GAS - WHITE PAPER: Failure to support business aviation could interrupt Middle East economic growth
A white paper produced after the Global Aerospace Summit in Abu Dhabi, warns that a failure to adequately prioritise investment in business aviation could cost the Middle East dearly.
The Middle East could be losing out on further economic growth by not adequately prioritising business aviation’s potential. A lack of dedicated facilities, a staffing crunch, low awareness of the real business deliverables and slow take up of real estate and technology opportunities are holding back the sector’s real potential, according to experts.
That’s the stark warning that came out of a dedicated strategy session devoted to the challenges and opportunities of business aviation at the 2016 Global Aerospace Summit in Abu Dhabi.
The sector’s very presence on the programme was a ‘signal’ of its economic significance in a region more keenly focused on defence and the scheduled aviation sector, according to session moderator Kurt Edwards, Director General of the International Business Aviation Council (IBAC).
“We want to make sure that folks are reminded of that,” he told the gathering. The business realities of the sector could not be under-estimated, he said. “Business aviation is an industry that connects all parts of the world, it connects financial capitals, political capitals, remote regions, underserved cities and its growth really depends on the safety and access of the industry, as well as a regulatory environment that understands and recognises its unique and diverse roles.”
Admitting that the industry operates with more diverse products and requirements to its larger scheduled aviation segment, Edwards said regulators still need to get a better grip on it. “It’s a very diverse industry, you have owner operated aircraft, corporate flight departments, on demand charters and air taxis and fractional ownership to name a few – each of those is a little bit different, each of those requires a slightly different way, a different treatment and, of course, it poses some interesting challenges for regulators that may not understand models other than scheduled air transport.”
SMALL BUT GROWING
Though the Middle East accounts for a small percentage of the 34,000 plus worldwide business aviation fleet, it’s a region which Edwards says is “facing the greatest amount of growth in their operation.” That growth, he said, would depend on many sectors realising its capability as “a productivity tool” which would be its main growth motivator.
“Interestingly the Montreal International Civil Aviation Organisation at its 6th Air Transport Conference two years ago, concluded that Business Aviation plays a vital role in the global economic development. But we are not without our challenges – we do face capacity constraints at airports and with landing slots. There is a lack of familiarity with the various models among policy makers and regulators – we have issues in sufficient infrastructure whether that is FBO or MROs and as most areas of the aviation world are facing at this moment, there is a lack of qualified professionals and we need to address that.”
GET THE MESSAGE
Yet Ali Alnaqbi, Founding Chairman of the Middle East & North Africa Business Aviation Association (MEBAA) wanted the ‘signal’ turned into a ‘clear message.’
“The fact is you cannot forget business aviation; you cannot not forget private aviation. Business aviation plays a major role in the growth of any economy - we go and fly to places all of us know that the airlines cannot reach – that is our role; we complement each other.”
Business aviation, he said, now had to be factored in to all airport and master economic planning to ensure the delivery of facilities that support the sector. “Our business directly impacts the economy.”
Alan Peaford, Editor, Arabian Aerospace questioned Ali AlNaqbi on how he intended to get the Dubai Government, which owns Dubai South, to prioritise business aviation if it accounted for only around five percent of its business. The MEBAA boss said Dubai South was listening. “They have built a terminal for four operators we are not in support of, but that is the strategy.” He accepted that while MEBAA wouldn’t get all on its wish list, it did believe that the allocation of one business class runway out of the six at Dubai South is now being negotiated.
Josh Stewart, Founder and CEO of XJet said the region’s potential couldn’t be denied with analysts pointing to a doubling of private jet operations within the next five to 10 years, yet the region isn’t fully geared up for it. “The airports aren’t as developed as other markets if you compare this to the US. There are different dynamics here – less leverage, higher purchase price, 44 million versus 16 million, and the market’s younger. With a doubling of the fleet predicted, the infrastructure really does need to keep up.”
Stewart said for the regional industry to get on the right track, attitudes towards business aviation had to alter. “The biggest issue and challenge is mindset. Business aviation is not just a tag on.” He said currently the region is fully focused on commercial travel and builds accordingly, leaving business aviation trailing behind – and that, he warned, represented missed opportunity, particularly for new career paths for nationals. “There is a huge demand for people in business aviation. We are quoting half a million pilots and half a million engineers and yet when people think of an aviation career they automatically think commercial or defence and that doesn’t translate down to business aviation.”
Stewart wants to see a regional mindset leap from perceiving business aviation as a ‘luxury’ option and more of a business tool.
“It’s not seen as a productivity aid, but the fact is there are some companies that can’t operate without business aviation.
With political instability globally, business aviation is more and more in demand from this region. Even with Etihad and Emirates you still can’t get to a lot of markets in one day to conduct meetings. Business aviation is the tool for that.”
DOWNSIZING TAKES SHAPE
Stewart says demand was now extending to entry level turbo props and facilities needed tailoring to suit.
“There is an opportunity for PC12 entry level that can get around key markets so even with the downsides we are looking at an opportunity for unprecedented growth. We have to make sure airports understand the need for business aviation.”
The XJet boss said all too often business aviation is an after-thought in the region only when all of commercial aviation needs had been catered to. “We get squeezed we never win that battle. If we want business aviation to grow [we] have to get airports to set up a structure that protects investment. If we can secure the right terms for capital investment in infrastructure, then that’s a win-win for everyone and a huge opportunity.”
MIX AND MATCH
Kurt Edwards, Director General, International Business Aviation Council (IBAC) questioned whether the answer lay in privatisation of airport facilities but Greg Thomas, President and Executive Chairman of PrivatAir said Geneva
International Airport, a wholly-government-owned facility, was proof that the public sector could thrive with a private sector mindset.
He explained how Europe’s second biggest business aviation airport and the continent’s second most important hub for low cost carrier Easy Jet was proving how mix and match facilities could work and how unconventional thinking sometimes pays dividend. “Thirty-five percent of landing and take-off slots are taken by business aviation which only represents five percent of the revenue of the airport. Yet in today’s airports 50% of revenue and profit comes from retail spending in the terminal building - duty free sales and stores. So generally the airport should be more interested in the 189 passengers on a 737 that arrive daily on each flight than in the three rich guys who fly in on a private jet, transit through an FBO, don’t spend a penny and pay the cheaper landing fees because the planes are lighter. But Geneva understands those passengers contribute a huge amount of cash for the local community – with the watch industry, banking, trading industry, real estate investment and the skiing season all of which attracts high net worth individuals on business jets who spend large amounts of cash in the local community.”
Privatisation, said Greg Thomas, was not necessarily the answer. “There are many airports when privatised that just look at ROI in the airport, so large airports are more difficult to gain access to. It is difficult in the West to create more infrastructure at airports - the last five million passenger airport in Western Europe was built over 50 years ago. We’re more of a democratised society so we have a society that fights hard against another runway, that wants to increase curfews to stop night flying and all of this puts constraints on runway slots and business aviation tends to get squeezed out in those types of airports.”
But capacity challenges, according to Ali AlNaqbi, isn’t a problem only in the West. “We don’t have enough airports,” he said referring to dedicated business aviation facilities and citing Abu Dhabi’s Al Bateen as the region’s only real sector fulfilling facility. “And it doesn’t exactly really do what needs to be done,” he said.
AlNaqbi said MEBAA is now taking the case for dedicated facilities directly to the region’s governments and is receiving some encouraging responses. “We have received a very good answer from the governments of the UAE and Morocco and Saudi where business aviation is active,” he said.
“One of the issues we address is that we realise that soon we will not be able to go to the international airports and Dubai is a good example: we fly on demand and they give us a slot and that does not really suit us.”
Business aviation will be the most issues-hit segment of the region’s industry very soon, according to AlNaqbi. “We are aware of the fact that we need more access and more airports but we can’t promise that tomorrow we will have a couple of more airports in the region. We are working on it. The good news is the government here is listening.”
THE CAREER EQUATION
The industry is also facing a dearth of qualified personnel, a problem Josh Stewart says is again down to awareness. He explained that XJet needed to recruit 100 to 150 people
Global Aerospace Summit 2016
in the next 18 months and that he found it “frustrating” to have to go outside the industry to find people passionate about aircraft. “We need greater exposure. People don’t know it’s a viable option and an exciting option when you are starting off in your career. If you take pilots, for instance, commercial airlines offer linear growth yet business aviation allows them to get involved in other management roles. It’s so diverse.” Josh said his own career mirrored the dilemma – he first joined the Royal Air Force before opting for a commercial airline because he wasn’t aware at that point of the options business aviation could give him. XJet is recruiting from the hospitality industry and putting them through management programmes.
Greg Thomas said the situation could be even further exacerbated by shrinkage in business aviation’s traditional recruitment ground – the defence sector. “Military is going unmanned so air forces are shrinking the number of pilots it needs and it’s a traditional resource pool that will be vastly diminished in the future.” Business aviation would require ‘ready trained’ personnel because its lower number quotas meant it could not train internally or compete for trainees with the large scheduled carriers.
AlNaqbi said business aviation’s manpower dilemma stretched beyond pilots, engineers and mechanics and MEBAA is trying to address it through a dedicated education campaign, which is bringing governments, schools and universities into the mix. “During our MEBA show we have a Futures Day where invited students attend and speakers try to impress upon them the importance of business aviation and the opportunities it offers. We are also talking to universities in Morocco about an aero club for business aviation, we are very much aware of what’s going on.” MEBAA is also going into institutions and campaigning for business aviation to be included in curriculum. “So as much as we try to raise awareness in the student community, we would encourage the big companies and OEMs to host or give scholarships to students who are really interested to learn about business aviation.”
LET’S GET ENTREPRENEURIAL
Growth, said Josh Stewart, would exacerbate the problem unless the industry changed its approach. “We need to encourage more entrepreneurs, not just aviation
entrepreneurs, to come into this industry. Business aviation is not that advanced. On the design and operation of fixed bases, the model we are using hasn’t changed. So there is so much opportunity. We have to show people what the growth is and get governments and universities sparked up and encouraged.”
The answer, according to Greg Thomas, was ensuring great growth and more exposure. “There are billions and billions of dollars invested in the aluminum of business aviation which is under-utilised. The fleet average now is 400 hours per aircraft per annum. If you optimise, you can get up to a 1000 hours of utilisation. There is a big travelling population out there that needs to be exposed to business aviation. The more passenger demand, the more profile our industry will have.”
Innovation, said Thomas, would be along the lines of Jetsmarter which touts itself as the Uber of business aviation, telling clients where the next business jet charter is on an app on an iPhone and selling the seat, rather than the whole aircraft’s capacity. “Things like this will revolutionise business aviation and expose it to a wider travelling public,” said Thomas, who also highlighted consolidation as a means to increased scalability. “So entrepreneurs will be tempted to jump in and jump out where they see niche elements, not at the front end that has been 40 years of pain of invested capital and with very negative returns.”
AlNaqbi said changes in fleet approach were also crucial. “Most companies today here have a wide body aircraft focus – BBJ, Gulfstream 550 and 650 – that’s the bigger part of business aviation aircraft – where it’s the small aircraft that can grow the market and open up opportunity. To make money we have to have a bigger market, to have a bigger market we need the right aircraft, the right companies. In the UAE we don’t have business aviation companies that have more than 10 aircraft and if we need a bigger market, we need a company to have up to 40 aircraft - not all BBJs or Gulfstream Challengers, but I’m pleased to say there will be a company to be announced soon that will look at that segment of market and I assure you in two years they will make significant profit and you will see the opportunity.”
Entrepreneurial approach to the overall business – not just the aircraft – was the road to profit according to Stewart who says the region could take a leaf out of the US FBO market. “I have met many who have made retirement money. There is massive opportunity. You can’t have doubling of private jets without opportunity.”
SAFETY FIRST – AT WHAT COST?
A participant from Go Aviation said another hurdle in the region is getting the authorities to stop viewing aviation as a security threat. “It’s almost impossible to get an airport pass in a very short space of time.” Ali AlNaqbi said the answer was for everyone to work with MEBAA and for it to lobby on the industry’s behalf including any safety and commercial issues arising out of the region’s grey market.
Participants did question the major carriers’ desire to get in on the business aviation market – a development Ali AlNaqbi says is a good sign. “Emirates Executive and Qatar and now Etihad building business aircraft within their fleet is an indication that we are in the right business and they want into it to get a piece of that pie.”
Hisham Osman of Abu Dhabi’s Royal Jet said business aviation was not alone in being overlooked and the discussion had to be widened to encompass general aviation, then perhaps a joint voice would bring quicker results. “Include everyone, air taxis, air ambulance, flying clubs etc. It makes us look bigger to stand against the airlines.”
Greg Thomas summed up the discussions up on a bullish note, despite the agreed challenges. He held out the prospects of bigger things to come and re-emphasised the sector’s positioning as a key economic driver. “We are an agile industry and we like challenges and we face them every day. We enable the captains of industry to fly around in our aircraft, visit their factories at remote sites, conduct financial roadshows in three cities in one day and it’s these types of missions for the business aviation community that are vital to building the world economy. That is one of the biggest advertisements for our industry.”
The strategy session at the Global Aerospace Summit in Abu Dhabi where business aviation came under the spotlight