Oil still fuelling Gulf economies

posted on 11th June 2018

The Middle East is exploiting its favourable geographical position and petrochemical wealth to take a bigger share of the global business aviation market, reports Martin Roebuck

Business aviation activity in the Middle East is worth $800 million, estimates Steve Jones, general manager of Al Bateen Executive Airport in Abu Dhabi.

Saudi Arabia accounts for 42% of the market in the region and the United Arab Emirates 31%, reflecting the underlying strength of their economies and the fact that oil remains the key growth driver. Saudi Arabia has 18.9% of the world’s proven world reserves while the UAE boasts 7%. The latter’s oilfields are primarily in Abu Dhabi, whose increasing wealth to a large extent has compensated for the economic crisis suffered by the neighbouring emirate of Dubai in 2009-10. Dubai depends on business and tourism rather than natural resources, and went into reverse when its property bubble burst, but is now edging back towards prosperity.

Figures for business jet growth in the Middle East for the decade to 2010 tell a misleading tale, with Saudi Arabia bottom of the league table showing just a 2% increase. This is because the business was already relatively well established there. In fact today’s business aviation fleet in the kingdom is 23% larger than it was 10 years ago. And the growth is unlikely to stop there, with the Saudi economy is expected to grow at an average rate of 6.1% over the 2010-2015 period.

The Middle East’s share of the global business aviation market remains modest at around 2% of the current fleet of 18,400 aircraft, according to Chris Seymour, head of market analysis at Ascend. However, the region is responsible for almost 5% of the 2,700 aircraft that the consultancy is aware are on order, while it classifies a further 22% of orders as “unknown” in origin, so the region is clearly a growing force.

Geographically, the Middle East forms a bridge between east and west, a natural advantage exploited massively by carriers such as Emirates, Etihad and Qatar Airways. Flight times are typically nine hours to Beijing and Jakarta, seven hours to Frankfurt and London, five hours to Moscow and less than four hours to most of India. Increasingly, as India and China grow, the Gulf countries can provide technical stops, maintenance and all the required ancillary services.

It is forecast that the Middle East will receive 450 new business jet deliveries in the 2010-2019 period. The region’s business aviation fleet will grow at a compounded annual rate of approximately 8%, with larger types continuing to be most favoured. Super medium (37%) and heavy jets (31%) represent more than two-thirds of the present market.

Andrew Hoy, MD of ExecuJet Aircraft Trading, says: “In terms of ‘heavy metal’, few countries beat Saudi Arabia owing to the large number of Boeing business jets, Airbus corporate jets and larger jets that are privately owned and operated. The market for larger aircraft which have a global range is well established and continues to expand.”

The same trend is evident in Dubai, despite its recent woes. Empire Aviation Group (EAG), which is based in the emirate, announced at NBAA a contract for the operation and management of an Embraer Legacy 650 to join its fleet of five Legacy 600s.

The 650, an extended-range derivative of the super midsize 600, can fly up to 3,840nm (7,112km) with eight passengers and thus enables EAG to reach major business destinations such as London, Singapore, and Johannesburg.

EAG, formed in 2007, is a provider of integrated private aviation services, including aircraft sales, management, charter, finance and insurance.

“The addition of the new Legacy 650 to our managed fleet will enable us to enhance services for our customers, expanding our longhaul fleet, while maintaining the cabin comfort of our existing Legacy 600 fleet,” says Paras Dhamecha, executive director of EAG. “Being the first to offer this aircraft in the UAE is very exciting for us, as demand for our private aviation services increases.”

Ascend’s Seymour does not foresee future fleet makeup changing radically in the Middle East, but observes that smaller aircraft such as Embraer Phenoms are beginning to arrive on the scene.

Mike Berry, ExecuJet MD in the Middle East, agrees that while the region has traditionally been a market for larger business jets and even widebodies, there is now more scope for aircraft such as the Hawker 800 and 900, the Learjet and the Phenom 300.

Al Bateen’s Jones notes the extent to which internationally recognised charter operators, MRO and FBO organisations are now working with local partners in the Middle East, for regulatory or purely commercial reasons. Meanwhile, scheduled carriers such as Qatar Airways (see separate story overleaf) and Saudi Arabian Airlines have set up their own business aviation subsidiaries.

Saudi Private Aviation took delivery of its fourth Dassault Falcon 7X at the end of last year to become the largest operator of the type in the world. The aircraft can reach New York from Dubai. Sixty Falcons are now in service in the Gulf region, accounting for almost 10% of Dassault’s business jet sales.

With major business aviation developments underway at many of the region’s airports, including King Khalid International in Riyadh, Dubai World Central and Al Bateen, Jones says a more professional business aviation environment is taking shape across the region, characterised by more effective competition.

The regulatory environment is also maturing and becoming more coordinated. Each country in the Middle East has its own set of regulations but most are based on EASA standards and it is becoming gradually more difficult to operate in the grey market, he points out. Regulators are monitoring operators better, including ramp and other targeted checks based on a risk matrix. They are using “watch lists” to see if operators have been reported violating rules elsewhere, and whistle blowing, once culturally unacceptable, is no longer so frowned upon.

Observing the number of charter operators with AOCs in the Middle East and India “where there was not a single one a few years ago”, David Macdonald, director of private jets at charter broker Air Partner, claims the market has become overheated and failures are inevitable.

Jones is more positive, and believes that the importance of understanding the local culture and the barriers to new entrants such as majority local ownership (except in the region’s free zones) impose their own natural ceiling on business start-ups. He does accept, however, that political developments in the Middle East and north Africa could slow growth, quite apart from the uncertainty in the world economy.

The punishing climate demands that aircraft are stored under cover and there are not enough hangars to meet demand, but Jones says new ones are now being built and ex-military facilities are becoming available.

He adds that availability of skills remains an issue, however, and Frost & Sullivan backs up his comments in a new report on MRO in the Middle East. Outside the UAE, the consultant says infrastructure remains poor and qualified technical staff are in short supply.

ExecuJet’s Berry says MRO capacity remains patchy and aircraft based elsewhere in the Middle East will come to the UAE as their only local alternative to flying to Europe for scheduled maintenance.