Abu Dhabi’s aviation ambitions up in the air

The Midfield Terminal Abu Dhabi International Airport. Completion of the new building, which will increase capacity to 45 million per year, has been delayed until 2019. Courtesy, ADAC
Updated 23 April 2018
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Abu Dhabi’s aviation ambitions up in the air

  • Passenger traffic at Abu Dhabi International Airport fell 11 percent in the first quarter
  • Etihad Airways this month cut routes to Edinburgh and Perth

LONDON: The inaugural non-stop Qantas flight between Perth and London last month may have been hailed as the future of aviation by the airline industry, but it’s unlikely to have prompted much celebrating in Abu Dhabi.

The prospect of ultra-long haul flights, which reduce journey times by cutting out the need for stopovers, strikes at the heart of the business model of the likes of Dubai and Abu Dhabi, which have risen to prominence in recent years as major transit centers for global air travel.

“The Gulf airports burst onto the scene as the airframe technology changed and the long-haul hubbing model was created,” Andrew Charlton, the managing director of consulting firm Aviation Advocacy.

“The Qantas flights from Perth show that the technology is again changing; in the end, the technology always wins.”

Mr. Charlton cautioned that the impact in the short-term on Abu Dhabi and other hubs would be minimal, noting that ultra-long haul would not be available to most passengers.

What’s more, “the market demographics and the economics of hubbing (still) make airports in the Gulf very attractive,” he said.

But ultra-long haul travel is just the latest in a series of issues impacting Abu Dhabi’s aviation strategy, with progress slowing in the wake of lower oil prices and operational issues at Etihad, the emirate’s flag-carrier.

The high-profile Midfield Terminal at Abu Dhabi International Airport, designed to expand capacity to 45 million passengers per year, has faced numerous delays, with its expected opening date pushed back from late-2017 until the end of 2019.

The increase in capacity, designed to coincide with the growth of Etihad Airways, no longer seems as urgent a priority, as the emirate cuts back on spending in the wake of lower oil revenues. Meanwhile, Etihad’s international expansion strategy, launched in 2011, is now very much on hold.

Etihad’s strategy of acquiring a series of stakes in global airlines, in a bid to transform itself into a global rival to the likes of Dubai’s Emirates, hit the buffers last year, with the bankruptcy of Alitalia and Air Berlin, two of its largest interests. Etihad subsequently sold its stake in European regional carrier Darwin Airline, with rumors earlier this month that it may also look to offload its stake in Virgin Australia, after the latter canceled its last route to Abu Dhabi earlier last year.

Etihad did not respond to a request for comment.

The loss of some of Etihad’s international operations has taken its toll on Abu Dhabi’s passenger traffic. Abu Dhabi Airports has not released traffic figures for 2017, but passenger numbers for the 11 months to the end of November fell 3.7 percent year on year to 21.5 million.

That trend appears to have deepened so far this year; Abu Dhabi Airports last week announced an 11 percent drop in passenger traffic for the first quarter of the year, falling to 5.5 million, with aircraft movements dropping 15 percent to 35,788.

The drop in cargo was even more pronounced, falling 25 percent year on year to 142,492 metric tons.

Traffic through the emirate is “likely to see further reductions,” said John Strickland, director of JLS Consultancy.

Earlier this month, Etihad announced it was cutting flights to Edinburgh and Perth in Australia, as part “of several adjustments that we are making to our network in 2018 in order to improve system profitability,” according to an Etihad spokesman. This followed the axing of its Dallas route late last year.

Mr. Charlton said that Abu Dhabi’s hub strategy remains solid for the moment, but that the loss of Alitalia and Air Berlin “certainly slows things down.”

Abu Dhabi Airports did not respond to a request for comment.

“We are continuously working toward fortifying Abu Dhabi International Airport’s presence as a key airport hub within the region, by enhancing our existing network and connecting with new and wider markets globally,” said Saoud Al Shamsi, the acting chief commercial officer of Abu Dhabi Airports, in a statement coinciding with the Arabian Travel Market exhibition in Dubai.

“We are optimistic about the sector’s performance in the coming years that will continue to be key in our efforts to implement enhancements to our services.”


Maalem Financing raises $26m in debut sukuk

Updated 17 October 2018
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Maalem Financing raises $26m in debut sukuk

  • The sukuk from Maalem, a shariah-compliant commercial and consumer financing firm, is a small but novel deal
  • The three-year unsubordinated deal was sold through a private placement and Maalem could tap the market again

LONDON: Saudi Arabia’s Maalem Financing has raised SR100 million ($26.6 million) from a debut sale of Islamic bonds, or sukuk, as the firm seeks to develop a crowdfunding product and expand its operations, a senior executive said on Tuesday.
The sukuk from Maalem, a shariah-compliant commercial and consumer financing firm, is a small but novel deal in a market that is dominated by issuance from sovereign institutions and Islamic banks.
The three-year unsubordinated deal was sold through a private placement and Maalem could tap the market again as early as January next year, said John Sandwick, a member of Maalem’s board of directors.
“The program is for SR500 million and with 3.6 times oversubscription, there seems to be a lot of demand,” he said.
Additional sales of sukuk aimed to raise between SR100 million and SR200 million, depending on market conditions, he said, adding that Maalem may consider a dollar-denominated sukuk issuance at a later stage.
The debut transaction used a structure known as murabaha, a cost-plus-profit arrangement commonly used in Saudi Arabia. The firm hoped to use an asset-backed structure for future deals, Sandwick said.
Established in 2009, Maalem received regulatory approval to operate as a non-real estate finance company in 2016 and increased its capital in 2017 to SR150 million.
The company plans to open several regional offices by the end of 2018 and is awaiting regulatory approval for a crowdfunding license, Sandwick said.
Crowdfunding enables startup firms to collect small sums of money from many individuals as an alternative to bank loans.
Albilad Capital, the investment banking unit of Bank Albilad, served as sole lead manager and arranger of the sukuk.