The document discusses how Middle Eastern airlines like Emirates, Etihad, and Qatar Airways are capitalizing on the growth of trade routes between the Gulf and Asia, known as the "New Maritime Silk Road". These airlines have emerged as major global players, significantly increasing their fleet sizes and international routes. Their hub airports in Dubai, Doha, and Abu Dhabi are also expanding substantially to accommodate more traffic. The document argues this growth positions the Middle East as a strategic center of global aviation and trade in the 21st century, similar to medieval cities along the historic Silk Road.

1. ISSUE THREE SEPTEMBER/OCTOBER 2011
ONLY PEOPLE WHO TRULY KNOW THE INDUSTRY CAN TELL YOU SOMETHING YOU DON’T ALREADY KNOW AND POINT YOU IN THE RIGHT DIRECTION
American Airlines puts Boeing on the ropes
Boeing confirms launch of 737Max
AA order - part of a greater strategy?
w w w. a v i a t i o n n e w s - o n l i n e . c o m

2. EDITOR’S LETTER
THE PACE OF CHANGE
In has been a fast-moving couple of months over the long summer (in the northern
hemisphere at least) when most people decamp to sunnier climes. However, the
summer months are when airlines make their profit for the year, and as a result the
rest of the aviation market can little afford to take time off. Boeing and Airbus have
been particularly busy. It was always only a matter of time until Boeing was forced
to make a decision between an all-new 737 aircraft or a re-engined version. The
American Airlines order simply brought that decision forward by a few months. All
credit to the US carrier for playing off the two airframe manufacturers to secure a
bumper order at (allegedly of course) a discount price. See our cover feature (page
24), which digs a little deeper into the American Airlines order, while Charley Cleaver
from Cabot Aviation draws his conclusions about the deal. The real winner in the
ISSUE THREE, VOLUME ONE
whole affair, aside from the airline, was CFM International, which masterly played its
September/October 2011
hand to end up with a sole-source engine contract for the new 737Max family and
EDITORIAL TEAM
set itself well on the way to securing 50% market share in the re-engined narrowbody
Victoria Tozer-Pennington
market. This was not the situation a few short months ago, when the Pratt & Whitney
victoria@aviationnews-online.com
PW1000 Geared Turbo Fan was the clear preferred engine choice for airlines and
Philip Tozer-Pennington lessors ordering the A320neo. David Cook at ASM consulting takes a closer look at
philipt@aviationnews-online.com the two engines to help lessors and airlines decide which engine is the best option
Kaleyesus Bekele for their business.
kaleyesus@aviationnews-online.com
Boeing’s board of directors approved the 737Max family just one week before Air-
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knowledge of its editorial staff and reporters. Unlike some business magazines, we
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Copyright 2011 Aviation News Ltd Victoria Tozer-Pennington
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Airline economics (Online) ISSN 2045-7162
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permission of the Publisher. Although great care has
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the views expressed herein.
www.airlineeconomics.co Airline Economics September/October 2011 1

3. MIDDLE EAST
The road more travelled
The strengthening of the trade routes between the Gulf and Asia is
becoming known as the ‘New Maritime Silk Road’. Monis Ahmed
Hasan, an aviation strategy executive in Dubai, looks at how
Middle Eastern airlines are taking advantage of this global shift.
52 Airline Economics September/October 2011 www.airlineeconomics.co

4. MIDDLE EAST
he world is experiencing a
T
principal axis shift as the
economic centres of the
world move from America
and Europe to Asia and the
Middle East. The consen-
sus emerging from experts is that the
geopolitical and economic position in
the twenty-first century will not be domi-
nated by nations such as India, China
and America but by global cities such as
Mumbai, Shanghai, Dubai, Doha, Abu
Dhabi and Jeddah.
Cities are growing in sise so that they
are beginning to merge both metaphori-
cally and physically. A drive between
Dubai and Abu Dhabi will show both
cities are growing towards each other,
with Jebel Ali emerging as a new dis-
trict between them. Parag Khanna, New
York-based director at the New Ameri-
can Foundation and author of ‘How to
run the world: charting a course to the
next renaissance’, calls this emerging
global landscape the ‘new new world
order’, where cities are the dynamic
drivers of growth and innovation, and
the centre of political power and author-
ity. Suddenly the world has multiple
superpowers, and nations are not the
only players in the world, but also cities,
companies, non-governmental organi-
sations, religious groups, universities
and trade unions.
This new new world order greatly
resembles the Middle Ages a thousand
years ago. Cities, not nations, domi-
nated during that period and the trade
routes they created resulted in the Great
Silk Roads travelled by Ibn Battuta and
Marco Polo. Fast-forward to today, and
cities such as Doha and Dubai are our
Medieval Venice, free zones that effi-
ciently re-export the world’s goods,
confidently sitting at the crossroads of
Europe, Asia and Africa. This strength-
ening of the trade routes between the
Gulf and Asia is becoming known as the
New Maritime Silk Road. And no matter
which economies are up or down, these
global cities retain the spoils from the
continuing trade, even if it is among dif-
ferent players.
It is this strategic axis shift in trade
routes that has fuelled the growth of air
transportation in the Middle East, par-
ticularly the Gulf countries. Whereas
previously goods moved on camel
www.airlineeconomics.co Airline Economics September/October 2011 53

5. MIDDLE EAST
Qatar Airways and Etihad Airways com- reduces their supply chain costs com-
bined being 70% of its size. Together pared with European, US or Asian
these airlines operate a fleet of 303 air- airlines. Their young fleet age also helps
craft (EK-155, QR-91, EY-57) and have keep their fuel costs down, as the lat-
a further order book of 470 aircraft (EK- est generation aircraft burn fuel much
190, QR-182, EY-98). These airlines are more efficiently. Low labour costs exist,
forecast to increase their capacity by as workers are sourced from the cheap
more than 15% per year over the next labour markets of India, Pakistan, Sri
five years. The Big Three have 57% Lanka, Bangladesh and Nepal. The
more long-haul seat capacity on order management-friendly labour laws, with
than the 35 member carriers of the trade unions and strikes being banned,
across deserts and in Arabian dhows Association of European Airlines (AEA) has also helped keep the costs of
across the Arabian Sea and Indian and 27% more than the 17 member air- skilled labour low. This has been a huge
Ocean in the region, sophisticated com- lines of the Association of Asia Pacific advantage in running a labour-intensive
mercial aircraft such as the Airbus A380 Airlines (AAPA). It is this increased operation such as the massive transit
and Boeing 777 now haul such goods capacity on order that poses the major hubs at Dubai.
as well as people around the world. threat to established European and Each airline has succeeded in ele-
The aggressive emergence of the Asian airlines. vating their brand to an international
Middle East airlines in the global aviation The Big Three airlines have specific level to stimulate customer demand in
industry has been a notable develop- long-term strategies guiding their suc- line with their global aspirations. Emir-
ment for many established players. cessful business models. They are ates, Etihad and Qatar Airways are all
Emirates, Qatar Airways and Etihad Air- essentially network carriers that use a devoting a huge budget to their brand
ways – the ‘Big Three’ Gulf carriers – are hub-and-spoke mechanism to collect awareness campaigns in a bid to posi-
changing the dynamics of international short-haul traffic into long-haul opera- tion themselves as full-service carries
aviation and have quickly emerged tions through their respective mega and generate sales throughout the
as the new global challengers. The hubs. They offer one of the best in- world. Global advertising and sport
region’s airports are being developed in flight products as full-service airlines to sponsorships are being used exten-
tandem to handle the exponential traffic attract the high-yield customers. They sively by these carriers to carry their
growth that is forecast. have continuously stimulated demand marketing message. Emirates has in
The development of the New Mari- through continuous brand awareness particular been prolific in the range of
time Silk Road has caused a major shift campaigns. And they have a much world sports it sponsors as a brand. It
in the global air transport market as the lower cost structure due to labour would not be far from the truth to say it
Middle East carriers, particularly the Big policies different from the West and an would like to become the Coca Cola of
Three, have altered the way traffic flows abundance of labour from south Asia the airline world.
have been routed. A paradigm shift and Arab countries outside the Gulf. It is not surprising that each of these
has materialised that has transplanted The most significant strategy of these airlines is part of a broader city master
European and Asian hubs to Gulf- carriers has been capitalising on their plan for growth in the world and reflects
based hubs such as Dubai, Doha and strong hub-and-spoke network model the new new world order as well as the
Abu Dhabi. These carriers are largely in a region with a geocentric potential New Maritime Silk Road. The airports in
responsible for this growth and have of 4.5 billion people in an eight-hour Dubai, Doha and Abu Dhabi are play-
capitalised on their geographical cen- flight radius. Emirates first displayed the ing a big role as prominent stops in
tricity by cannibalising the traditional unique insight that it was theoretically international trade routes. And they are
traffic flows between other hubs and possible to connect any two significant stimulating this through the growth of
connecting secondary cities as a result cities on the planet with only one stop their airlines and respective hub airports.
of exercising their sixth freedom traffic in Dubai. Emirates’ strategy is to pro- The Arabian Gulf countries had the
rights using their hub-and-spoke net- vide connecting long-haul services via luxury of being able to start with a blank
work. Approximately 4.5 billion people its hub in Dubai, connecting city pairs piece of paper to create the airline and
reside within an eight-hour flight of the worldwide with only one stop in Dubai. the airport infrastructure model. In
Middle East, providing a huge potential Both Qatar Airways and Etihad Airways preparing for the post-oil era by diversi-
to connect that population to any city also follow this model. fying their industrial base, aviation was
though a single stop. The competitive cost structure at an important sector. The development
The Arab Air Carriers Organization these airlines also helps. Fuel and of the mega-hub airport is influencing
lists 25 airlines at its members, covering labour cost are the two most significant the growth of cities through industrial
the entire Arab world. Yet it is the rise of operating costs for any airline, but the development, relocation of corporate
Emirates, Etihad Airways and Qatar Air- Gulf carriers enjoy advantageous posi- headquarters, light manufacturing,
ways as the fastest growing full-service tions in both. Fuel is cheaper in the international conferences, trade shows,
airlines that is the most spectacular. region due to its proximity to oil pro- sporting events, increased tourism and
Emirates is the dominant carrier, with duction and refining facilities, which the growth of a logistics and distribu-
54 Airline Economics September/October 2011 www.airlineeconomics.co

6. MIDDLE EAST
tion hub. By integrating these cities into
global trade markets, their governments
have positively affected their economic
prosperity. Dubai was the pioneer of this
model as its oil supplies dwindled and it
raced to integrate itself into global trade
markets before the oil ran dry. This is
why it enjoys a lead over Doha and Abu
Dhabi as an aviation hub.
Another development has been the
rise of low-cost carriers capturing the
boom in point-to-point budget travel
with the region. The success of Air Ara-
bia, Fly Dubai, RAK Airways in UAE,
Jazeera Airways in Kuwait, Bahrain Air
in Bahrain and NAS Air in Saudi Arabia
clearly shows that the market for air
travel has grown to unprecedented lev-
els. The low fares have prompted many
people to fly that previously would not
have flown at all or as frequently. The
rise of these carriers has further given
the region a stamp of approval as one
of the leading air transportation markets
in the world today.
COMMERCIAL LEASING MARKET
The concept of leasing commercial
aircraft and engines is widely being
used by airlines in the Middle East.
Most commercial aircraft are financed
through operating leases, through US
Export-Import Bank guaranteed loans,
European export credits, and Islamic
and finance leases. Most of the major
carriers have had success in getting
their aircraft financed through various
sources in the aviation finance market.
Emirates has been an active user of
operating leases, with 44% of its current
fleet being financed that way.
Several aerospace leasing com-
panies have been established in the
region. Mubadala Aerospace and Dubai
Aerospace Enterprise-DAE are the two
prominent companies. DAE Capital was
the company’s aircraft finance division,
which initially had plans to be the biggest
leasing company in the Middle East. But
financing from its parent company has
been an issue for DAE, which subse-
quently cancelled its entire order book
of Airbus and Boeing aircraft in June and
July this year except for a few Boeing
777 and 747-8F freighters, which it will
lease to Emirates. Mubadala Aerospace
has much stronger financing from the
government of Abu Dhabi and is set to
www.airlineeconomics.co Airline Economics September/October 2011 55

7. MIDDLE EAST
become a global company by creating
an aerospace industrial hub like Tou-
louse but based in Abu Dhabi, UAE.
Engine leasing is a newer concept in
the region, as airlines usually have been
owners of spare engines. These com-
panies are providing financial options to
airlines to lease spare engines for their
fleet of aircraft. Engines are high-value
assets that take up a company’s liq-
uid resources. For many, leasing spare
engines provides greater liquidity on their
balance sheets. Engine lessors provide
flexibility through short-, medium- and
long-term solutions that appeal to air-
lines in the region. Engine Lease Finance
Company is the biggest engine leasing
company in the world. It provides finan-
cial services to airlines and maintenance,
repair and overhaul (MRO) firms, and
has about 240 engines in its portfolio. GE
Capital Aviation services also offers simi-
lar services to its clients worldwide. The
region’s first engine leasing company
was started by Mubadala Aerospace in
Abu Dhabi under the name of Sanad.
Sanad provides engine and component
financing to its customers, which include
Air Berlin and Etihad Airways.
Monis Ahmed Hasan is an aviation strategy executive who was born and raised in Dubai, UAE. He helps avia-
MAINTENANCE AND MRO ISSUES tion companies envision and execute their business vision and strategy in the booming Middle East region.
Airlines in the Middle East have big fleets His life ambition is to play a leading role in shaping the future of the new Maritime Silk Road in the Gulf and
and a surge of new aircraft deliveries are Indian subcontinent and have fun while doing it.
coming in. This is keeping them focused He has previously worked as a business planning and development manager at Emirates Airlines and as
on their main business of air transporta- a lecturer for business courses at Emirates Aviation College - aerospace and academic studies in Dubai.
tion. They are using cost-saving measures His experience also includes working at SH&E, Simat, Helliesen & Eichner, an air transport consultancy
in other areas such as engineering, out- based in New York, where he worked in the airline privatisation and aircraft asset management practices. He
sourcing work to external parties. So they holds a bachelor of science in aviation business administration from Embry Riddle Aeronautical University
are outsourcing contacts of maintenance in Florida.
work to established MROs, which cre- Monis is currently based in Dubai, and can be contacted in connection with professional opportunities at
ates more work potential in the Middle monis.hasan@gmail.com.
East region. The trend is for these MROs
to provide a package of customised ser-
vices for airlines that addresses all their including air transport, military, busi- provider approved by original equip-
line and base maintenance needs to win ness aviation and civil helicopters, is ment manufacturers to the region.
their business. expected to grow. The total will increase Mubadala Aerospace is also creating
TeamSAI is an aviation consulting from $7 billion in 2010 to $11.2 billion in a military MRO in Al Ain supported by
firm providing strategic and tactical 2019, showing a 5.3% annual increase, Sikorsky called Ammroc Advanced
solutions in MRO. During the MRO Mid- according to figures presented Aero- Military Maintenance Repair and Over-
dle East exhibition earlier this year strategy. MROs and airline maintenance haul Center. The focus of companies in
the company presented research that companies are therefore expanding in the region continues to be fleet perfor-
showed profits have been pretty elusive preparation for such a high growth rate. mance of aircraft in operation. However,
for aftermarket companies in the region Mubadala Aerospace in Abu Dhabi the Middle East can play a vital role as
so far but a lot of positive developments is working in partnership, through its a hub for aircraft maintenance for the
have taken place in preparation for the subsidiary Abu Dhabi Aircraft Technolo- region covering Africa, the Middle East
coming growth in maintenance work. gies, with GE and the Engine Alliance on and Australasia. As the fastest growing
In the next 10 years, the total after- engine maintenance, and SR Technics aviation region, this presents enormous
market spend base in the Middle East, is bringing the first network overhaul economic potential.
56 Airline Economics September/October 2011 www.airlineeconomics.co