Economic Update

At a recent ceremony marking the delivery of its first new Boeing aircraft, the UAE’s fast-growing Etihad Airways was assured of continuing government support.

“The government of Abu Dhabi will offer more support to Etihad Airways in order to expand its fleet with the world’s most highly sophisticated aircraft to continue its achievements towards excellence,” General Sheikh Mohammed bin Zayed Aal Nahyan, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, told reporters at the ceremony.

The goal, the Sheikh said, was for Etihad to “occupy a leading position in the Gulf and Middle East travel, aviation and tourism market”.

The new Boeing aircraft is the 777-300ER (Extended Range) aircraft, which has a passenger carrying capacity ofcan carry 365 passengers and has a range of some 7,420 nautical miles.

Despite the tremendous growth the airline has seen over the past year, the UAE’s two-year-old flagship carrier has not yet reached a point at which the government is comfortable with letting it come out from under the protective wing of the state. It must at least achieve profitability before privatisation is allowed on the agenda.

State subsidies, however, have many private competitors complaining about government aid interferenceing with the regional air travel market.

The Abu Dhabi government has made no bones about the purpose of the airline or the government’s role in operating it – the airline is simply another aspect of the emirate’s plans to diversify its economy away from hydrocarbons. The airline’s role is not only to create jobs and generate revenue, but also to promote Abu Dhabi’s nascent tourism sector and to establish the emirate as a regional travel and transport hub.

“The objective behind the airline establishment was to promote the tremendous tourism potential of Abu Dhabi, besides providing the best transportation facilities to residents”, said Sheikh Muhammed.

The airline runs on the same business model as Dubai’s wildly successful Emirates Airlines.

Financing for the new Boeing aircraft has come via a recently concluded a $450m finance deal with the National Bank of Abu Dhabi, Abu Dhabi Commercial Bank, First Gulf Bank and HSBC Bank Middle East.

The deal furnishes part of the finance for a loan covering the initial costs for the $1bn acquisition of all five Boeing 777-300ERs the airline has on order for 2006.

Etihad’s fleet should consist of 50 planes by 2010. The airline also has five Airbus 330s and four Airbus 340-600s are on order for non-stop flights to the US, with these aircraft due to be delivered during 2006.

Over 2005, Etihad carried 1.2m passengers. As it expands its destinations, it is sure to gain more of the increasing traffic into Abu Dhabi’s international airport, which, though originally designed for a maximum annual capacity of 5m, saw an estimated 5.8m pass through in 2005. The opening of a temporary building addition raised its capacity by 2m travellers, while a new $7bn airport with an annual capacity of 20m passengers is planned to open in 2010.

The airline has professed a goal of carrying 3m passengers in 2006, according to CEO Robert Strodel.

Since the airline was established in 2003 with several billion dollars of initial investment and just six planes, the government hais working to expand Etihad’s list of destinations. It is set to will begin service to three cities in Pakistan for the first time – Lahore, Peshawar and Islamabad. In addition, it recently won landing rights for Dhaka, the Bangladeshi capital, which will mean services within “a couple of weeks”, according to Etihad’s marketing manager, Ian Ferguson. This is in addition to an existing service to Karachi. The airline hopes to add another eight destinations to the current list of about 20 in 2006.

A UAE delegation of Abu Dhabi Civil Aviation Department (ADCAD) officials and Etihad Airways, led by Assistant Under-secretary of ADCAD Ahmed al-Hossani, has also recently met in Islamabad with the Pakistani Civil Aviation Authority to discuss increased co-operation in civil aviation. The delegation also met with officials from the Pakistani Ministry of Defence, which has jurisdiction over civil aviation in the country.

Etihad also seeks to begin regular cargo-only flights to Pakistan with its Etihad Crystal Cargo division.

Etihad currently serves 20 destinations, while Crystal serves “a handful” more, according to ITP Business. The cargo company had a turnover of $100m in 2005, carrying 70,000 tonnes of cargo, despite only having been established one year earlier. It now aims to ship 180,000 tonnes of cargo over 2006, and recent upgrades at Abu Dhabi’s airport will increase capacity. Crystal transported only 20,000 tonnes in 2004.

Of course, all of these developments are in line with Abu Dhabi’s massive growth and its plans for further economic diversification. And there can be little doubt that Etihad itself will only continue to grow over the next few years.