Sale of the century: Gulf airlines are becoming the dominant buyers of new aircraft

Added to the goals of hosting the world’s busiest airport and potentially the world’s biggest airline at some point, Dubai chalked up another record with its 13th air show in November 2013. Emphasising the growing dominance of Middle East airlines in global aviation, the big three aircraft manufacturers – Boeing, Airbus and Bombardier – came to the GCC to announce sales to the region.

The show covered an area of 645,000 sq metres, and an estimated 60,000 visitors attended the event, as well as some 1055 exhibitors from around 60 countries. The show indicated the enormous potential for aviation in the region and promised to put Dubai at the centre of new developments. During the show’s opening, Sharief Fahmy, the chief executive of Dubai Airshow organiser F&E Aerospace, told local press, “If there was anyone left in the aerospace industry who had not recognised the undeniable importance of this region, this morning removed all doubt. We are in the centre of the region with the world’s fastest-growing aviation infrastructure, fastest-growing airlines and a region where security commitments are in focus.”

Success

Aircraft orders announced at the show topped $200bn at list prices as Emirates Airline, Etihad Airways, Qatar Airways and flydubai all announced major shopping lists for new aircraft. At the 2007 Dubai Airshow the sales figure of $155bn was 25% lower than 2013, and earlier in 2013 the Paris Air Show at Le Bourget, traditionally a major global event, revealed sales of $115bn at list prices.

Another first for the Dubai Airshow was the venue – Al Maktoum International at Dubai World Central – on target to be the world’s biggest airport with five runways and a 160m-person capacity when fully built and operational. The show was also used to launch the new Boeing 777X aircraft, which the company did with great fanfare, announcing 259 orders and commitments from Emirates, Qatar Airways, Etihad and a previously announced order from Lufthansa. The number was yet another record for the launch of a new model, according to Jim McNerney, the CEO of Boeing. The latest 20-year outlook for commercial aviation from the US plane manufacturer is for a $4.8trn market for jet transport aircraft. Of that, the Middle East region is expected to require 2610 jetliners valued at $550bn.

Final Verdict

 Aviation analysts summed up the Dubai Airshow by saying that the results had catapulted the importance of the event to the top of the heap. “Overall, the show now puts Dubai as the world’s number one air show,” Saj Ahmad, chief analyst at StrategicAero Research, was quoted as saying by the UAE daily The National. “The show has stamped its authority as a must-do venue for aviation deals.”

Combined orders from the world’s two biggest aircraft manufacturers, Boeing and Airbus, reached about $179bn, with most of the buyers coming from the Middle East. The two aircraft manufacturers’ figure of $179bn is more than the GDP of New Zealand, and the more than $200bn from the whole show was around the same size as the GDP of Peru or Algeria.

It was the revelation by Bombardier of a $387m order for 16 CS300 from Iraqi Airways that took the show total over the $200bn mark. Canada’s Bombardier, the third-largest plane manufacturer in the world, announced firm orders and commitments for 38 aircraft valued at $2.01bn. The Thai low-cost carrier Nok Air was the other main Bombardier customer apart from Iraqi Airways.

The expansion of Gulf carriers such as Emirates, Etihad and Qatar Airways is gradually shifting the focus of global air travel in the world to the Middle East, although Turkish Airlines based further north in Istanbul is also a rising force to be reckoned with. The big three in the Gulf are within eight to 10 hours’ flying time of almost 80% of the world’s population.

Airbus, based mainly in Toulouse, France, won 160 orders and commitments, with Emirates’ order of 50 A380s constituting an especially significant boost to sales of the superjumbo. Fabrice Brégier, the French firm’s CEO, said, “This is probably one of our best Dubai Airshows. We had an initial target of 800 orders [for the year] and we are above 1200 so it means we have over-achieved our initial target. We will deliver close to 620 aircraft.”

Next Generation

 Emirates’ biggest single order was for the newly announced Boeing 777X. The Dubai carrier bought 150 of Boeing’s re-winged 777s for $76bn at list price, plus an option for 50 more. Qatar Airways bought 50 for $19bn, Etihad ordered 25 and the 34 from Lufthansa makes up the 259, which Boeing says makes it the biggest launch in commercial jetliner history.

Two of the big buyers, Qatar Airways and Emirates, cast aside traditional rivalries and negotiated with Boeing together for 200 firm orders and 50 more as options. And Emirates, which operates 175 of the current 777s will cooperate with Boeing on suggestions for the design of the next-generation models. The airline is reported to have been in talks with Boeing over the new 777 for several years before the order was announced.

Tim Clark, the president of Emirates, said the airline will begin retiring its 777 fleet by 2017. The new 777X burns 20% less fuel and offers a 15% operating improvement on the existing 777-300ER, according to Boeing – add to this an interior design and décor inspired by the 787 and a passenger cabin that is said to be 11% more spacious than the Airbus 350. The purchasing power of the Middle East region’s major airlines allows them to offer aircraft that are newer – and therefore more attractive – and much more cost-effective to operate.

“Although it looks like a large number on paper, the reality is that the capacity is being phased out. … The new aircraft are coming in to replace it,” said Clark. “We keep our aircraft for 12 years.”

The supremacy of the Gulf carriers in fleet renewal is emphasised by noting that they constitute around 85% of the 777X orders, while Emirates accounts for almost half the bookings for the Airbus A380 – 50 out of 101 orders. The airline already operates 39 of the world’s largest commercial jets.

Asked by reporters at the show if the airline market was big enough to absorb the mass expansion by Emirates, Qatar Airways and Etihad, Clark replied, “Every time the three companies ordered more aircraft, everybody asked if there is enough to go round. We seem to be managing to fill the airplanes. We are optimistic there will be enough room.”

FlyDubai

While the three full-service carriers were virtually monopolising attention, a newer carrier was in the process of making major strides forward. Flydubai, the state-owned carrier based at Terminal 2 of Dubai International, is not yet five years old and has not even taken delivery of its entire initial order of 50 Next-Generation Boeing 737-800 aircraft made at the UK’s Farnborough Air Show in 2008. Yet, the airline made a commitment at the Dubai Airshow in November 2013 to order additional aircraft from Boeing. This order includes 75 737 MAX 8 and 11 Next-Generation 737-800 aircraft, and the airline also retains purchase rights for a further 25 737 MAX 8. Since its inaugural flight in 2009, flydubai has built up a network of more than 65 destinations, served by a fleet of 35 Boeing 737-800 aircraft. The remaining 15 aircraft from its 2008 order will be delivered by 2015. In the past five years the airline company has targeted secondary cities within the range of its aircraft, which is around five hours’ flying time or slightly more. The firm also aims to enhance connections in tourism and trade across its expanding network. Since its launch, the carrier has opened up 46 new routes that were previously underserved or did not have direct air links to Dubai.

The first Next-Generation Boeing 737-800s from the latest order will be delivered between 2016 and 2017. Deliveries of the first Boeing 737 MAX will then begin in the second half of 2017 and continue until the end of 2023. The 737-800 is the bestselling commercial jet in history. Total sales hit almost 10,500 in June 2013 at the Paris Air Show when Ryanair placed an order for 175 planes.

Air Safety

 The question of air safety inevitably arises whenever such high aircraft numbers circulate, even though statistics show it is safer to fly than to drive. Be that as it may, GCC investment in airspace management technology seems to be keeping pace with the sales of new aircraft. In February 2013, the AutoTrac III automation system produced by Raytheon, the US defence and electronics manufacturer, entered operational service at Dubai International and Al Maktoum International, becoming the main tool for air traffic controllers to safely manage the increasing number of approaching and departing flights. While not downplaying the importance of safety, the much more common effect of crowded skies is wastage of time and fuel. New arrival and departure procedures are aimed at allowing planes to fly more direct and therefore more fuel-efficient routes using AutoTrac III. Mohammed Ahli, the director-general of the Dubai Civil Aviation Authority, told OBG, “It is important for GCC and subcontinent countries to understand that a unified approach is to the greater benefit of all as external airspace congestion continues to heighten throughout the region.”

In addition to ground-based electronics, air traffic management technology on board aircraft is also cutting fuel costs by helping aircraft to find more direct routes. Irrespective of the amount of technology, according to Hussein Dabbas, the regional vice-president for the Middle East and North Africa at the International Air Transport Association, there is a “need for a more coordinated air traffic management system or there is a risk of stifling growth in the aviation sector and the profitability of airlines”.

New Deals

The Dubai Airshow’s announcement of aircraft sales and talk of all the high-tech ancillary equipment are becoming less and less a one-way street. The UAE’s aerospace industry, centred on Al Ain in the emirate of Abu Dhabi, also derived huge benefits from the agreements revealed at the show. The deals will generate $4.4bn of manufacturing work for Strata, Mubadala’s advanced composite aerostructures manufacturing plant, in the period up to 2030. The 2013 show’s results will also lead to a move into engine parts manufacturing, generating $1bn of work, with the aim to become a tier 1 supplier for next-generation commercial engines. The UAE’s aim, as in other parts of the world, is to be recognised as a direct supplier for the global original equipment manufacturers. That status puts the partner on a par with the original firm.

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The Report: Dubai 2014

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