenger loads and improved revenues. Passenger loads for H1 of 2012 were as follows:

Air Arabia 11%, Etihad 27%, Gulf Air 13%, Royal Jordanian 26% (Q1), Oman Air 19%,

IATA in its July 2012 Global Traffic Results showed the Middle East carriers posting an 11.2% increase year on year against a 6.5% global growth (read more)

The airlines followed the well tested and proven policy, the balanced approach of expansion and improved efficiencies and productivity (aka cost cutting)

Airlines expanded their code sharing activities;  GF and RJ on Amman - Bahrain and points beyond, RJ and UL on Amman - Colombo and points beyond. Of course, new routes were announced and frequencies increased.

Etihad continued its policy of expansion through acquisition by increasing its share in Virgin Australia to 10% and a small stake in Aer Lingus (3%) and code share agreements. Even, Emirates is reported in code share discussions with Qantas.

Air Arabia has signed an agreement with Oman Tourist Authority to promote Salalah, RAK Airways signed an agreement for 7000 tourists between. Moscow and Ras Al Khaimah.

In the meantime, the airlines continued taking delivery of aircraft driving the fleet age down and improving fuel efficiencies.

All this might sound a tad boring and repetitious, never mind all that, success and recovery are always amazing.

Airline E&M: Middle East Conference

UBM Aviation, Airline E&M: Middle East Conference was held at Yas Island, Abu Dhabi UAE from 14 through 16 May 2012. This year's conference is probably one of the most important because it brought together major players in the region to discuss the future of the industry in view of the ever changing threats both regionally and globally: from the ever rising price of oil, the Arab Spring and the situation in Syria, Iran and the West, Greece, Spain and the Euro Zone crisis.

This year UBM Aiation invited people from outside the industry to provide their analysis of the ever changing world scene; Richard Thompson, Editorial Director, MEED and Mr. Riad Kahwaji, CEO, INEGMA.
Mr. Thompson discussed the economic outlook and the challenges facing the region while Mr. Kahwaji discussed the security implications of regional and global threats. The final analysis was; economically optimistic about the economic environment and short term pessimism but long term optimism as far as security goes.

The conference as usual discussed the future of MROs regionally and globally and the prospects of the smaller MROs as OEMs expand into the Repair and Overhaul field (more in future blogs). It also discussed Component Support, Engine Support, Leasing and Airworthiness issues.

This year's discussions were relatively more important, not only because of the prevailing global economy but because of the introduction of new technology aircraft and their impact on costs, support and operation.

Overall, the conference was a success and the introduction of speakers who are not aviation professionals to discuss issues affecting aviation from their perspective, I think is a great idea and should be repeated at later conferences

Kudos UBM Aviation

Balance A Commodity in Short Supply

As Europe falls into a double dip recession the debate of austerity vs. growth is raging. The argument that austerity measures do not create growth and jobs is gaining credibility. The answer does not lie in uncontrolled government spending but rather in an approach of cost savings and measured spending to spur growth. 

On a micro economic level, this is similar to the approach taken by airlines globally. This tends to explain the resilience of the airlines in MENA/GCC when compared to those of Europe and North America.

With every crisis in the last two decades western airlines have cut costs and tightly controlled growth. The best example is US carriers post 9/11, that instituted deep cost cuts and throttled growth to the point it took more than a decade for the sector to recover and barely just. It took a major shake up with consolidation and bankruptcies to energize the industry.

In this region, similar things happen. Airlines start by cutting costs and canceling unprofitable routes and flights to stem losses. Productivity drives and cost cutting becomes the battle cry of the season, just as conventional wisdom dictates. But then common sense or folly prevail depending on your point view. Aircraft are not grounded in mass and orders are not canceled, maybe deferred.  

The airlines of the region continue their growth either by increased frequencies to popular and new regional destinations or by expanding into new regions such as Asia, Africa, CIS and South America, the emerging and frontier markets of the global economy. Markets that are totally ignored by Western European and North American carriers. Instead, we hear the criticism of how airlines are subsidized by their governments, as if western carriers are not protected by their respective governments.

This balanced approach to regional and global crises is what have saved the airline industry of the region, over and over. 

MENA and GCC Airlines Upbeat But...

This year's Arab Travel Market (ATM), the most prestigious regional event in travel and tourism in the MENA and GCC regions, was the most successful in many years. Attendance was 10% more than last year's. African and Asian countries attended to market their countries, even Europeans attended despite the Eurozone crisis. The mood was upbeat. Airlines in the countries of the Arab Spring showed Q1 traffic growth of around 25% higher than last year and airlines in the GCC had around a 10% growth (the difference being the lower base for each region).

Political instability is still a factor in the prosperity and financial performance of tourism and the airlines in the region, but things are stabilizing as political and hopefully economic reforms take hold.

However, oil prices are by far a larger threat, almost every airline has indicated fuel costs constituting around 40% of its total cost in spite of fuel hedging ( 25% to 30% of their annual fuel needs are hedged on average). This has prompted Qatar Airways CEO to declare that if oil prices persist or increase we are bound to see higher ticket prices. An increase that might derail a fragile recovery.

Of course, the Eurozone crisis is another problem and the recent elections in France and Greece are not very encouraging. If the economies of the Eurozone enter into a deeper recession, a further reduction in European visitors to the region will occur with negative consequences to tourism and airlines.

Airlines in the region are again discussing growth plans and expansion into new markets and destinations, exhibiting the vibrancy and resilience of the sector.

RJ Clips Its Wings

This is the gist of a news item in Zawya.com; a tad harsh. MENA is a tough neighborhood but Royal Jordanian is a tough airline. This is not the first time or the last time RJ will have to retrench. The airline has survived worse crisis in its 49 years history; the Arab Israeli war in 1967, the 1982 Israeli invasion of Lebanon, the 1987 financial meltdown in Jordan which saw the currency devalued by 50%, the first Gulf War in 1990 and the list goes on and on.

RJ was transformed from a losing government owned airline to become the first Arab airline to join a global alliance, Oneworld in 2007 and the first Arab privatized airline later in the same year. It also embarked on a fleet renewal program replacing its older A310 and A320s with new A319, A320, A321 and A330s. The A340 fleet was refurbished and new seats and AVOD system installed. The airline has 12 B787s on order.

2011 was a particularly tough year; oil prices hovered around $110 a barrel, a deepening Eurozone debt crisis which is still unfolding and political upheaval in the region, the Arab Spring which affected some of the most profitable destinations in the network and caused a drop in incoming tourists.

According to Mr. Hussein Dabbas, RJ's CEO "Despite all the difficulties, the company was able to achieve positive operational results during 2011, as it increased the number of passengers by 6.5 per cent, the operational revenues by 6 per cent, the flying hours and departures by 3 per cent, the seat factor reached 70 per cent." however, fuel prices increased to JOD 293 millions in 2011 from JOD 203 millions in 2010. My estimate is a net loss of $100 millions on a turnover of $1 billion.

The airline is axing 5 destinations and reducing flights during the year as traffic develops. The airline is looking at the fleet requirements. Probably a reduction in the short and medium range fleet by terminating a couple of leases.
There is nothing new in the recovery plan it has been used several times in earlier situations and seems to work. RJ will still be looking at new destinations and opportunities and leveraging its Oneworld membership to its advantage.

MENA is not for the faint hearted but Royal Jordanian is a resilient airline and has been through worse situations before and emerged a stronger organization, I see no reason that they will not this time.

Expansion by Acquisition, A New GCC/MENA Trend

Etihad Airways just announce its acquisition of a 40% stake in Air Seychelles for US$ 20 Millions. As a result the flights to Mahe will increase from four (4) weekly to daily and several European flights out of Abu Dhabi will carry a joint flight numbers in addition to the presence of Air Seychelles in Etihad sales offices. This follows Etihad's 29.2% stake in Airberlin a month ago.

Not to be left out Qatar Airways has announced that they have selected a target airline in Europe for a major equity stake to be announced in due time. Qatar Airways already has a 35% share of Cargolux.

THY Turkish airlines is interested in LOT polish airlines.

It is worth remembering that Emirates had a 40% stake in Air Lanka for 10 years with a management contract which was terminated in 2008 and Emirates subsequently sold its shares back to the government.

2012 An Exciting Beginning

The Chinese New Year is upon us and the Year of the Dragon is supposed to be much better than last year.
Well, it looks like it maybe so. January has been an interesting month with lots of exciting news for the region.

The opening of the Saudi Domestic and International market tops the list. The Kingdom of Saudi Arabia is a large market with a population of 27 Millions and 27 domestic airports, effectively served domestically by two airlines; Saudi Arabian Airlines, the national carrier and NAS Air a low cost carrier. As early as April 2011 General Authority of Civil Aviation (GACA) has declared its intention to liberalise the market in order to better serve the consumers by allowing foreign airlines especially those from the GCC to operate domestically and internationally subject to bilaterals. This January GACA declared that by April 2012 they will issue an RFP for interested airlines wishing to participate. In the meantime airlines like Emirates and Gulf Air among others have shown interest and are in discussion with the authority.

Qatar Airways has indicated that they have identified a European take over target, but they are not saying which airline (maybe Czech Airlines). keeping in mind that the airline has acquired 35% of Cargolux last year and right after Etihad's 29.21% in AirBerlin, who by the way inaugurated their first flight into Abu Dhabi on 16 January 2012. It appears that THY Turkish Airlines maybe interested in acquiring LOT Polish Airlines.
That will make a total of five (5) airlines in Europe that have been bought (BA/BMI) or a large stake acquired in them (Qatar Airways/Cargolux and Etihad/Airberlin) or are targeted.

On a more sobering note, Gulf Air ruled out its privatisation effort for the time being due to the events in Bahrain and it will probably be looking for the Saudi market to improve its financial position. This is a reversal of the trend of privatising airlines in the region, keeping in mind that Kuwait Airways privatisation was put on hold in October 2011pending restructuring of the airline.

2012 maybe a tough a year but for sure it is going to be an interesting one.

2012 ... A Tough Year

Is 2012 going to be a repeat of 2011? The chances are yes. Not much has changed except a lot of issues of 2011 are going to be resolved one way or another. The uncertainty that prevailed in 2011 is still with us and in some cases it is getting worse.

2012 is full of geopolitical issues affecting the region
- Tunis, Egypt, Morocco and Libya will be governed by Islamists, who for decades were in the opposition.
   They will face the test of governing, the realities of the world and the well being of their people and
   economies. With the exception of Libya the other three depend heavily on tourism and the test will be the
   balancing act between beliefs and pragmatism.
- Syria remains a problem with no apparent solution in sight in the mean time casting shadows on Lebanon.
- Yemen is still the same with very little movement in spite of the accords signed in Riyadh.
- Iraq seems destined to even more political instability that may end up in its break up.
- Iran's threats to close the Straits of Hormuz could lead to a major conflict coupled with the nuclear
  capability problem with  Israel threatening to bomb Iran's nuclear installations.
- The Palestinian Israeli conflict that keeps worsening with the intransigent position of Israel relative to the
   Peace Process and Palestinian Statehood.
- The Euro zone debt crisis deepens with the downgrading of France, Austria and others including the
   European Financial Stability Facility (ESFS) leading Europe into recession and potential country defaults
   affecting tourism to the region.

On the other hand there are some good news
- Dubai and Abu Dhabi are developing into destinations of their own attracting more and more visitors.
- Saudi Arabia is embarking on an interesting experiment in airline liberalization by allowing GCC and other
   foreign airlines to operate domestic and international flights from the Kingdom.
- The airlines of the region are still expanding into new markets mainly South America, Africa and the CIS.
- Cargo operations are on the rise and with the reconstruction in Libya and hopefully Iraq will cause an
   increase in regional cargo operations.
- GCC airlines are expanding by acquisition with Etihad and Airberlin following Qatar Airways and Cargolux
   in 2011. Qatar Airways indicated that they have identified a target airline in Europe for acquisition. Who
   knows, Royal Jordanian may revive the plans of a merger with an airline a la Air France/KLM model.
- India is allowing Foreign Direct Investments (FDI) in its ailing airlines and hopefully more restructuring
   of the industry. India remains a large and expanding market that attracts not only Oneworld and Star
   Alliance but every GCC airline.

In a nutshell nothing changed from 2011.
- The capacity of the MENA/GCC airlines will increase and so would their networks through additional
  aircraft deliveries and mergers and acquisitions.
- Kuwait Airways will hopefully restructure.
- Saudi Arabia will launch its new initiative allowing regional airlines to expand within the Kingdom by
  operating domestically and internationally and allowing carriers to serve more and more destinations.
- Cargo is assuming a higher importance with airlines like Emirates, Etihad, Qatar Airways and Royal
   Jordanian.

Will the airlines of the region make profits, probably if everyone in the neighborhood behaves.
"Plus ca change, plus c'est la meme chose" (The more things change, the more they remain the same).

Wishing you all a prosperous and safe 2012.