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Sun 23 May 2010 04:00 AM

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Plane talking

No matter what the critics say, Emirates is still the biggest aviation story in the region.

Plane talking
Plane talking
Flanagan was the managing director for the inaugural Emirates flight in 1985 and in 2006 was appointed executive vice chairman of the Dubai-based carrier.
Plane talking
Plane talking
Maurice Flanagan with Emirates CEO HH Sheikh Ahmed (centre) and President Tim Clark (left). Under his stewardship the carrier has grown to become one of the world’s best airlines.
Plane talking
Plane talking

At 83, Maurice Flanagan may be carrying a crutch and a little slower on his feet than he once was, but the man who could easily be called the pioneer of aviation in the UAE still packs a punch.

Earlier this year, Cathay Pacific CEO Tony Tyler told Arabian Business he believed Gulf carriers would take at least a “generation” to catch up with the levels of in-flight service offered by the Hong Kong-based carrier.

I have barely settled into my seat before Flanagan, who was Emirates’ founding managing director and is currently executive vice chairman, reacts furiously to the criticism. “What b*****ks!” he bellows. “We are ahead of Cathay. There is no way in which Cathay is ahead. It is nonsense.”

He also takes issue with the manner in which Tyler “lumps” Emirates in with the other Gulf carriers. “We are totally different from Etihad, totally different from Qatar Airways and totally different from Gulf Air. What’s he talking about?”

There are many who would say Flanagan is right, Emirates is different. After all, it makes money. Only this month, Gulf Air let 500 staff go and said it had no plans to make a profit until at least 2013.

Abu Dhabi’s Etihad — the flag carrier for the UAE — has never turned a profit since it was set up in 2004. Backed by the government, CEO James Hogan recently said he didn’t expect it to this year.

By contrast, Flanagan, when we talk, has just come from Emirates’ annual results announcement in the company’s own auditorium — an event broadcast live to the world. No wonder he is smiling. In the year of its 25th anniversary, the airline — the biggest in the Middle East — announced revenues up 0.4 percent from the previous year to $11.8bn and net profit up a massive 416 percent to $964m.

Of course, no sooner had the billion dollar profit been announced than critics were making their usual accusation that Emirates has an unfair advantage over other airlines because it is being propped up by the Dubai government with fuel subsidies and financial assistance. The charge sends Flanagan into a rage. He says he is confronted with such accusations “all the time, it is incessant.”

“It is rubbish,” he says, becoming even more agitated before apologising for his ever more colourful language. “We incur social costs these guys don’t have to think about. Full family medical service, free furnished accommodation for pilots, cabin crew and managers, school fees... Those amounted to about $600m this year, those guys don’t have to think about that.

“They say we don’t pay taxes. Of course we pay taxes. Dubai is a city not a country, we pay municipal taxes on all that accommodation, thousands of it we owe in rent for our staff. It is very costly,” he adds.

In fact, Flanagan will argue Emirates has virtually always been an independent concern.

“We have a stronger imperative to be profitable. I was given $10m by Sheikh Mohammed to start the airline in 1985 and he said ‘don’t come back for any more, no subsidies of any kind whatsoever, no protectionism whatsoever.’ In fact we have had $80m in cash in kind since the start of the airline 25 years ago. That’s absolutely peanuts compared to what every other national carrier has had. What does Etihad get every year?” he says laughing. “Those were the rules of the game. You’ve got to be smart to succeed, smart even to survive.”

In fact, Flanagan is especially proud to point out that the airline is not only not propped up by the Dubai government, but rather it is a major contributor to the emirate’s coffers.

“Every year we have paid more than a $100m in dividend to the owner of the company,” he says, and Emirates’ latest annual report shows the Dubai government was most recently paid a dividend of AED956m ($260m), and AED2.91bn ($792m) in 2009.Not bad a return for a one off investment of $80m. Does Flanagan ever think that the Dubai government would countenance selling the cash cow in order to fund its multi-billion dollar debts?

“No,” he says immediately, “it would never be sold to anyone else. There might be an IPO (initial public offering) as time goes on but that is a decision for the government. But I think it would be a very successful one.”

Next up in Flanagan’s firing line is Air Canada and the Canadian government, which he believes is stuck in the past.

“They are still there politically in the 1960s. I can’t understand that. The market is there for double daily Toronto and double daily to Vancouver and certainly daily, going to double, to Calgary.

“We are [only] allowed three a week to Toronto and that is all protection to Air Canada [but] what good has that done to Air Canada? Look at the state they are in,” he says.

“I know of no other country that thinks in those terms. It is to protect Air Canada, I can’t see any other reason. Just open the skies and let us in — that is the answer. It will be great benefit to the Canadian economy.”

As part of its lobbying to the Canadian government, Emirates released a study in March concluding that Canada could reap economic benefits of around $466m a year and create 2,800 jobs if it was given the flying slots it is demanding.

However, Air Canada has accused Emirates of wanting to “flood” the Canadian routes in order to divert passengers through Dubai. Calin Rovinescu, CEO of Air Canada, the country’s biggest airline, said that allowing Emirates to increase its capacity would be “severely damaging” to Canadian airports and airlines.

Moving east, another hot spot for the airline was its first move outside Dubai and its first and only acquisition. In 1998, Emirates spent around $70m buying a 43.6 percent stake in SriLankan Airlines, the national carrier of the Asian island state.

In 2008, the Sri Lankan government declined to extend Emirates’ management contract and cancelled the work permit of SriLankan Airlines then chief executive Peter Hill. Ever since, Emirates has been trying to sell all or part of the stake, which has previously been valued at as much as $150m.

Earlier this month, the Sri Lankan government said it had offered $55m for the stake. “Sri Lanka is going to buy it... $55m is the price we have indicated… The deal is almost done,” PB Jayasundera, secretary of the Sri Lankan finance ministry and the treasury, told Reuters.

Flanagan is less certain that a deal will be completed. He says: “there is nothing active at the moment going on there, if you can find someone [to buy] then let me know.”

The airline’s first venture overseas certainly seems to have put it off any further acquisitions. “We are not going to go into acquisitions. The relationship with Sri Lanka, managing them, was very, very difficult. It takes up huge amounts of senior management time… we just can’t afford that, so we won’t do any more acquisitions,” he says defiantly.

In fact, Flanagan also sees no sense in having any secondary hubs around the world as he considers Dubai to be perfectly ideal geographically for its requirements.

“Dubai is perfect. Look at a map of the world with the Americas on one side and Australasia and China on the other.

“The balancing point is Dubai so with the aircraft that we have we can connect any two points in the world with one stop in Dubai, and we exploit that to the hilt.”The airline currently has 145 aircraft, with another 146 worth $48bn on order. It is running an average seat factor of 78.1 percent and the number of passengers it carried last year rose 20.8 percent year-on-year to 27.5 million. Now the carrier is planning to expand the number of routes it operates beyond the 102 destinations it currently flies to in 62 countries.

“We will take on more destinations and we know we can profitably service St Petersburg, Kiev and Chicago. We have traffic right for 80 flights into Australia a week and we are only operating 73 at the moment. We cover every point you care to name now in Africa. All these are long range things that take a huge amount of capacity,” Flanagan says.

However, there is one prominent European country that the airline currently does not service: Ireland.

“That is something which we do keep looking at. Ireland would work for us. It didn’t work for Aer Lingus because [its] model was a low cost one and it wouldn’t work. Ireland would be good as there are good family connections between Ireland and Australia, which the VFR (visiting friends and relatives) traffic itself would be quite substantial. We can’t do everything but we will be there sooner or later,” he says.

Lancashire-born Flanagan got his education in Liverpool and it was his ambition to become a footballer for his beloved Blackburn Rovers. Following a night out, his knee was damaged and he had to seek out another dream. However, football’s loss was aviation’s gain and following a stint in the Royal Air Force and British Airways he arrived in Dubai in 1978 and was appointed as director and general manager of Dnata, Dubai’s travel and aviation services division.

He later led the ten-man team which took Sheikh Mohammed’s initial $10m and planned to turn it into a successful airline. He was the managing director for the inaugural Emirates flight in 1985 and in 2006 he was appointed executive vice chairman.

“I’ve been very lucky,” Flanagan says of his time building Emirates, but he says there are two things he credits with helping to make Emirates a success: the Gulf War and HH Sheikh Ahmed.

“Sheikh Mohammed gave his greatest gift, [which] was Sheikh Ahmed,” he says, any previous ire leaving his face. “He is a brilliant chairman, he really is. Just before they hired staff, Sheikh Mohammed said ‘tell Ahmed everything’ and when I started Sheikh Ahmed, at the age of 25, was made the chairman and he came to my office and we had airline tutorials day after day and I would give him complex documents in English and he would come back and ask all the right difficult questions.”

“He has a memory like a steel trap… he’s extremely intelligent. We still meet up twice a week, sometimes just for a chat. One of my jobs is to make sure that Sheikh Ahmed knows everything that is going on in the company and he is so hands on, despite all his other responsibilities,” he says with obvious pride.

In relation to the Gulf War, Flanagan believes Emirates’ decision to keep flying has helped it stand the test of time.

“The first Gulf War we continued to operate, British Airways for example didn’t, most airlines stopped. We continued to operate and therefore increased our market share significantly and when the war was over our market share stayed up.”

Flanagan tells me that if he could do it all over again he would change nothing and when asked who he considers Emirates’ main rival, he says “we don’t think in those terms.” Looking at his track record and the airline’s recent results, there are few that would dare argue with him.

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The Consultant 10 years ago

Whilst the Emirates story is very impressive, it's a bit unfair of Mr. Flanagan to be pointing to the "social costs" of employing staff. It's Emirates choice to manage staff remuneration in this way, they could just as easily pay cash allowances to their staff as part of their monthly salary. Emirates obviously considers it more cost-effective to do it this way. Housing, education etc. are not "free", they are part of the overall remuneration package. Given that staff remuneration makes up a huge part of any airline's overall cost, the total cash+allowances package that Emirates pays must be the same or less than other international airlines, otherwise they wouldn't be able to compete so effectively.