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Backing the carrier gamble to pay off

Posted 15 December 2016 · Add Comment

Taking on a failed airline's name and its debts may seem unlikely first steps when setting up your own carrier. The new owner of Dubai-based Eastern Skyjets explained why to Alan Dron.

It’s a race against time for Pirouz Hamidian-Rad and the revived Eastern Skyjets as he aims for a start to operations by the time the Umrah pilgrimage season begins in November. Speaking in late August, he reckoned he was two months away from receiving his air operator’s certificate (AOC) from the UAE General Civil Aviation Authority (GCAA). Assuming that was granted, a further month would be needed to receive the necessary approvals to uplift pilgrims from countries to which Eastern Skyjets planned to operate.
“It’s a tight schedule,” he admitted. “Everyone is working, if not 24/7, then 18/7.”
The Gulf aviation community will remember the former Eastern Skyjets, which operated for several years with McDonnell Douglas DC-9s, then Boeing 737 Classics and specialised in flying international troops in and out of Afghanistan, where they were fighting the Taliban. The airline also undertook work for the UN World Food Programme.
“They did very well for several years,” said Hamidian-Rad. However, he said the original owners failed to react quickly enough to changing market conditions, notably the drawdown of allied forces in Afghanistan.
Among growing problems, the airline also had the misfortune to have one of its aircraft damaged by terrorists in Pakistan.
In June 2014, the owners approached him to find them investors, but their financial difficulties were too severe and it was too late to put together a rescue package, he said.
Eastern Skyjets closed, but Hamidian-Rad, a former principal economist at the World Bank, bought the name.
“I like to restructure difficult projects – that was my background at the bank,” he said.
“I didn’t pay much for the company. The previous owners were gone.”
He did, however, take on the former company’s debts. And those were substantial. When he acquired the company they stood at $40.6 million, against assets of just $3 million. Following negotiation with creditors, he was able to reduce that to $12 million, a figure that by late summer 2016 had been further cut to $8 million.
While many people would think it unlikely that creditors would be willing to write off 80% of their debts, “Companies think it’s better to get something rather than nothing,” he said, particularly when combined with the prospect of winning new business from the re-born company.
“This industry is too small to burn all bridges with suppliers and customers. Services required by Eastern Skyjets will be going to those companies that have stood by us during difficult times – insurance, spare parts, maintenance. The first priority will be companies that took a major haircut to help us out.”
Debts to the Dubai Government have been paid off – “That’s why we were allowed to re-start the airline” – and salaries owed to previous staff will also be honoured.
Hamidian-Rad anticipates all debts will be paid off by the end of three years. At that point, he may look at changing the airline’s branding.
The revived airline intends to start operations with Airbus A330-200s, with several examples already picked out and for which negotiations are under way with lessors. It had been an uphill battle to ease the doubts of lessors, several of whom were understandably cautious about dealing with a company that had been dormant for two years, he admitted. However, that problem was on the verge of being solved.
“The aircraft will be dry-leased from a lessor in the UAE. They’re 15 to 16-year-old aircraft, fresh out of C-Check and formerly operated by Emirates Airline. They’ve got a fantastic maintenance record.
“Three are already available in the country. In fact, they are standing outside our offices, but I don’t want to pre-empt any discussions with the lessors.”
According to the airline’s temporary website, Eastern Skyjets hopes to start operations with six A330-200s, building up by at least two aircraft a year (including some Boeing 777-200ERs) until it reaches a 17-strong fleet by the end of 2020.
The airline will initially concentrate on the Haj and Umrah market: “Some 60% of revenue will be generated by that type of activity. The other 40% will come from ad hoc charters and flying for UN agencies, because we have the right type of aircraft,” said Hamidian-Rad.
“Our first priority is the Far East countries. Given the range of the aircraft, we’re aiming at Malaysia, Indonesia and Thailand to some extent. Secondly, we’ll look at India and Pakistan – especially the Indian market, which has recently been liberalised for Haj and Umrah operations. It’s no longer under the control of Air India. Thirdly, we’ll look at west Africa, with its very large Moslem population.”
He believes that the A330s will find a niche in the Gulf for ad hoc and aircraft, crew, maintenance and insurance (ACMI) charters, as no operator in the region uses wide-bodies for charter operations. “Several charter operators have shut down or discontinued operations in the UAE, so there’s a good chance of picking up business there. We’ve been in touch with many ACMI brokers and there’s a good demand there.”
There are already many airlines fighting for a slice of the religious pilgrimage market. How does Hamidian-Rad hope to differentiate Eastern Skyjets from competitors?
“Firstly, through service orientation. I lived in Saudi Arabia for almost two years and have dealt with Haj and Umrah services for eight. We’re very hands-on management.
“Secondly, through the type of aircraft. Wide-bodied aircraft are not something many people are focusing on.”
The third emphasis will be on reliability. Hamidian-Rad said he had seen too many cases of pilgrims paying a deposit up-front and readying themselves for this important moment in their lives, only for the promised aircraft not to turn up at the appointed date.
Although based in Dubai, as a charter company Eastern Skyjets cannot land at Dubai International Airport. It was given the choice of operating from Dubai World Central or from Ras Al Khaimah (RAK).
It picked the northernmost emirate: “Although it’s a bit further away, traffic is much easier on the route to Dubai downtown and the cost of operating from RAK is the cheapest of all the airports in the UAE.”
With a gaggle of expectant creditors in its wake, Eastern Skyjets will arouse more than the usual level of interest surrounding a new operator when it takes to the air.
 

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