Saudi Arabia’s Alsalam Aerospace set to double turnover, mulls long-term IPO

The Alsalam Aerospace Industries stand at the Dubai Airshow. (AN photo)
Updated 15 November 2017

Saudi Arabia’s Alsalam Aerospace set to double turnover, mulls long-term IPO

DUBAI: Saudi Arabia’s Alsalam Aerospace Industries aims to double turnover within two years and could consider becoming a public company.
The Riyadh-based outfit that repairs, maintains and overhauls aircraft, has formed an alliance with other aerospace industries in the Kingdom, said CEO Yahya Homoud Al-Ghoraibi in an interview on the sidelines of the Dubai Airshow.
Such an approach mirrors a similar recent consolidation of aerospace and defense-focused companies in the UAE, as both countries seek to add high-value aviation jobs in line with economic diversification plans aimed at creating more private sector employment for citizens.
The company currently generates revenues in the range SR1 billion ($266 million) to SR1.2 billion. But that is expected to grow to about SR2 billion by 2019, said Al-Ghoraibi.
He said a public listing could be considered over the next five years.
“With the new vision, a lot of projects are coming to Alsalam and we are working hand-in-hand with some of the other offset companies to form an industrial alliance,” he said.
Alsalam is one of a group of Saudi aviation groups that have signed an initial agreement to form an alliance to undertake manufacturing of aircraft parts as well as maintenance work.
The move was announced by TAQNIA Aeronautics on Monday. Other companies in the alliance include Middle East Propulsion, Advanced Electronics, Advanced Arabian Simulation, Saudia Aerospace Engineering Industries, Aircraft Accessories and Components and Saudi Rotorcraft Support.
Based next to King Khalid International Airport in Riyadh, Alsalam employs about 2,600 people — almost 60 percent of whom are Saudis.
Its corporate brochure shows a picture of the Douglas DC-3 plane that was gifted by President Roosevelt to King Abdul Aziz in 1945 — marking the birth of civil aviation in the country.
The company was established in 1988 as an “offsets” program, aimed at encouraging knowledge transfer from foreign companies winning big contracts in the country to local joint ventures.
Other Gulf states have developed their own offsets programs to attract more inward investment and the economic visions of both Saudi Arabia and the UAE identify aviation as a key focus.
The offset system prioritizes Saudi-origin products and stipulates that a proportion of the technical or services component of contracts are awarded locally.
But the acceleration of economic reforms in the Kingdom is putting even more pressure on foreign corporations hoping to win work in Saudi Arabia to demonstrate that they are helping to transfer skills, create jobs and build capacity.
BAE Systems, the world’s third-largest defense company, highlighted the importance of that process in winning work in the Kingdom.
“This is all driven by Vision 2030,” said Guy Griffiths, BAE Systems’ international managing director during the company’s first-half earnings webcast in August.
“In every negotiation that’s conducted, whether with us or other defense suppliers, a key component beyond the price and specifications of the product is what is the industrial, training, development and technology transfer contribution that goes with this order? It’s probably the most preeminent part of every negotiation,” he said.
Frost & Sullivan expects that the Saudi military offsets market will grow at an annual rate of 3.9 percent to reach $62.6 billion by 2021.


Tankers defer retrofits to cash in on freight rates

Updated 19 October 2019

Tankers defer retrofits to cash in on freight rates

  • The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week

SINGAPORE: Tankers that had been scheduled to install emissions-cutting equipment ahead of stricter pollution standards starting in 2020 have deferred their visits to the dry docks to capitalize on an unexpected surge in freight rates, three trade sources said.

US sanctions on subsidiaries of vast Chinese shipping fleet Cosco in September sparked a surge in global oil shipping rates as traders scrambled to find non-blacklisted vessels to get their oil to market.

The rates for chartering a supertanker from the US Gulf Coast to Singapore hit record highs of more than $17 million and a record $22 million to China earlier this week.

By comparison, prior to the sanctions, shipping crude from the US Gulf to China cost around $6 million-$8 million.

The extraordinary spike in freight rates proved too good to miss for some shipowners who were due to send vessels to the dry docks for lengthy retrofitting and maintenance work.

“We can confirm several owners have postponed dry docking earlier scheduled for the months of October and November to take advantage of the skyrocketing freight rates,” said Rahul Kapoor, head of maritime and trade research at IHS Markit in Singapore.

The shortage of ships to move crude oil was so acute that some shipowners also switched from carrying so-called “clean” or refined fuels like gasoline to “dirty” cargoes that include crude oil, despite the costs of having to clean them later.

“Current rate levels are a no-brainer for pushing back scrubber retrofitting,” said Kapoor.

Starting Jan. 1, 2020, the International Maritime Organization (IMO) requires the use of marine fuel with a sulfur limit of 0.5 percent, down from 3.5 percent currently, significantly inflating shippers’ fuel bills.

Only ships fitted with expensive exhaust cleaning systems, known as scrubbers, which can remove sulfur from emissions, will be allowed to continue burning cheaper high-sulfur fuels.

Ships must be sidelined for up to 60 days for fitting these, according to IHS Markit and DNV GL.

While freight rates have abruptly come off their recent highs, shipowners can still profit from the higher charges.

“One cargo loading at current elevated rate levels can not only finance the scrubber capex, but also account for extra costs incurred to install the scrubber at a later date,” said Kapoor, referring to the capital expenditure of fitting the scrubber.

Freight rates are expected to hold firm for the rest of the year.

“With seasonal demand support and tanker supply deficit still pronounced, we expect (fourth-quarter) tanker freight rates to stay elevated and end the year on a high note,” Kapoor said.