Dubai: Orders for new aircraft from Gulf-based airlines at the just-concluded Farnborough Air Show testify to continued optimism about aviation growth in the Middle East while the global aviation industry is troubled by mounting fuel bills.
Contracts signed by Arab carriers with planemakers Boeing and Airbus at the event are valued at more than $40 billion at list prices, and eclipsed the deals signed by airlines from other regions.
With global crude oil prices above $140 a barrel, most carriers are trying to cut costs rather than think about new plane purchases, industry watchers say.
While some Gulf airlines have begun to worry about the impact of soaring fuel prices, the regional aviation market in general benefits from the liquidity-boom from high oil export incomes of Gulf countries, which are pumping billions of dollars into real estate, tourism and infrastructure projects.
"Financing in the US and Europe is very tight after the US subprime mortgage crisis. This region is untouched by subprime, and high oil prices have created more liquidity. Capital is not a problem for airlines in the region, and right now investing in planes looks like a lucrative idea," says Robert Ziegler, a Dubai-based aviation analyst with AT Kearney consulting firm.
He adds companies like Dubai Aerospace Enterprise (DAE) are well-positioned to take advantage of the favourable liquidity situation to build their portfolio.
The company's aircraft leasing division confirmed an order announced last November in Dubai for 30 A350-900 planes and 70 A320s.
The deal is worth $12.6 billion at list prices. Gulf-based airlines expect long-term growth in passenger numbers, according to Ziegler.
"Air travel in this region is not as sensitive to price as in other regions. They are also betting on intercontinental transit traffic," he says.
Dubai is already attracting significant Europe-Asia transit passengers, while Doha, Abu Dhabi and Bahrain are also trying to attract people for stopovers.
Acquisitions by airlines such as Etihad, which ordered 100 Boeing and Airbus planes last week, are in line with the goal of promoting their home bases as transport hubs.
New players
The growth has also spawned new industry players. Dubai-based start-up FlyDubai hogged the headlines with its first plane order for 50 Boeing 737-800s at Farnborough.
Saudi Arabian Airlines ordered eight A330-300s in a deal worth $1.6 billion at list prices.
Middle East carriers are recording growth at a time when many airlines are struggling to stay afloat.
According to the International Air Transport Association, 25 airlines ceased operations in the fist six months of this year and more could fall victim to the pressure of costly fuel.
Major non-Arab airlines placing big orders at the event were Asiana Airlines of South Korea, which purchased 40 A350 XWB aircraft worth $7 billion at list prices, Air China, whose order for 45 Boeing jets amounted to $6.3 billion, and Malaysia Airlines, which bought 35 Boeing 737-800 planes worth $2.6 billion.
It remains to be seen for how long airlines in the region will be able to escape the impact of rising oil prices.
Robert Wall, Paris-based bureau chief of Aviation Week magazine, thinks there is already some "soul-searching" going on about yields and profitability.
"There is a lot of buying activity in the Middle East, but on the other hand, you also see that airlines like Emirates that are run like serious business are cautious about their expansion plans," he says.
