By Anil Bhoyrul
The airline is in talks to raise billions in loans. The better option may be an IPO
Emirates chairman Sheikh Ahmed has many great qualities. One of his best – from an entirely selfish and personal point of view – is that he is always friendly, open and frank with journalists. Straight questions get straight answers.
In 2008, during a trip to Beijing, I asked him when Dubai’s planned low cost airline would launch.
“We’re ready to go. Problem is I need a name. Do you have one?” he replied.
“Dubai Express!” I said excitedly. “That sounds like a post office,” he said.
Last year, at the Dubai Air Show, the sheikh was equally blunt when asked whether Emirates would consider a stock market flotation – given that Saudi Aramco was doing just that.
"When normality returns, surely Emirates will return to a healthy balance sheet. People will want to fly again – maybe more than ever before"
“Emirates is not Aramco, they are completely different. When you think about airlines, it is one of the toughest businesses, it is not as easy as a lot of people think – just have planes, pay them and fly them. It is not easy,” Sheikh Ahmed said.
How true. And how the world has changed since he made those remarks only six months ago. As our cover story this week details, no industry has been hit as badly as airlines. IATA estimates that the UAE will see 23.8 million fewer passengers and $5.4bn in lost revenues this year, on the back of the Covid-19 crisis. The massive chunk of the losses are falling on Emirates, not Etihad, given the former’s much bigger size.
Since suspending normal passenger services on March 25, much of its fleet of 115 A380s and 144 Boeing 777s are gathering dust. From 3,600 flights a week to over 150 cities in six continents, it makes zero flights to zero cities in zero continents, bar repatriation flights. And nobody knows when it will fly again.
Quite rightly, Dubai’s government has stepped in and said it will inject liquidity through equity. That may not be enough: according to Bloomberg, the airline is looking to raise billions of dollars through bilateral loans, which are cheaper and faster.
But there is another way out: a flight to the stock market.
This subject has been rumoured and denied for the last 15 years – ironically since Arabian Business first called on the airline to explore an IPO back in 2005.
It is a topic that won’t go away. Now, with the state of the global stock markets, you could say this is the worst possible time to consider an IPO. But later this year, when normality surely returns, surely Emirates will return – at least on a year on year basis – to a healthy balance sheet. People will want to fly again – maybe more than ever before.
"An IPO in London or New York would give investors here and abroad a chance to be part of one of the world’s greatest companies"
The last full year accounts (for 2018-2019) showed a downward trend but still 31 successive years of profit. As a group, it hit $631m on profits on revenues of $29.86bn. The biggest chunk of that came from Emirates with $237m of profit on $26.7bn of revenues.
Let’s not forget the massive cargo operation – or the $3.9bn invested in new aircraft and equipment, acquisition of companies, modernising facilities and staff initiatives.
Before the crisis, airline price earnings ratios were 12.7. That makes this easily a $5bn group – though when you consider the brand value alone, according to the Brand Finance Global Report, is $6.3bn, we are talking multi-billion dollars here.
Of course, state owners have never traditionally been over keen on IPOs as that would mean full transparency. But given the huge detail in which Emirates publishes its results, it pretty much already does that. The state subsidy row came and went – nobody cares anymore about that, apart from US airlines about to go bankrupt.
Most of all, an IPO – probably in London or New York – would give investors here and abroad a chance to be part of one of the world’s greatest companies, and give the markets a huge uplift. Oh, and solve that small problem of liquidity.
Over the years, Sheikh Ahmed has proved himself as one the globe’s finest dealmakers. An IPO could yet be his biggest and best one ever.