Ishka Insight Volume 2 - Indispensable Analysis and Opinion - Ishka Global
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4 August 2016
Ishka Insight
Volume 2
Indispensable Analysis and Opinion
© Ishka Global Ltd ishkaglobal.com Ishkaglobal.com
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Insight 4 August 2016
Ishka Insight
Volume 2
Contents
China’s growing leasing ambitions 4
Contents
Will banks and lessors finance Iran aircraft orders? 10
Malaysia Airlines to survive Mueller’s departure 1
Unprofitable Oman Air
Malaysia Airlines to faces uphill
survive task to
Mueller’s break-even by 2017
departure 1 14
Malaysia
Is there Airlines to for
an opportunity survive Mueller’s
the smaller departure
Egyptian airlines in times of adversity? 1 19
Malaysia Airlines to survive Mueller’s departure 1
Avianca’s bid for new equity vital for fleet financing 23
Malaysia Airlines to survive Mueller’s departure 1
Against heavy odds Aeroflot is heading for a profit in 2016 28
Malaysia Airlines to survive Mueller’s departure 1
Brexit Part II: Weaker sterling impacts airline order books 33
Malaysia Airlines to survive Mueller’s departure 1
Future appears bleak for Fastjet 37
Malaysia Airlines to survive Mueller’s departure 1
CanMalaysia
MonarchAirlines
Airlinestosurvive
surviveas
Mueller’s departure
a low cost carrier? 1 41
Struggling LATAM gets equity boost from Qatar Airways 44
Kenya Airways likely to struggle to break even 47
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The information used in this document has been assembled from many sources, and whilst the utmost care has been taken to ensure
accuracy, the information is supplied on the understanding that no legal liability whatsoever shall attach to Ishka Limited, its subsidiaries,
officers, or employees in respect of any error or omission that may have occurred.
© Ishka Ltd ishkaglobal.com
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comInsight 4 August 2016
The Team
Eddy Pieniazek
Head of Analytics and Advisory
Eddy has supported thousands of aircraft transactions during his 35 years’ career, advising leaders of the world’s top aviation finance,
investment and leasing companies, airlines and manufacturers. A respected and valued influencer, Eddy was one of the original pioneers
of today’s aircraft valuation and appraisal industry, developing the industry’s first online valuation tool and associated analytics, fulfilling
the rigour and consistency demanded by investors.
Eddy began his career at Ascend (formerly known as Airclaims) in 1982. He founded and led Ascend’s rapidly expanding data and
advisory business, spearheading flourishing relationships with industry leaders which continue to this day.
Eddy is a frequent speaker on the international conference circuit and is a visiting lecturer at the Air Business Academy in Toulouse.
Dickon Harris
Editor
Dickon operates at the very heart of the aviation financial community and is one of the sector’s most respected journalists. Dickon has
been a financial journalist for nine years and spent four years as editor of Airfinance Journal leading the aircraft and leasing finance news
and data service from Euromoney. He was also integral to the expansion of Airfinance Journal’s deals database, editorial and
international events portfolio. Before his career in financial journalism, Dickon worked for the former UK MP and Energy Secretary, Ed
Davey and has worked on several UK regional newspapers.
Since joining Ishka, Dickon has led the foundation and development of the editorial team and specialist reporting capabilities, delivering
breaking news, exclusive features and in-depth interviews with key industry leaders.
Stuart Flaye
Analytics and Advisory
Stuart has over 15 years’ experience within the aviation industry. Prior to joining Ishka, Stuart was Technical Director at Hong Kong
Aviation Capital (formerly Allco Finance Group) where he was responsible for the day-to-day technical asset management of the HKAC
portfolio, the drafting of technical lease documentation, co-ordinating and managing aircraft valuations and investor reporting, along with
analysing trends in the aviation market. Stuart previously spent seven years as Senior Analyst at Ascend where he provided advisory
services to banks, financiers and lessors.
Stuart holds an HND Engineering qualification from the University of Hertfordshire and a BEng (Hons) Aeronautical Engineering from City
University, London.
Siddharth Narkhede
Analyst
Siddharth has over five years’ experience in aviation research and analysis. He has a strong background in airline financial research and
strategic analysis and has written many business and credit research reports on airlines and other industries alike.
Siddharth holds a MSc in Finance degree from the University of Edinburgh Business School and a Bachelors degree in Business Studies
from the University of Mumbai. As part of his masters’ thesis, he had researched the impact of the US Bankruptcy Code (Chapter 11) on the
financial performance of US based airlines.
Connor Lovell
Analyst
Connor graduated from Kings’s College London in 2014. He worked as an academic researcher before training as a journalist and
joining Ishka in 2016. He currently supports the news and analytics team, researching and analysing market trends for Ishka Insights.
© Ishka Ltd ishkaglobal.com
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comFriday 8 July 2016
Stuart Flaye
Analytics and Advisory
Market Insight at Ishka
Indispensable Analysis and Opinion
China’s growing leasing
ambitions
While there have been several established lessors in the Asian market for a good number of years,
2014 could well be looked back on and seen as a definitive page in the development of global
aviation. While ‘Western’ leasing companies have traditionally dominated the global aircraft leasing
arena since the inception of the model, Chinese-based financiers in the last few years have turned
their attention towards the international aviation leasing market; making announcements - albeit with
some false-starts - about new deals, demonstrating their growing ambitions in the aviation industry.
Of course, none of this has evolved naturally, but has been rather deliberate. In 2007, policy
decisions from the State Council and action from the China Banking Regulatory Commission (CBRC)
encouraged state-owned banks to participate in the sector, resulting in all five state banks, as well as
one of the three major ‘policy’ banks, forming new aircraft leasing companies in a space of less than
18 months. In December 2013, the central government again stated its wish for Chinese lessors to
become some of the biggest in the world by 2030. Two and a half years later we have already seen
the effects.
While the historical trend has been for China-based leasing companies to focus on domestic leasing,
reflecting previous regulatory limitations and the availability of the free trade zones (Tianjin, Shanghai,
Fujian and Guangdong), Chinese lessors have now become visible in their determined quest for
assets with leases attached to foreign airlines as a means to expand their portfolios and to some
degree change the rules of the game within industry. Coupled with this, their acquisition of, and
investment into, established foreign leasing companies has provided, in some cases, direct access to
valuable management experience.
In this article, Ishka aims to provide a summary of the major players – old and new – and to anticipate
what the future may hold once the dust has settled.
We begin with Hong Kong-based Cheung Kong, which made a notable entry into the field of play in
2014, with deals totalling to the tune of around $1.89 billion. CK Hutchinson Holdings Ltd, headed by
Hong Kong billionaire, Li Ka-shing, entered into an $816 million deal with GECAS to buy 21 aircraft;
with BOC Aviation in a $492 million deal for 10 aircraft and with Jackson Square Aviation LLC with a
$584.2 million deal to buy 14 aircraft. At the time of purchase, nearly all the aircraft were on lease to
airlines for an average six to nine years. Accipiter Holdings is the Dublin-based company Cheung
Kong set up to run its leasing business. It reportedly struck a deal to buy 60 aircraft from AWAS
before being outbid by Macquarie AirFinance for the portfolio.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight Friday 8 July 2016 Cheung Kong, along with the Li Ka Shing (Overseas) Foundation, also formed a joint venture with MC Aviation Partners Inc. (MCAP) in November 2014, called Vermillion Aviation Services. It saw MCAP transfer to the JV a seed portfolio of 15 aircraft to Vermillion’s Irish entity (Vermillion Aviation Holdings Ireland Limited) and concluded a purchase and leaseback arrangement with Avianca Brasil for new Airbus A320-200 in August 2015. CK is believed to have paid $132 million for its stake in the venture with MCAP. Questions were raised at the time as to whether this JV effectively overlapped with Accipter’s strategy. Now, moving on to the ‘Big Four’ - Industrial and Commercial Bank of China Ltd., Bank of China (BOC), Agricultural Bank of China (ABC) and China Construction Bank (CCB). ICBC Leasing had already been on a strong – albeit largely quiet – growth path that has made it one of the larger lessors in the world. It has held an unusually international viewpoint since it was established in November 2007, swiftly adding overseas offices to facilitate its global reach. Its total portfolio is stated at 452 aircraft. It has 17 domestic clients and 34 overseas clients. By 2018, it is expected to corner over 50% of the Chinese market overall, up from 38% in 2013. BOC Aviation Pte. Ltd was formed in December 2006 when Bank of China took over the established international lessor Singapore Aviation Leasing Enterprise Pte. Ltd. (SALE), offering it a ready-made global presence on a plate. The company became a wholly-owned subsidiary of Bank of China. In May 2016, BOC was converted to a public company, changing its name subtly to BOC Aviation Limited. As part of a spin-off and separate listing by the bank, BOC Aviation listed 27.3% of its total share capital, or 189,724,500 shares, on the main board of the Hong Kong Stock Exchange on 1st June 2016. Beijing Hanguang Investment Corporation holds 2.7%; while Sky Splendor, an indirect wholly-owned subsidiary of Bank of China, holds the remaining 70% stake in BOC Aviation. Agricultural Bank of China Financial Leasing Co., Ltd. (ABC Financial Leasing) is a wholly-owned subsidiary of the Agricultural Bank of China. Since the late 1970s, the Bank has evolved from a state-owned specialized bank to a wholly state-owned commercial bank and subsequently a state- controlled commercial bank. The Bank was restructured into a joint stock limited liability company in January 2009. It remains focused on the domestic market, and is one of a number of Chinese leasing companies to have ordered the Comac C919. Established in December 2007, CCB Financial Leasing Corporation Limited (CCBFL) is a wholly- owned subsidiary of China Construction Bank. CCB Leasing International is the primary overseas platform for CCB Leasing’s aviation leasing business and established a Dublin office in October 2015, which is responsible for all aircraft leasing business outside of China. It currently has a portfolio of around 35 aircraft, although the company has set its sights at having a fleet of 200 by the end of the decade – which means they will have to be extremely active in the sale and leaseback market or they will have to acquire an existing aircraft portfolio. © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Market insight Friday 8 July 2016
CDB Leasing is arguably one of the best known of all the Chinese lessors. The company was
formerly known as Shenzhen Finance Leasing Co. Ltd. and changed its name to CDB Leasing Co. Ltd.
in May 2008 as the result of China Development Bank increasing its ownership stake to become the
controlling shareholder. The company was established in 1984 and is headquartered in Shenzhen,
operating as a subsidiary of China Development Bank Corporation, one of the China’s policy banks
which is under the direct jurisdiction of the State Council of People’s Republic of China. In 2015,
the state-owned bank announced it plans to list the leasing unit on the Hong Kong Stock Exchange
(HKSE) with the aim of raising between $759 million and $1.1 billion (deal priced at $799 million in the
end). CDB Leasing officially launched its IPO on 21st June 2016 and is expected to begin trading on
the HKSE on 11th July 2016. Its prospectus indicated that aircraft leasing accounted for 45 percent of
CDB Leasing’s total revenue in 2015.
Approx. Total Fleet Size
Name Base Date Formed
(commercial aircraft)
ABC Shanghai 1979 50
Accipiter Dubai 2014 43
AerDragon Beijing/Shannon 2006 18
Astro Hong Kong 2015 -
AVIC Shanghai 2008 25
BOC Aviation Singapore 2006 462
BoCom Shanghai/Dublin 2007 49
Bohai Leasing (Avolon et al.) China/Ireland 2012 443
CALC Hong Kong 2006 172
CASC Beijing 2002 13
CCB Beijing/Dublin 2007 35
CDB Leasing Shenzhen 1984 360
ICBC Beijing 2007 452
Minsheng Beijing 2008 39
Ping An Shanghai/Dublin 2012 50
Vermillion Dublin 2014 19
China Aircraft Leasing Company Limited (CALC) is the largest independent aircraft operating lessor
in China, in terms of new aircraft import under lease each year. It was founded in 2006 and is
headquartered in Hong Kong. CALC was the first publicly-listed aircraft lessor in Asia, floating on the
Hong Kong Stock Exchange on 11th July 2014. It is scheduled to deliver around 17 aircraft in 2016 and
increase the fleet to at least 80 aircraft by the end of 2016. Based on the order commitments, the
fleet is forecasted to increase to 172 aircraft by the end of 2022. It has plans to expand across Asia
even though it presently relies on China for most of its business.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight Friday 8 July 2016
East vs. West - A comparision of the top leasing
companies by fleet size
0 400 800 1200 1600 2000
GECAS
AerCap
SMBC
BOC
ICBC
Bohai Leasing (Avolon et al.)
BBAM
CDB Leasing
Source: Company data and Ishka estimates
AerDragon Aviation Partners Limited was established in 2006 and was formed as an aircraft leasing
joint venture between China Aviation Supplies Holding Company (CAS), AerCap and affiliates of
Credit Agricole Corporate & Investment Bank (CACIB). The venture comprises of AerDragon Aviation
Partners, based in Shannon, Ireland and Dragon Aviation Leasing, based in Beijing. It currently has 18
aircraft on lease to eight airlines. East Epoch Limited became a new shareholder in May 2013, while
increasing its share capital to $268 million. CAS owns a 50% stake, while AerCap, CACIB and Epoch
each own an equal remaining share in the company. As an entity, it is a relatively small player in the
market.
Established in February 2008, Minsheng Financial Leasing was founded by China Minsheng Banking
Corporation Ltd. (CMBC) and Tianjin Port Free Trade Zone Investment Co, Ltd. A now established
name in the industry, it has been looking at developing the Hong Kong market; along with Japan,
South Korea and Southeast Asia. While it is more known for leasing business aircraft, the lessor has
been active in the US market, signing up to a $300 million financing of eight Gulfstream aircraft, using
a US Ex-Im Bank guarantee and a Letter of Intent with Boeing for 30 737s (both NG and MAX).
A new aircraft leasing company to launch in 2015 was Astro Aircraft Leasing, although it has yet to
announce any deals in the public domain. It has been established by the former Global Head of
Aviation Finance and Managing Director of ICBC Leasing, Johnny Lau.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight Friday 8 July 2016 In January 2016, Avolon became a wholly-owned, indirect subsidiary of Bohai Leasing (formerly known as Xinjiang Huitong (Group) Co., Ltd), which is a majority controlled subsidiary of the HNA Group. The deal priced the publicly listed Irish lessor at $31 per share, representing a purchase price of about $2.6 billion. The transaction is reportedly to have a total enterprise value of approximately $7.6 billion. Avolon, which was only established in May 2010, is now the core aircraft leasing brand for Bohai Leasing, and also assumed management of the Hong Kong Aviation Capital (HKAC) business – an existing Bohai subsidiary. HKAC itself was formed by the HNA Group in January 2010 following its purchase of the aviation division of Allco Finance Group, after the Australian company went into administrative receivership in 2008. Bohai Leasing acquired a majority shareholding in HKAC from the HNA Group in 2012. Also sitting under the HNA umbrella is Changjiang Leasing Co. (formed in 2000), Yangtze River International Leasing Co. Ltd. (formed in 2003) and Hong Kong International Leasing Co. (formed in 2007). Avolon’s owned, managed and committed fleet is now in the order of 400 aircraft, which combined together with HNA Group and Bohai’s other aircraft leasing interests, comprises of a total fleet of more than 500 aircraft – which would now rank it as the world’s fourth largest aircraft leasing business by asset value. Bohai Leasing’s purchase of Avolon is not only the largest aviation deal in China so far, but is also marks the first time a Chinese lessor has succeeded in taking over a Western one. In 2012, an ambitious attempt by a private Chinese consortium to acquire ILFC for $4.8 billion failed to come to fruition. The US-based lessor was later acquired by AerCap in 2014. Also in the race to purchase Avolon was AVIC Capital Co. Ltd. - the financing arm of Aviation Industry Corporation of China, a Chinese state-owned aerospace and defence company. It had bid, along with and its parent China Investment Corp - the Chinese sovereign wealth fund - for a 51% bid for Avolon but ended talks during 2014, when the parties could not come to an agreement. Avolon then progressed with its IPO at $20 per share in December 2014. Under AVIC Capital Co. is AVIC International Leasing, which leases out primarily Chinese-manufactured aircraft to Chinese carriers. It has also grown a portfolio of around 50 western built aircraft, utilising export credit financing for a lot of the transactions. Hong Kong has been very open about its intention to become more of a rival to Singapore and Ireland and it has recently introduced withholding tax reductions aimed at establishing the city as an aircraft leasing and financial hub. Designed to make the city more desirable and competitive, tax on Hong Kong- PRC transactions has been reduced from 7% to 5% meaning the Hong Kong based lessors can now offer more attractive rates to PRC airlines. Cheng Yu-Tung is such a case in point. Hong Kong’s fourth richest man has, via Chow Tai Fook Enterprises Ltd. and NWS Holdings Ltd. invested in start-up Goshawk Aviation, a joint venture formed in late 2013 with Investec Bank. Having secured a $605 million non-recourse secured loan facility in July 2015, the Dublin-based lessor has recently ramped up staff numbers and will be a name to watch in 2016. Other mainland-based smaller players worth a mention are Bank of Communications Financial Leasing (or BoCom Leasing) – established in 2007 and headquartered in Shanghai. It has established JY Aviation Leasing as its Dublin-based leasing subsidiary. China Aviation Supplies Holding Company (CASGC) was established in October 2002 and is one of six holding companies of the China Civil Aviation Administration. It offers operating lease as part of it wider business. China International Aviation Leasing Services Limited (CALS) is a specialist aircraft leasing company headquartered in Shanghai. Established in 2012, the company provides domestic leasing services. © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Market insight Friday 8 July 2016 There are also reports that Rongzhong International Financial Leasing formed an aviation leasing division in March 2015. With it majority shareholding held by Goldbond Group Holdings Ltd., Rongzhong was established in 2008 and based in Wuhan; it was the first wholly foreign owned finance leasing company founded in Hubei Province. Little more is known about any aviation activity it has been involved with. Another name to watch going forward is the Shanghai-based aviation division of Ping An International Financial Leasing, which was formed in 2012; and is a wholly owned subsidiary of Ping An Insurance Group – the largest non-state company in China. In addition to a sizeable order of COMAC aircraft made in June 2015 this new entrant is due to expand its portfolio with the arrival of reportedly 30 Boeing and Airbus aircraft via sale and lease back transactions. It also established an Irish subsidiary (Ping An Aircraft Leasing Company Ltd.) in September 2015 and is currently building up a Dublin- based team. Finally, at the time of writing, CIT Group is in the process of selling its aircraft-leasing business, CIT Aerospace, having initially revealed its intention to do so in November 2015. Reports suggest that more than a dozen entities have asked to be considered for bidding, which includes Chinese and Japanese leasing companies, plus some global pension funds and insurers. CIT’s leasing arm owns more than 350 aircraft with asset valued at around $11 billion, although the estimates of the final price for the lessor range between $3 billion and $4 billion. The first round of bids was due in towards the end of June 2016. The outcome of this contest could change the landscape again over the latter part of 2016. The Ishka View Building a Chinese presence in the aircraft leasing industry is a stated long term intention. Bearing that in mind, the ‘new’ leasing companies have been making some smart strategic moves – they have bought ready-made aircraft portfolios from a variety of sources; bought whole leasing companies; formed JVs to leverage management experience and test the various ways of operating in this sector; and perhaps most importantly, they have been building relationships with the lessor community and with airlines. Whether they have bought the right assets, paid the right price, or acquired the right credits/airlines in the right proportions, will depend on how the market evolves. It also appears that even those companies that have been successful in acquiring lessor portfolios in the market over recent times remain hungry for more. The number of potential ‘larger’ lessor portfolio’s being offered going forward is gradually diminishing, although there remain a few possible targets to satisfy the growth requirements of all the Chinese-backed institutions. The clamour to obtain market share amongst Chinese leasing firms eager to acquire established Western lessors, following the Avolon deal, may drive up prices to beyond-premium levels, which could well return to challenge them in the future unless sufficient due-diligence has been done beforehand and realistic management is undertaken to master the potential risks, including those related to the operation of the aircraft and their condition, maintenance, registration and insurance, transition process and costs, and associated residual values. The delivery of a large number of aircraft orders made after 2011 by Chinese lessors and airlines is due to peak by 2018. While the lessors remain in a honeymoon period as aircraft run through their primary leases, those lessors that don’t possess the necessary expertise to tackle the aforementioned issues are going to face a turbulent ride and a steep learning curve. © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Wednesday 27 July 2016
Dickon Harris
Editor
Market Insight dickon@ishkaglobal.com
Indispensable Analysis and Opinion
Will banks and lessors finance
Iran aircraft orders?
Iran, through Iran Air, is in talks with Boeing and Airbus for up to198 new aircraft through direct orders.
At least two big issues remain in place for either of the two aircraft order deals. The first is regulatory
approval in the face of increasingly vocal US opposition in Congress towards selling aircraft to Iran
and any involvement by the US Export Import Bank.
The other related but secondary concern is whether banks and lessors are willing to finance aircraft
deals into Iran.
In addition, US EXIM still cannot approve any deals over $10 million with no quorum and Senior US
Republicans are legislating to specifically prevent the North American export credit agency from
being able to support any aircraft sales to Iran.
The Ishka view is that US political opposition to the order, while vocal, will ultimately prove pointless
and will not prevent either a sale from either Boeing or Airbus if Iran upholds its own commitments.
However, US EXIM support for aircraft deliveries for Iran Air is currently forbidden under Federal law.
Moreover it will remain politically difficult for the bank to offer support for several years at least.
Banks and lessors are waiting for permission to fund aircraft in Iran from the US Office of Foreign
Assets Control (OFAC). Ishka anticipates that competition will be slow at first among the banks and
lessors until the OFAC agreements are in place, but will quickly gain momentum due to the obvious
commercial opportunities, especially among lessors looking to expand their coverage and win new
sale/leaseback business.
Iran’s Airbus and Boeing order
Iran, through Iran Air, is in talks with many OEMs but especially with both Boeing and Airbus for up to
198 aircraft.
Iran Air has signed an agreement for 118 new aircraft with Airbus. The order agreement signed back
in January 2016 includes 73 widebodies and 45 single aisle aircraft. The order includes pilot and
maintenance training and support services.
The agreement spans Airbus’ single-aisle A320 product line – involving both current engine option
(CEO) and new engine option versions (NEO) – as well as the widebody A330ceo and A330neo, the
A350 XWB and A380. Deliveries could start as early as this year, according to Airbus. Covered in
the historic accord are: 21 A320ceo Family and 24 A320neo Family jetliners, 27 from the A330ceo
Family, 18 A330-900neo aircraft, 16 A350-1000s and 12 A380s.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight Wednesday 27 July 2016 Boeing also has a prospective agreement in place with Iran Air for a deal which could involve up to 109 aircraft. According to Iranian officials talking to media agencies, the order is split between 80 direct aircraft sales and potentially up to 29 leased aircraft, aided by Boeing. Iran needs new aircraft to replace it aging fleet. Its current fleet has an average age of 26.4 years according to ATDB, but the planned scope of change is breathtaking. Iran Air has just 29 active aircraft and there is speculation that some of the aircraft could go to other Iranian carriers and hints at Iran’s wider ambitions to create a new aviation hub to rival Dubai. House Republicans aim to scupper Boeing sale Sales from both manufacturers are pending approval from the US before they can go ahead and both agreements have already faced political resistance from the US. When Boeing announced its tentative agreement with Iran it faced a quick backlash from several members of Congress uneasy about the sale of aircraft to Iran. Congressman Peter Roskam, one of the most vocal opponents to any aircraft sale to Iran, states that the Iranian regime is using commercial airlines to send troops, weapons, missiles and cash to assist Syrian dictator Bashar Assad. Roskam has succeeded in passing two amendments to the Financial Services Appropriation Act as well as a separate free standing bill – all designed to prevent and complicate the sale of commercial aircraft to Iran (see table below). Recent US legislative efforts to prevent an Iran Air aircraft sale Bill Summary Blocking OFAC from licensing the sale of aircraft to Iran (passed via amendment to Financial Services appropriation H.R. 5485, and via H.R. 5729 passed out of committee). Blocking the licensing of the financing of aircraft sales to Iran (passed via amendment to Financial Services appropriation H.R. 5485; and via H.R. 5711 passed out of committee) Blocking the Export-Import bank from financing the sale of aircraft to Iran either directly or indirectly (passed out of committee via H.R. 5715). Source: National Iranian American Council The Financial Services Appropriation Act, H.R. 5485, has passed the House, and includes the two amendments from Rep. Roskam to block the licensing of the sale of aircraft and to block the financing of aircraft sales. The Financial Services appropriation act still need to be passed by the Senate and receive Presidential approval. Bills H.R. 5711, H.R. 5715, and H.R. 5729 have passed through committee, and are ready for consideration on the House floor, but have not received a vote yet and passed the House. They would need to pass the House, then be passed by the Senate and would still need Presidential approval © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Market insight Wednesday 27 July 2016 Impact of legislation None of the recent bills designed to frustrate an aircraft sale are likely to pass Congress and become law in the immediate future. Much of the legislation geared to prevent aircraft sales to Iran has been confined to the House of Representatives. The Senate has the numbers to block consideration of such legislation, and even if it were to pass the Senate, the President is very likely to sustain a veto. Airbus also needs to win approval from the US Office of Foreign Assets Control before it can export aircraft to Iran as several of its key aircraft components are made in the US. The European Original Equipment Manufacturer (OEM) has been waiting since at least April 2016 for confirmation from the Office of Foreign Assets Control (OFAC) regarding its aircraft order. Sources familiar with OFAC explain that the usual timeline for an OFAC license application is between 3-12 months but that given the importance of Airbus and Boeing’s sales to Iran the license approval is likely to jump the line. However OFAC only has a few dozen licensing officers and thousands of applications pending. US EXIM still in the target sights Some of the anti-Iranian legislation has also taken aim at US EXIM as a secondary measure to prevent any aircraft sales to Iran. The export finance bank is still being targeted by senior Republicans. Senators Ted Cruz and Marco Rubio co-signed a bill which mirrored the House Bill preventing US EXIM from participating in deal with Iran. Federal law prohibits US EXIM from financing exports to Iran as it continues to be designated by the US as a state sponsor of terrorism. Boeing’s Senior Vice President of Government Operations, Tim Keating in a letter to Congress has stated that it would not seek the bank’s support for the aircraft sale. Even if US EXIM were capable of offering support, Ishka’s view is that US EXIM would be reluctant to be involved with any Iranian deal, unless strictly necessary, due to the controversial political nature of such a deal and the inevitable backlash this would generate among Republicans. Ambiguity continues around US dollars to Iran One of the practical concerns is not the risk of new legislation but the ambiguity still surrounding Iran and US sanctions. Many restrictions on doing trade with Iran still exist, not least the limitations around Iran accessing US dollars. Iran’s financial system has been labeled “a primary money laundering concern,” preventing any company from funding any Iran deal that goes through the US financial system. For this reason, financiers, and lessors, appear extremely reluctant to engage with Iran Air for a potential deal. One financier was skeptical of claims that Airbus has several French and German banks lined up to fund deliveries. However, rumors continue to circulate around the number of banks looking to finance a deal. Ishka understands that several Asian lessors and a few European boutique lessors have made enquires about the possibility of arranging an Iran deal. © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Market insight Wednesday 27 July 2016 The Ishka View The recent US Republican attempts to block an Airbus or Boeing commercial aircraft sale to Iran are destined to fail as they are highly unlikely to pass Congress. Even if they did, it could still be easily vetoed by President Obama. The only real risk to a sale would be a significant Republican win in the November elections combined with Donald Trump winning the Presidential election. Even then it is not clear whether a President Trump, who has previously stated he was open to selling aircraft to Iran, would support a bill blocking a sale to Iran. The Ishka view is that most aircraft investors are still very wary about potentially funding aircraft into Iran, especially until OFAC gives the go ahead, and even then they will seek counsel’s considered opinions on the security of doing such deals. There appears to be some confusion among the aviation finance community as to which sanctions are still in place with regards to Iran. That being said there appears to be more interest, for now, among lessors contemplating Iranian deals compared to aviation banks. In the long-term, competition among lessors for sale/leasebacks seems inevitable given the value of the equipment potentially available. However, competition will only really materialise after the first deals are announced and after leasing companies and banks become more comfortable that they will not be breaking sanctions by funding these orders, and will have determined the mechanisms for aircraft recovery in the case of defaults. Iran Air’s current and historic fleet Model Sub-Type Current Active Planned Average age of active fleet A380 A380-800 12 - B.747 B.747-200B 1 - B.747 B.747-200c 1 27.8 year B.747 B.747SP 1 39.2 year A350 A350-1000 16 - A330 A330-900neo 18 - A330 A330ceo 27 - A300 A330-600 3 22.4 year A300 A300B2 1 36.3 year A300 A300B4 2 32.3 year A300 A300B4(F) 2 34.8 year A310 A310-300 2 26.0 year A310 A310-300 2 26.0 year A320 A320ceo 21 - A320 A330ceo (CFM) 3 20.5 year A320 A320ceo (IAE) 2 19.2 year A320 A320neo 24 - MD-80 MD-80 3 26.3 year Fokker Fokker 100 4 24.6 year ATR-72 ATR-72-600 20 - Total 24 139 26.4 year Source: ATDB © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Friday 8 July 2016
Connor Lovell
Company Insight Analyst at Ishka
Indispensable Analysis and Opinion
Unprofitable Oman Air faces
uphill task to break-even by 2017
Oman Air made pre-tax losses of $209.18 million in 2015, adding to total accumulated losses of $1.7
billion, and although the airline has had some success in limiting its losses last year, its financial
performance remains unsustainable.
The strategy is to break even by YE2017 and prepare the ground for a possible privatisation, but on
current trends the Ishka view is that more needs to be done to make this happen.
A loss-making enterprise
Oman Air was confident of a good year in 2015, but its gains were overwhelmingly the result of lower
fuel prices. Cheaper fuel prices and higher revenues on the back of increased passenger numbers
helped reduce losses by 21.2%.
But expenditure rose by 5% due to capacity and fleet expansion. This, combined with stiff regional
competition from Emirates, Etihad and Qatar airlines (the ME3), pulled yields down by 14%.
The airline’s cost cutting programme ‘Shape and Size’ has helped to trim expenditure by $259.7
million and has allowed the airline to reduce its dependence on government cash injections. The
carrier has maintained a recruitment freeze in place from the beginning of 2016 and has also
temporarily stopped operating from the recently developed Sohar Airport, citing poor results.
Unit costs fell from around $8.62 in 2014 to $6.70 in 2015. CEO Paul Gregorowitsch is determined
that Oman Air will stand on its own feet as a business. But the carrier faces an uphill struggle to break
even.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comCompany insight Friday 8 July 2016
Oman Air Financial Data 2013-15
31-Dec-14 31-Dec-14 31-Dec-13
(in Omani rials)
Revenues 466 408 382
EBITDAR margin 1.7% -9.2% -11.9%
Net profit margin -18.5% -26.8% -29.7%
Adjusted net debt/EBITDAR 93.6x -18.2x -12.7x
Adjusted net debt/Equity 1.1x 1.3x 1.1x
Cash as % of total revenues 2.3% 4.8% 3.4%
No. of months unrestricted cash to cover EBITDAR 0.26 months 0.50 months 0.34 months
Passenger Revenue per RPK (Pax Yield) 3.1699 3.6142 3.3780
Fuel Cost/ASK 0.5960 1.0634 1.1307
Breakewen load factor 81.5% 91.9% 95.8%
Load Factor 71.4% 74.3% 75.8%
Revenue per Passenger 72.81 80.08 76.34
RASK (Unit Revenues) 3.1699 3.6142 3.3780
CASK (Unit Cost) 2.5846 3.3209 3.2377
RASK-CASK Margin 0.5853 0.2932 0.1402
Source: Oman Air and Ishka calculations
An end to government subsidies
The collapse in world oil prices has put pressure on the Omani government which now runs the
largest budget deficit in the Middle East at around 55% of GDP. As part of its response to IMF
pressure to retrench, the government plans to end subsidies to the airline by the end of 2018.
Direct equity injections by the government have already been reduced from $194.8 million in 2014, to
$140.2 million in 2015. Subsidies began following the financial crisis in 2008, when the government
increased its shareholding stake from around 85% to its current level of 99.9%, and expanded the
size of the subsidy every year to 2013.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comCompany insight Friday 8 July 2016
Government subsidies to Oman Air 2009-15
250
220.8 220.8
194.8 194.8 194.8
200 181.8
Millions USD
150 140.2
100
50
0
2009 2010 2011 2012 2013 2014 2015
Year
Will the government have the discipline to keep the purse strings tight? As the national flag carrier,
the airline would certainly not be allowed to fail, but the government clearly has a good incentive to
let the airline stand on its own feet.
On current projections, the IMF estimates that the government requires an oil price of $110 per barrel
in order to clear its deficit. With prices hovering around $50 p/b at the time of writing, this is very
unlikely in the short term at least.
Moreover, it is a stated aim of the airline to break-even by YE2017. If that is achieved and maintained
through 2018 then Oman Air will be ready for full privatisation says Gregorowitsch, which could in turn
prove lucrative for the Omani treasury.
Currently the government is only divesting from nationalised companies that make a profit. So Oman
Air will have to start behaving less like a state-owned-enterprise and more like a commercial concern.
However, if the airline is incapable of increasing its revenues and cutting costs, then a complete
withdrawal of government support would prompt a liquidity crisis. Oman Air has dwindling cash
reserves. Last year cash as a percentage of total reserves fell 2.5% to 2.3%.
The Ishka view is that government cash will continue to prop up the carrier for some time.
Oman Air pushes for increased bilateral
traffic rights in India
India is the world’s fastest growing economy and Indians account for 20% of the Omani population,
so it is unsurprising that the carrier has identified the country as a key market and a way of competing
directly with the ME3 carriers. Oman Air has increased capacity there by 30% and has an average
seat occupancy of 80%.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comCompany insight Friday 8 July 2016 With the recent liberalisation of foreign-ownership rules in India, the airline has also indicated that it is open to taking equity stakes in Indian airlines. Oman Air operates 126 flights a week to 11 destinations in India. The ambition is to add a further 50 routes. However, this is constrained by the current bilateral traffic rights of 21,147 seats a week which leaves it unable to operate wide body aircraft to India, says Gregorowitsch. Greater traffic rights that could support wide body aircraft [it has 8 B787s on order] would allow the carrier to increase revenues and its market share. In late 2015, Oman negotiated an increase of 5,131 seats a week but Gregorowitsch believes 29,000 seats a week are needed by 2018. The airline is pushing for more seats, better infrastructure, and even an open-skies agreement as a condition of any investment it makes in an Indian carrier. It hopes to follow the success of Etihad. Three years ago Etihad had its flying rights increased from 13,000 per week to 50,000, only hours after taking a 24% stake in India’s Jet Airways. Iranian opportunities Unlike many of its neighbours, Oman has good relations with Iran. The airline plans to exploit the opportunities presented by the weakening of US sanctions and fleet renewal programmes by Iranian carriers by training Iranian pilots at its facilities in Muscat. Oman Air has also doubled flights to Tehran and has also begun a new B737-operated route to Iran’s second city, Mashhad. Since there are no incumbents on the route, and some firect flights from Saudi Arabia and Bahrain have been cancelled, the airline wants to cater to demand for some of the 20 million pilgrims who visit the Islamic shrines in Mashhad each year. The carrier expects 85,000 passengers on the route in 2017. Fleet expansion plans In tandem with its network expansion plans, Oman Air has 27 B737 MAX-8s on order, 20 direct from Boeing and seven from lessors, together with four B787-8s, four B787-9s and three B737-800s. Oman Air currently has a 57-aircraft fleet and it is expected to grow to 70 by 2020. At the end of 2015 the airline leased 64% of its fleet and owned 36%. As subsidies dwindle and the financial position of the airline becomes more challenging, it is possible that past commercial lenders such as Citibank and Standard Chartered may be less willing to increase their exposure and finance the incoming orders. One banking source that Ishka spoke to said that the cost of financing for all the ME carriers is set to increase due to government fiscal pressure in a low oil price environment. On the other hand, local lenders, many of which have the Omani state as its largest shareholder, may be in higher demand. In early 2015, Oman Air’s second B787 order was financed by Meethaq Bank in Oman’s first Sharia-based Islamic financing. © Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.com
Company insight Friday 8 July 2016
Aircraft on Order (by Type) Number of Aircraft
B 737 Max-8 7
B 787-8 4
B7B7-9 4
B737-800 3
Source: Oman Air
In tandem with its network expansion plans, Oman Air has 27 B737 MAX-8s on order, 20 direct from
Boeing and seven from lessors, together with four B787-8s, four B787-9s and three B737-800s.
Oman Air currently has a 57-aircraft fleet and it is expected to grow to 70 by 2020.
At the end of 2015 the airline leased 64% of its fleet and owned 36%. As subsidies dwindle and the
financial position of the airline becomes more challenging, it is possible that past commercial lenders
such as Citibank and Standard Chartered may be less willing to increase their exposure and finance
the incoming orders. One banking source that Ishka spoke to said that the cost of financing for all
the ME carriers is set to increase due to government fiscal pressure in a low oil price environment.
On the other hand, local lenders, many of which have the Omani state as its largest shareholder, may
be in higher demand. In early 2015, Oman Air’s second B787 order was financed by Meethaq Bank
in Oman’s first Sharia-based Islamic financing.
Scenarios
What if the airline fails to achieve break-even? As the nation’s flag carrier, the government is very
unlikely to allow the airline to fail. However, this implicit support may be the reason why lenders and
lessors continue to have confidence in the carrier. If Oman Air is unsuccessful in returning to a profit,
then the state will most probably maintain its current level of ownership for the foreseeable future.
But even if subsidies are maintained, then aircraft deferrals could be expected as the airline changes
strategy and battles a shortage of ready cash.
The Ishka View
Oman Air is currently an unprofitable airline that is expanding quickly in a bid to become
profitable. While the Indian and Iranian markets are worthwhile ventures, the carrier should also
continue to focus on aggressively reducing costs. The government may well consider reducing
its equity stake regardless of whether the company breaks-even. This could assist in attracting
private capital, relieving the burden on the treasury and gaining the confidence of commercial
lenders.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comWednesday 6 July 2016
Siddharth Narkhede
Market Insight Analyst
Indispensable Analysis and Opinion
Is there an opportunity for the
smaller Egyptian airlines in times
of adversity?
International tourism to Egypt has suffered markedly as a result of the socio-political unrests and
terrorism related incidents since 2011. The number of passenger arrivals into the country fell by
a compounded annual rate of 9% between 2011 and 2014. However, during the same period, the
number of passenger departures have risen by a compounded annual rate of 7.6%. While the
downturn in tourism, especially from Europe, is clearly having a negative effect on international air
travel into Egypt, the growth in outbound travel remains a potential area of growth for the smaller
Egyptian airlines (those operating with 10 aircraft or less on short-haul routes)
International tourists’ numbers into Egypt
are tumbling
Number of arrivals Egypt 2005-2016
1600
1400
1200
1000
800
600
400
200
2006 2008 2010 2012 2014 2016 2015
Source: Tradingeconomics.com and Central Bank of Egypt
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight 6 July 2016
As per figures from the World Bank and Trading Economics, the number of arrivals into Egypt has fallen by a compounded
annual rate of 9% between 2011 and 2014, recovering marginally in 2015 only to collapse further in 2016 in the wake of
the Metrojet and EgyptAir disasters. Following recent terrorism related incidents, many countries issued travel warnings
to some cities in Egypt. Not surprisingly, most of the international airlines flying into Egypt have substantially reduced
their capacity and this has had a significant impact on the tourism industry in the country. As the chart above shows, the
recovery in inbound traffic from each shock to the Egyptian tourist market is steadily getting weaker, and a long way from
returning to the growth pattern of 2006-2010
Potential opportunity
Deparatures - Egypt
7,000 18,0%
6,000 16,0%
14,0%
5,000
12,0%
4,000 10,0%
3,000 8,0%
6,0%
2,000
4,0%
1,000 2,0%
0 0,0%
2010 2011 2012 2013 2014
Source: World Bank Data Deparatures Y-o-Y increase
In difficult times for the tourism industry, there are, however, some more positive signs. The number of departures from
Egypt saw an impressive compounded annual growth rate of 7.6% between 2011 and 2014. A continuation of this trend
would lead us to take a more optimistic view on the medium to long-term prospects of the smaller Egyptian airlines.
Egypt has around seven airlines operating with less than 10 aircraft. They generally provide scheduled air transport
and limited charter service. For the purpose of this report we have consciously decided not to cover EgyptAir, EgyptAir
Express and Air Cairo as these three airlines are more likely to receive government support either directly or indirectly
(they are part of EgyptAir Holding which is a state-owned holding company).
The seven airlines we have considered collectively operate a fleet of around 21 aircraft.
6 Smaller Egyptain carriers - Number of aircraft by fleet model
5
4
3
2
1
0
Nile Air Nesma AlMasria Air Arabia FlyEgypt AMC AlMasria Nile Air Nesma Nesma Aviator
Airlines Universal Egypt Airlines Universal Airlines Airlines
Airlines Airlines
A320-200 8737-800 A321-200 ATR72-200 A319-100 8737-500
Source: CH-Aviation / ATDB
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight 6 July 2016
6 Number of aircraft by airline
5
4
3
2
1
0
A320-200 A321-200 A320-200 ATR72-200 A319-100 A321-200 A320-200 B737-800 B737-800 A320-200 B737-500
AirMasria Universal AMC Air Arabia
Nille Air Nesma Airlines FlyEgypt Aviator
Airlines Airlines Egypt
Source: CH-Aviation / ATDB
Nile Air is the largest of the smaller airlines in Egypt. It is a privately owned full-service carrier (FSC) focused on the Saudi
Arabian market. The airline operates scheduled air services to various cities in Saudi Arabia in addition to covering one
city each in Kuwait, Iraq and Sudan. Nesma Airlines, part of Saudi Arabia’s Nesma Group is also a FSC connecting the
Egyptian cities of Cairo and Sohag to several cities in Saudi Arabia. AlMasria Universal Airlines is another FSC operating
out of Cairo and Alexandria to destinations in Saudi Arabia, Bahrain, Kuwait and some domestic routes within Egypt.
FlyEgypt started scheduled service as recently as May 2016, flying to three destinations (one each in Saudi Arabia, Kuwait
and Egypt). It is backed by the Egyptian conglomerate Talaat Moustafa Group. Air Arabia Egypt, part of the Sharjah based
Air Arabia Group, is the only low-cost carrier based in Egypt. It currently operates a single A320-200 on charter services
like those offered by AMC Airlines and Aviator to destinations in the Middle East.
The Ishka view is that these airlines have very limited exposure to traffic inbound from European markets, consequently
they would not be impacted significantly by the drop in European visitors. We see the 7.6% average annual growth in
outbound departures from Egypt as a positive sign for these airlines. Secondly, these seven airlines primarily operate on
routes between Egypt and the Gulf countries, Saudi Arabia in particular. The number of tourists from Saudi to Egypt rose
by an impressive 14% during 2015 compared to 2014 as per arabnews.com. Some airlines already seem to be optimistic of
this trend - Nile Air more than doubled its fleet in 2015, which is an indication of how favorably the airline views the market
between Egypt and Saudi Arabia. In addition, the airline announced in April 2016 that it would now be taking delivery of
the larger A321s instead of the A320s that it had ordered originally. AMC Airlines also has one B737-800 on order which
is due for delivery in 2016.
9 Lessor/Investor exposure to smaller Egyptian airlines
8
7
6
5
4
3
2
1
0
AerCap BBAM Aircraft Avolon/HKAC SMBC Aviation ACG DAE Capital GECAS BOC Aviation
Leasing & Capital Acquisitions
Management
Nile Air FlyEgypt AlMasria Universal Airlines Nesma Airlines AMC Airlines Air Arabia Egypt
Source: CH-Aviation / ATDB
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight 6 July 2016
We believe that since these airlines already operate with a limited fleet and have no plans to further
expand capacity in the short-term (Nile Air’s two A321s are scheduled to arrive in 2018), they should
be able to withstand the current markets challenges in the short-term – all else being equal. In
addition, some of these airlines have the backing of stronger parent companies and in the event of
any financial difficulties could seek support from the parent.
Egypt GDP MENA GDP
350 3,500
300 3,000
US$ Billions
US$ Billions
250 2,500
200 2,000
150 1,500
100 1,000
50 500
0 0
2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015
Source: International Monetary Fund, World Economic Outlook Database, April 2016 and World Bank Data
GDP figures are in current US$
MENA – Middle East North Africa includes 20 countries including Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Jordan, Kuwait,
Lebanon, Libya, Mauritania, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, United Arab Emirates, and Yemen.
In terms of macroeconomic indicators, Egypt seems to have recorded a reasonable performance
despite the difficult few years following the political unrest of 2011. According to the IMF, between
2011 and 2015, Egypt’s GDP rose by a compounded annual rate of 7.5% compared to 2.1% recorded
by the entire MENA region during the same period. Considering the nature of the political difficulties
the country has witnessed since 2011 and other terrorism related incidents, an average annual growth
rate of over 7% is quite an achievement. The IMF forecasts that the GDP will continue to grow at an
average rate of around 5% between 2016 to 2021. While Ishka views this as a favorable prospect
for the country’s smaller airlines, there are still considerable challenges in the short-term that could
impact the economic recovery.
In May 2016 S&P cut Egypt’s outlook from stable to negative on the back of its fiscal and currency
vulnerabilities. The rating agency has also warned that it could downgrade Egypt’s sovereign credit
rating in 2017 on the back of the impending fiscal challenges for the country. The rating agency takes
a dim view on the pace of reforms undertaken by the Egyptian government. The combination of
these factors along with challenges from the fall in tourism could dampen the pace of recovery seen
between 2012-2015. However, the agency also highlights some optimistic areas that could contribute
towards a faster economic recovery. The discovery of an offshore natural gas field is viewed
favorably by S&P. Secondly, while the pace of reform has been slow, the government has actually
undertaken some bold and politically sensitive decisions such as raising electricity prices, aiming
to phasing out fuel subsidies by 2020, and undertaking several tax reforms. These reforms are
expected to improve Egypt’s fiscal situation and could help in the economic recovery in the medium
to long-term.
© Ishka Ltd ishkaglobal.com Any questions? Email us team@ishkaglobal.comMarket insight 6 July 2016
What if the Gulf states substantially reduce their
financial assistance to Egypt?
Egypt’s current government, led by President Abdel-Fattah El-Sisi, has relied substantially on financial
assistance from Saudi Arabia, UAE and Kuwait. Since all these economies are highly dependent
on oil, the fall in oil prices has impacted their revenues significantly. In such a scenario, if they
substantially reduce the level of funding it could lead to severe foreign exchange shortages in Egypt.
This could have potentially negative consequences on imports as the country would not have the
required foreign exchange to pay for the imports. The lack of funding could also impact investment in
new projects. This would force the Egyptian government to rely on other sources of funding, further
worsening the fiscal situation. And, with lower economic activity emanating from the Gulf countries
into Egypt, the level of air traffic from & to these countries could also fall – this could have adverse
consequences on the smaller airlines in Egypt that rely on traffic to the Gulf in particular.
The Ishka View
Positives/Opportunities Negatives/Challenges
International travel to Egypt has fallen substantially
Optimistic traffic trends between Egypt and Gulf and would continue to remain affected in
foreseeable future
Gdp recovering better than MENA region Short-term fiscal challenges
Egypt has been reliant on investments form the Gulf
Positive steps taken by the government and the discovery of countries and absence/reduction of support from
natural gas field could help economic recovery these countries could create furher challenges in
economic recovery
With each of the smaller airlines being primarily
Smaller airlines focused on regional traffic within the Gulf
focused on Gulf and Saudi Arabia, any disruption
region thereby limiting their exposure to the fall in international
could lead to excess capacity in this segment which
tourists especially from Europe
could put pressure on yields of these airlines
Despite the major socio-political and terrorism related challenges facing the country, Egypt
has posted a positive macroeconomic performance. There are, however, short-term fiscal and
external challenges that could hamper the economic recovery and delay any growth. In addition,
international tourism in the country continues to be impacted following the terrorism related
incidents and subsequent travel warnings issued by some European countries. However, there
are areas of opportunity as well. The strong growth in outbound travel could augur well for the
smaller private airlines that have limited exposure to Europe. Due to their limited fleet size, the
risk for financiers and investors is manageable. In addition, some of the smaller airlines have the
backing of powerful business groups which could prove useful in the event of any further market
deterioration.
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