THE Gulf Cooperation Council countries are just a few hours flight time from each other, but looking at the schedules put out by national carriers in the region you’d hardly know it. There’s much talk about the reasons that GCC companies don’t do more business with each other. One problem is that a meeting in another GCC country will probably mean two days away from a senior executive’s home base. The concept of the commuter airline simply does not exist here. It is generally impossible to fly out on a commercial airliner from one’s hometown in the morning and come back on the same carrier that night.
There is a solution to this problem and it is one that is growing more popular, especially since the Sept. 11 attacks. Called fractional leasing, it enables companies to reap the benefits of private jet ownership without the heavy overhead. Under fractional leasing plans companies need only book a plane 12 hours in advance for the destination of their choice. Passengers usually arrive at the airport just minutes before the flight, as security and immigration procedures are rapid. The safety of the flight is hugely enhanced because everyone knows everyone else onboard.
While these planes will not be coming immediately into the Saudi market, a Jeddah-based company has begun to offer financial institutions the opportunity to participate in the fractional leasing of planes, which will initially operate in the Euro Zone. The Saudi Financial Advisory Center of Basil M. Al-Ghalayini (BMG), and Air Touring Management (ATM), a UK-based private aviation fractional leasing management company, have signed an agreement to create "Eagle Funds" with the purpose of financing private aircraft on a fractional lease basis. The funds will be structured according to Shariah guidelines. The first fund, Eagle 1, will raise $10,000,000. It will be used to purchase 4-TBM 700 aircraft manufactured by SOCATA, a wholly owned subsidiary of Aerospecial Company. Eagle 1 will be financed by a Kuwaiti-based financial institution. The minimum annual return on the fund is six percent, with a tenure of five years and the capital is guaranteed.
The Eagle 2 Fund could be launched during the last quarter of this year. Its value may be double that of Eagle 1. It is planned that Eagle 1 and 2 will operate mainly in the Euro Zone area but future Eagle Funds will be focused on other zones such as the GCC, Levant, and North Africa.
"The whole purpose in the establishment of BMG was to help local investors find dynamic, reputable ways to invest globally," said Al-Ghalayini, managing partner, BMG. "The local banks have been sluggish in providing the means for noteworthy Shariah-compliant investments. The level of risk linked to an investment can only be properly calculated if all the details in a deal are clearly understood and the companies involved have been proven to be reputable. The purpose of a financial adviser is to introduce clients to opportunities that will add value and diversify their portfolios. Such services are seriously lacking in this market, as are creative, well-structured opportunities for Shariah-compliant investment."
BMG may be new to the investment scene in the Kingdom but it is built on strong foundations. Al-Ghalayini majored in Business Administration at King Abdul Aziz University and then went on to take his advanced degree from Harvard University. He worked for eight years for the Investment Management Division of National Commercial Bank before moving on to head the London office at The International Investor. He was brought back to the Kingdom by his desire to introduce investment opportunities of an international standard to the Saudi market and to work with local firms engaged in mergers, acquisitions and initial public offerings.
"The Eagle Funds are exactly the sort of investment opportunity that should have been made available to Shariah-compliant financial institutions for years, but that somehow were never introduced to the GCC market," said Al-Ghalayini. "GCC banks have shown a preference for participating in Islamic leases also known as Ijara funds. With my extensive experience in Islamic banking and finance, and wide international banking exposure, I plan to have BMG bring as many of these opportunities as possible to the attention of the local banks and local investors."
Al-Ghalayini explained that the first two Eagle Funds would be based in the Euro Zone because in that region there is already a growing trend since Sept. 11 for the fractional leasing of private planes. The Euro Zone cities have 1,500 airports and business people there are already strongly inculcated with the habit of zipping from one destination to the next. ATM plans to operate the aircraft of Eagle 1, from its hub at Higgins Airport, 40 km south of London.
"Since Sept. 11, air travel has become a huge hassle in Europe," Al-Ghalayini said. "Due to security delays and cutbacks in flight schedules it is difficult of get to several destinations in one day. Looking a bit into the future, I strongly believe that for the GCC market this particular niche type of airplanes and service, sort of like air taxis, will be very popular with senior executives. These planes seat four passengers, so it’s excellent for those organizations who send executives around in teams to give presentations, go to board meetings or make inspections."
There are other fractional ownership operators in the region, but according to Al-Ghalayini the use of their planes is limited to the super wealthy due to the type of jets in service.
"With Eagle 1 we are going down to the mid-tier of high fliers and jet setters," he explained. "The difference here, just for comparison, is the difference between driving a Rolls Royce and a BMW 500 series. Both are highly desirable but one is more affordable. The TBM 700 aircraft that will be financed will be reliable, effective, comfortable and practical but not overly luxurious. Their purpose is to take you from Point A to Point B on time — in your own time. They have a range limited to a maximum of two hours flight time, versus six hours for the jets currently in this market. The TBM 700s are intended to be used by businessmen who want to make short hops from one meeting or presentation to the next and get back home the same night to sleep in their own beds. Such an option would truly be a move toward enhanced productivity and peace of mind for any senior executive."
