The National publishes Paul Jarvis' article on liquidity in the Middle East airline industry

29 June 2009

Aviation finance partner Paul Jarvis wrote an article published in The National on liquidity in the Middle Eastern aviation sector.

While no industry has been able to escape the effects of the economic crisis, the aviation sector in the Middle East has weathered the storm better than most. In the past few weeks, there has been a flurry of activity from airlines in the region.

While most airlines globally are seeking to cut costs and rationalise loss-making routes, several of the region’s carriers have been on spending sprees. There are an enormous number of aircraft to be delivered into the Middle East over the next five years. These contracts, the high number of deliveries and the expansion plans at many regional airports demonstrate how important the aviation industry is to the Middle East - and, more significantly, how important the Middle East is to the aviation industry.

Etihad Airways, based in Abu Dhabi, has placed what is potentially the world’s largest commercial aviation engine order worth US$7 billion which could be increased to more than US$14 billion. Engine orders have also been placed by Bahrain’s Gulf Air, which has awarded Rolls-Royce a contract worth US$1.5 billion, and Qatar Airways has also signalled that it is not feeling the recessionary pinch by ordering 20 Airbus A320s and confirming orders for four A321s at a cost of US$1.9 billion.

The past 18 months have been tough for airlines. They have experienced historically high oil prices, followed by the catastrophic collapse of financial markets. But for the right airlines, including many of those in the Middle East, we are starting to see liquidity return to the market.

Airlines have also shown they are happy to adapt and more willing to look at structures that were perhaps seen as too complicated in a liquid market. In particular, we are starting to see the emergence of Islamic finance as an alternative fund-raising tool. Given that most aviation Islamic finance structures are based around an Islamic lease (ijara), the transition for airlines from conventional finance into Islamic finance is relatively painless.

Click here to view Paul's article on The National's website.