With privately owned aircraft in the Middle East steadily growing in numbers, issues like regulatory framework to curb gray market operators are cropping up. Countries like Saudi Arabia have already come up with regulations to curb prevalent malpractices.
Prior to the oil price decline, between 2006 and 2015, aviation industry statistics show that 293 mid to large private jets were delivered to the Middle East. Their total value was around $14.65 billion. Of these, 49 were mid-size aircraft, 222 were large jets and 22 were jet airliners.
These aircraft typically cost between $25 million and $75mn each, and up to 80% of the funding used to purchase these are sourced through external financing, according to research published at the end of last year by Florida-based financial institution Global Jet Capital, which provides financing solutions for the private aircraft market.
The largest number of private jet deliveries were made to Turkey – 77. Of these 30 were mid-size aircraft, 45 were large jets and two were jet airliners. UAE was next with 63 aircraft. Of these two were mid-size, 56 were large jets and five were jet airliners. Saudi Arabia came next with a total of 58 aircraft, of which 12 were mid-size planes, 39 large jets and seven jet airliners.
As per the research, Qatar was fourth, with a total of 21 private aircraft delivered to the country. Nineteen of these were large jets and two were jet airliners. Kuwait was placed fifth with a total of 15 aircraft, Jordan purchased 11, Oman (10), Lebanon (eight), and the rest of the Middle East had a total of 30 aircraft.
Global Jet Capital, which provides financing solutions to the private aircraft industry, estimates significant growth in the number of private aircraft purchases. Based on Canadian aircraft manufacturer Bombardier’s data, the financing solutions provider forecasts that over the next 10 years nearly 350 business jets, worth around $12bn, will be delivered to the Middle East. Of these 220 could be medium to large aircraft, with a total estimated value of $10.5bn.
Demand is growing
“The private jets market in the Middle East, and especially in the GCC is still continuing to expand, despite the financial and political turmoil being witnessed in the region, which caused a slight slowdown in the business jet market in 2015 and 2016”
Interestingly, at the end of last year, around 73 private aircraft were listed for sale in the Middle East with a combined value of around $939mn. According to the Global Jet Capital, some 26 of these aircraft were registered in the UAE, and 23 were registered in Saudi Arabia. In total, the report states, there were around 732 mid-size, large and airliner-sized private jets in the Middle East, and around 10% of the fleet in the market is up for sale. That means that clients are keen to upgrade their current fleet.
So, the private jets market in the Middle East, and especially in the GCC is still continuing to expand, despite the financial and political turmoil being witnessed in the region, which caused a slight slowdown in the business jet market in 2015 and 2016.
According to the Middle East and North Africa Business Aviation Association (MEBAA), the market will grow 9% in 2017, which is significantly less than the original 15%, forecast by the organization. The 9% forecast for 2017 is a little less than the 11% growth seen in 2016, but regional market leaders will remain the same – Saudi Arabia and the UAE, which account for around 70% of the private jet market in the MENA region.
According to MEBAA, the business aviation sector in the Middle East is predicted to reach a volume of $1.2bn by 2020, with a fleet comprising 1,200 private aircraft registered in the region.
“Demand for private air travel will continue to grow and our aircraft delivery schedule will reflect that”, the management of Qatar Executive, corporate jet subsidiary of Qatar Airways, told BQ in a statement.
Headquartered at Hamad International Airport (HIA), Qatar Executive provides luxury jet services for worldwide charter. The Qatar Executive fleet comprises four Global 5000s, one Global XRS, three Challenger 605s and three brand new Gulfstream G650ERs. In May 2015, Qatar Executive announced its intent to purchase up to 30 aircraft from Gulfstream Aerospace Corp., including firm orders and options that are a combination of both of Gulfstream’s new wide-cabin aircraft, the G500 and G600, and the flagship G650ER.
Rob DiCastri, CEO of Abu Dhabi-based Royal Jet, is more specific while describing his vision about the future of the business jet market in the region: “Looking forward, there will hopefully be a balancing out of supply and demand in our business in the region, which seems, for now, to be heavily weighted on the supply side. Such oversupply isn’t sustainable, so we may see some without resilient business models being unable to compete over the longer term,” he told BQ.
“With seven Boeing Business Jets (BBJs), Royal Jet is the world’s largest independent BBJ operator, but their fleet also includes two mid-range Global 5000s to ensure that every travel requirement is impeccably catered for”
Royal Jet is a luxury private charter company, jointly owned by Abu Dhabi Aviation and the Presidential Flight Authority or PFA, the royal flight service. With seven Boeing Business Jets (BBJs), Royal Jet is the world’s largest independent BBJ operator, but their fleet also includes two mid-range Global 5000s to ensure that every travel requirement is impeccably catered for.
Talking about the future, the Royal Jet CEO’s opinion is that there is likely to be a shift from more of a B2B (business to business) market to a B2C (business to consumer) market, which seems to be already evident.
“Online platforms will have an even bigger impact as people want to be able to control their buying power. The cost of chartering an aircraft will likely go down as well, since operators are increasingly finding ways to reduce their costs and their prices in order to win some of the limited demand available. Finally, organizations within the aviation industry will have to look more towards sustainability in the long run as innovative products will continue to hit the market. Continuous improvement and innovation will be needed to stay ahead of the game,” says DiCastri.
“The Qatar Executive management described last year as an exciting one, when they added two more Gulfstream 650ER aircraft to the fleet, making them the largest single operator of the Gulfstream model anywhere in the world”
Bombardier, in its report, expects the Middle East fleet to grow at a compound annual growth rate (CAGR) of 6% to 730 planes by 2025, with 95% of the new deliveries expected in the medium and large jet category. Despite the obvious demand for new jets, some industry experts are cautious in their predictions of future growth for the Middle Eastern jet fleet.
For example, Honeywell Aerospace, US aircraft engine and avionics manufacturer, in their last year’s jet delivery forecast, which covers the 10-year period, said that the annual fleet growth of 2% to 3% in the region over last five years is to slow to 1% to 2% through the end of 2021, with the addition that the Middle East and Africa will account just 3% of the global jet sales to corporate and charter operators.
The Qatar Executive management described last year as an exciting one, when they added two more Gulfstream 650ER aircraft to the fleet, making them the largest single operator of the Gulfstream model anywhere in the world.
“Qatar Executive will continue to invest to maintain a private jet fleet that is fit for the future, ensuring that we provide our clients with the most technologically advanced jets available in the market, that can fly them further faster, and simultaneously investing in a fleet that provides them with the most comfort and luxury to surpass their individual needs.
“Our investment in new aircraft – with our additional 27 Gulfstream aircraft orders – will enable us to satisfy customer demand for longer and seamless journeys from the start of the flight in our private terminal in Doha, on board with the best team in the industry and on the best aircraft available. Personal private air travel will continue to be important to our clients, and with Qatar Executive our clients receive a bespoke flight experience and exceptional personal service. Our guests are able to pre-order the food they prefer, have all their flight arrangements taken care of and can enjoy the luxury of personal aviation: the ultimate in convenience and comfort.”
Qatar Executive also added that on their newly-designed website, www.qatarexec.com.qa, clients could explore the world’s most luxurious private jets via 360 degree interactive panoramic photography, discover flight availability, and access VIP online inquiry and charter management services from any mobile device anywhere in the world.
The Royal Jet CEO also voiced satisfaction by saying: “Despite the global economic slowdown, I am delighted to say that Royal Jet performed well last year. We did see the impact of the oil price drop in the form of shrinking travel budgets, but were able to weather the storm.”
“As the oil price comes back, budgets should as well, so we expect the demand to pick back up at that point and bring the opportunity for growth. Whatever costs we are able to save from the low fuel prices have been transferred to our clients by providing them with more competitive charter rates,” says DiCastri.
He adds that under the guidance of Sheikh Hamdan bin Mubarak Al Nahyan, Royal Jet has for many years been the region’s foremost VIP aircraft operator with a very strong brand and successful history within the Middle East’s private aviation industry. “We provide an innovative, world-class, multi-award-winning service at a level which is unmatched in the region. Royal Jet has taken great pride for many years in being the largest BBJ operator in the world, leading the industry in safety and offering its clients unparalleled levels of service.
“The two new BBJs that entered into our fleet last year are equipped with the latest telecommunication and entertainment technology and are the first BBJs worldwide to be fitted with a KA Band antenna system, a system that allows high-speed internet and TV connections just like at home. We are fortunate at Royal Jet to have a very loyal customer base, but we realize we’re not their only choice and so we’re committed to consistently exceeding their already high expectations of us in terms of safety, quality and service,” the CEO of Royal Jet said.
“Industry insights show that 56% of the Middle East’s fleet of business aircraft are in the medium to heavy classes and that 14% are business jet airliners. On the global level the corresponding figures are 30% and 0.3%”
Industry insights show that 56% of the Middle East’s fleet of business aircraft are in the medium to heavy classes and that 14% are business jet airliners. On the global level the corresponding figures are 30% and 0.3%. Last year, research conducted by Gama Aviation, global business aviation services company, revealed that there are some 794 business aircraft in the Middle East, and one in five of these, or 161, were delivered between 2011 and 2015.
When it comes to business aircraft flight activity in the region, German-based data specialist WingX’s report reveals that there were 5,400 flights from the Middle East in the third quarter of 2016, representing a 21% increase over the same period in 2015. In terms of year-to-date activity, WingX, which uses Eurocontrol data, tracked 13,800 flights, or up by 14% over last year.
There were 2,568 business aircraft departures from the UAE in 2016 compared to 2,165 and 2,155 in 2015 and 2014 respectively. In Saudi Arabia, business flights from the country increased 13.8% year-on-year in 2014, 14.7% in 2015 and 6% year-on-year in Q1 of 2016, says WingX.
London and Paris are the most popular destinations among the GCC’s private jet users. In the first four months of 2016 there were 222 trips to London and 185 trips to Paris, while the white paper by Wealth X and WingX reveals that Middle Eastern UHNWI (ultra-high net-worth individuals with at least $30mn in assets) private jet owners constitute roughly 2% of the world’s UHNWI jet owners.
Like commercial airlines, private aviation in the Gulf is also facing problems caused by lack of unified air control, (like EU’s Eurocontrol), and overcrowded airspace. Not in such a pace as commercial flights, since most of the small airports are not that congested, but numbers speak for themselves: in 1986, there were just 342 daily aircraft movements in the UAE and in 2014 there was an average of 2,250 aircraft movements a day.
The UAE’s General Civil Aviation Authority (GCAA) expects that by 2030, there will be at least 5,100 daily aircraft movements, making the UAE one of the busiest airspaces in the world.
When it comes to current industry challenges, Qatar Executive management feels that some customers focus mainly on the price, while their own aim is to offer customers the best value for their money. “We will continue to invest in our aircraft, our crew and our relationship with Qatar Airways Group to ensure the finest, most reliable products are available for our clients. They deserve the best,” they said.
The Royal Jet CEO said they were focusing on regulatory issues. “This region is in need of a stringent regulatory enforcement to curb the gray market, where we either have private owners renting out their planes to third parties illegally and undercutting legal licensed operators, or foreign operators illegally basing their aircraft in the UAE and taking business away from legally registered local operators.”
“The customer base is much better informed today and this has created a far more competitive environment with operators wanting a bigger piece of the pie. With the increasing number of airliners available for charter it will be difficult to maintain the same price point,” he said.
The gray market has been troubling the private jet industry in the region for years. According to some estimates this illegal activity accounts for as high as 25% of overall business jet market in the region, with Saudi Arabia, as the market most affected by this. So Saudi authorities tackled the problem by issuing a regulation last September as per which aircraft registered in the kingdom have to obtain an operator’s certificate if they are to be operated for compensation of hire.
This article is from BQ Magazine’s Issue 42 – March 2017.
© 2017 BQ Magazine ALL RIGHTS RESERVED