By Nadia Khan
The Middle East's business aviation industry is forecast to be worth more than $1.3 billion by 2020. But how realistic is this optimistic outlook?
On a global scale, experts have been touting the business aviation industry to continue its year-on-year growth. According to Honeywell Aerospace’s latest Global Business Aviation Forecast, jet operators across the world can expect to enjoy an average predicted annual growth of 4% over the next ten years. Programme schedule recoveries, new model introduction and additional fractional uptake have all been attributed to the industry’s growth figures. Through to 2024, the OEM forecasts that the industry can expect up to 9450 deliveries of new business jets - valued at a staggering US$280 billion.
These latest figures have buoyed the Middle East’s business aviation industry, and MEBAA, the Middle East’s Business Aviation Association, has placed its futuristic value on the regional business aviation industry at $1.3 billion by 2020. This would raise the market value of the sector to double its value today. “Working closely with our members and partners we believe this to be a realistic prediction for the region,” says Ali Al Naqbi, founding chairman of MEBAA, confident that the sector is earmarked for ‘tremendous’ growth over the next few years. “I predict we’ll see an influx to the existing FBO’s, MRO’s and operators, increasing competition and ultimately benefitting the end-user and the industry as a whole,” he says.
The advent of newer, more cost-efficient and longer range business jet models has also led to a surge in fleet renewal plans amongst the world’s business aviation operators. On average, operators interviewed as part of Honeywell’s outlook planned to replace around 23% of their fleets with new jets in the coming five years. Comparably, levels in the Middle East and Africa were considerably lower. Only 18% of regional respondents planned fleet replacements or new jet purchases - a drop from last year’s figures of 26%.
With the numbers appearing to show a loss of industry confidence this year, Al Naqbi prefers to put the discrepancy down to political instability in some parts of the region. “The current climate of political issues experienced by many countries in the Middle East and Africa are major causes affecting purchase plans,” he says. “That’s why we have seen a decrease of 4%-7% this year.”
Raghed Talih, sales director for the Middle East, Turkey & North Africa, Business & General Aviation at Honeywell Aerospace, agrees. Although the level of purchasing plans may be under the world average, he says, the figures are unsurprising considering some of the macro trends affecting the region. “This includes the serious medical challenges continuing to affect Africa and the impact of political conflicts and fluctuating oil prices on the region as a whole,” says Talih. “As a consequence, operators in the region are scheduling their purchases later in the next five-year window than expected last year, with only 21% of purchases planned before 2017.”
Despite this slight downward year-on-year trend, both Al Naqbi and Talih assert that the region remains a very important market for business aviation as a whole. “Operators in the region are committed to investing in the best of the best when it comes to performance and comfort-oriented technologies,” says Talih. “Therefore while the industry must continue to operate cautiously, we still see reason for market optimism in the long term.”
Meanwhile, global purchasing continues to tend towards larger and longer-range aircraft, with more than 75% of new business jet purchases expected to be large-cabin models. Talih finds that this trend is particularly prevalent in the Middle East, where buyers and passengers expect unrivalled levels of comfort, performance and efficiency from their aircraft. “Passengers in the Middle East want to fly further, faster and benefit from cabin sizes that can support larger travelling parties than in other parts of the world,” he says. “There remains significant growth in the large cabin and VVIP business liner aircraft categories, which also have considerable value attributed to them.” Unsurprisingly, new technologies, from high speed connectivity capabilities to the latest high definition multimedia cabin management systems, continue to also play an important role in new jet choices.
With its high concentration of HNWI’s, Saudi Arabia remains one of the most promising of the GCC markets in terms of this demand. As Saad Al Azwari, CEO of Saudi-based private aviation operator Nasjet points out, Riyadh is one of the top wealthiest cities in the world, with 57 billionaires holding an estimated combined wealth of $166 billion. “Private jet usage in KSA is also higher than the global and regional average and is estimated to be growing by an average rate of 7%,” he says. “In our experience the market is still dominated by the HNWI, particularly when it comes to aircraft ownership.”
On the other hand, easier access to aircraft ownership through fractional ownership programs and lease agreements has been further boosting the uptake of services in the Kingdom. NasJet itself offers a fractional ownership model to the Middle Eastern market, and has been seeing a rise in ad-hoc charter enquiries year on year. Given the Saudi Arabia’s vast geographical coverage, and with its domestic aviation industry entering a new phase of development, Al Azwari looks forward to business aviation continuing to grow in demand.
Saudi Arabia has also proved to be a lucrative focus market for Execujet Middle East’s FBO operations. “Having initiated a service supporting the internal NAS and ExecuJet fleet only, our Riyadh FBO is now establishing itself with repeat third party customers signing up for our service proposition,” says Mike Berry, vice president of Execujet Middle East. “Based on the opportunity for growing the business in the country, and to enable us to better support our growing customer base, we are now reviewing expanding our footprint to include additional locations within the Kingdom, with Jeddah being an obvious next expansion.”
Other FBO service providers have also been experiencing fast-paced growth in demand. Gama Aviation’s FBO in Sharjah witnessed an impressive 70% growth in traffic last year, and the company has since set up new passenger and crew lounges, doubling its staffing levels. With an increase in movements this year, the company has seen the addition of many new based aircraft in Sharjah – mostly owned by Dubai residents and companies. “The growth of our maintenance business in Sharjah International means that we are able to support more jet types which will assist in attracting further traffic to the airport,” says Richard Lineveldt, general manager of Gama Aviation. “Our project for 2015 is to construct a large maintenance and storage hangar, which will easily accommodate two Boeing Business Jets or Airbuses, to complement our existing facilities.”
As the quantity and quality of FBO’s able to cater to the rising number of business jets in the region continues to match demand, the need for equally supportive MRO (Maintenance, Repair and Overhaul) facilities appears to be lagging somewhat behind. “With many clients choosing to fly to Europe, or even the USA, for heavy maintenance and completions work, there is certainly room for growth in the MRO sector here in the Middle East,” says Lineveldt. “The majority of the Gulf’s international airports now have FBO facilities but there is certainly a lack of hangar space available to business jets and the growth in MRO facilities will hopefully assist in increasing capacity.” Nasjet’s Al Azwari agrees. “Aircraft owners and operators are heavily reliant on maintenance and training services outside of the region and this increases the operating cost and reduces asset efficiency,” he says. “This means that we do not have a competitive playing field compared to our peers in the US and Europe.”
With the management of direct operating costs continuing to be a challenge for business aviation operators worldwide, this additional cost appears to be just another expense that the regional industry does not need. “A major portion of the direct costs are not within the control of the owner and instead depend on macro-economic factors, such as fuel consumption, maintenance and airport fees,” says Al Naqbi. “This means that the owner’s control over direct costs is limited to their quality of hospitality, service and efficiency in using their human resources.”
Although historically the Middle East’s aviation sector has proved more resilient to fluctuations in oil prices than many other markets around the world, Honeywell’s Talih believes that these fluctuations, combined with other costs such as new safety and efficiency mandates coming into effect in Europe and the US that force upgrades, may pose an increasing economic pressure for regional and global operators in the coming years. “It is the primary reason why so many of our technologies are geared towards improving efficiency - to help bring these costs down for operators,” he says. “From avionics that enable more efficient routing that burns less fuel, to high speed connectivity systems that can transfer a greater volume of aircraft data in real time to ground crews for more effective maintenance, the next few years will see significant advances in technologies than can ease the burden of spiralling oil prices.”
The pressure on business aviation operators to reduce costs, whilst planning costly fleet replacement purchases, will clearly continue to challenge the regional industry. “Increasing costs associated with aircraft ownership can always be a major factor affecting growth within the industry in terms of aircraft acquisition or charter,” agrees Execujet’s Berry. “However the realisation and appreciation of what a business jet brings in terms of flexibility, efficiency, time management and safety are strong mitigating factors for absorbing a level of increased costing.” He remains confident. “Will it be double its worth today? We will certainly see a number of new service providers establishing within the region over the coming year,” predicts Berry.