Ahmad A Alzabin, chairman of aircraft leasing and financer business ALAFCO, explains why supplying planes to the region's airlines is a crucial role.
How much demand is there for leasing services in the Middle East?
People need to increase capacity, which is not available with many manufacturers, so they resort to leasing from companies like us. You have to wait so long to get these aircraft and that's where the business of leasing companies comes from. We book way ahead of time and take the risk of buying these slots.
Will you consider retaining these flights after the winter period?
Our present clients are Royal Jordanian Airlines and Yemen Airways. We have also signed letters of intent and leasing contracts with Gulf Air, Oman Air and Kuwait Airlines, with talks involving other companies ongoing.
Where do you secure funding for aircraft acquisitions?
On each aircraft acquisition we raise our own equity based on a proportion of the aircraft and secure the rest through debt. We have excellent relationships with financiers around the world and can attract something like 80-85% of the acquisition costs through financing.
We concentrate on operating leasings and any finance leases are done for strategic reasons. We prefer to use the liquidity and cash we have to do more aircraft leasing than finance. We concentrate more on the leasing side but if we are to do any finance leasing it's on a strategic basis.
Do you think demand will increase in the coming years?
Yes, because in this area you can see the oil is reaching US$100 a barrel, which will turn into more liquidity. This is the time for airlines in the area to build their fleets.
It will boost the economy and there will be lots of business in an out of the region. We see growth in China and India but it's also happening here. The Middle East's passenger traffic is growing two to two-and-a-half times more than the rest of the world.
Would carriers buy more planes if they were available?
I believe so. There could be other reasons but airlines with financial capability would buy outright from manufacturers if they find the right slots. If they don't then they will come to leasing companies to cover their demand. Some of them wish to mix buying outright and leasing to balance their bottom line.
Others will not find the strength and ability to support growth through buying outright so they resort to leasing, which offers a better payment structure for their leasing requirements.
Can most airlines in this region afford to buy?
There are airlines in the area that have government backing and will buy outright easily. But finding the available slots with manufacturers can be tough so they come to leasing companies. Others plan to buy outright and then lease for financial and cashflow purposes. It differs between airlines depending on their financial strength and business plan.
Some resort to leasing because they bridge a certain gap before taking delivery of long-awaited aeroplanes. This usually means they have three to five years waiting while leasing aircraft to cover that period. Leasing is an important cornerstone for any airline development.
How much demand is there for several leasing companies in this region?
Demand is great and outstripping supply. Any aircraft that is available is in demand and any sources that can provide more planes are welcome. If there were more supply than demand we would obviously have a different picture than the one we have now.
Last year, you announced plans to add 100 planes to your fleet. How much will the order cost and when do you expect aircraft deliveries?
We are spending $3 billion in addition to the $7 billion we have invested in 66 aircraft already ordered, so the total investment will be $10 billion. We are doing well and want more distribution.
The company is focusing in the Middle East and operates across the world. We have planes in China, Turkey, Malaysia and Europe and want to go to other parts of the world, but it's important not to forget our focus in the Middle East, where the growth and demand is.
With new aircraft being scarce, we may go out and do sales and leasebacks. We will also look at buying aircraft with a lease attached if they are available so we can quickly get them into our system and start generating revenue.