All systems go: Dubai focuses on stronger aviation business

All systems go: Dubai focuses on stronger aviation business

With the Middle East’s aviation industry fast becoming the world’s strongest and Dubai’s need for more revenue generation, the emirate is banking on its aviation industry as a solid net.

March 6, 2012 12:55 by Reuters

Dubai is examining ways of raising finances to expand its aviation infrastructure, a plan focused on its existing airport as it goes slow on a $34 billion new facility designed to become the biggest in the world.

The emirate is in talks with external consultants to come up with a structure to access the financial market, Dubai Airports Chief Executive Paul Griffiths told Reuters in an interview.

“They are going to come up with a structure that will enable us to access the financial market in the most cost-effective way, which we’ve not been able to do as a purely government-owned department,” he said.

Ambitions to become a preeminent traffic and cargo hub are at the centre of Dubai’s growth plans as it recovers from a debt crisis that brought the Gulf emirate to its knees in 2009.

Its existing airport serves over 50 million passengers a year, and the massive new Al Maktoum airport is designed to cater to 160 million as Dubai attempts to leverage its position at the crossroads of air corridors between continents.

Griffiths, a former chief executive of Gatwick Airport, said that the world was a “very challenging place” at the moment to raise finances, but believed that Dubai Airports’ record on growth and its firm expansion plans would help.

“I’d imagine we’re in a fairly good place as a blue-chip utility if we were in a structure that would enable us direct access into the market.”

He declined to give details on the plans.

“All options are in consideration. Obviously, some options are a step, others are a giant leap,” he said.

Three sources told Reuters that Dubai plans to raise funds by selling debt based on future revenues at Dubai Duty Free, one of the world’s largest airport retailers.

FOCUS ON OLD AIRPORT
The $8 billion expansion will be focused almost entirely on the existing airport, Dubai International, as plans to deploy the gargantuan new facility have lost some of their urgency due to economic uncertainty and delays that have made moving top client Emirates airlines more difficult.

The new Al Maktoum airport, part of the Dubai World Central logistics complex, was originally due to open for passenger traffic in March last year but testing is likely to continue to the middle or end of 2012.

“Hopefully by the middle or end of this year we hope to be able to declare it fit for purpose. But whether we actually start to put passenger operations through it is something we are still considering at the moment,” said Griffiths, who has run Dubai Airports since 2007.

“While there is space still at Dubai International there clearly isn’t a huge amount of interest in passenger operations at DWC and it’s not something we’re pushing hard at the moment because cargo is the big focus,” he said.

The authority doesn’t expect any significant capacity at DWC until the middle of the next decade, he added.

Griffiths said that the authority had altered its plans and decided to focus more on the existing airport because of tougher economic conditions.

Also, he said, the original plan had been to create enough infrastructure at Dubai World Central to be able to move Emirates airlines in one go. With every passing delay, the new capacity required had increased, making it more difficult to achieve.

“We thought it would be better to push forward with a big expansion programme here which would meet their needs in a much more timely and cost effective manner, leaving the big push for DWC for a bit later, when there’s more cash around and we’re trading more profitably as a business,” he said.

“You can’t force airlines to do things that are not in their commercial interest — that’s not the ethos on which Dubai built its aviation sector. If there’s demand we will respond to demand … there is no point in investing money in places where there is no demand,” he said. (By Sitaraman Shankar and Praveen Menon; Editing by Amran Abocar)