Gulf Expansion To Roll On Despite European Turbulence

Gulf Expansion To Roll On Despite European Turbulence

Emirates is in talks for a hefty order of at least 30 and possibly as many as 50 Boeing 777 long-range aircraft worth $8.5 billion to $14.5 billion and Qatar Airways is expected to place a $6.5-billion order for 50 fuel-saving A320neo jets and five A380s from Airbus, industry sources said.

November 12, 2011 11:57 by Reuters

Gulf airlines and lessors could splash out more than $20 billion on Airbus and Boeing jets at next week’s Dubai air show, underscoring the region’s role as the industry’s chief paymaster amid Europe’s worsening sovereign debt crisis.

Heightened worry about Iran’s nuclear intent after a U.N. agency said it had worked to design nuclear bombs could spur defence orders at the show. Arms makers from the United States, Europe and Russia will be displaying their latest weapons.

The last air show two years ago was muted by Dubai’s own crisis, but the city state is recovering after a bailout from neighbouring Abu Dhabi. Burned by its reliance on property and the financial sector, Dubai is now focusing on becoming a transport and logistics hub.

“We absolutely expect the Gulf airlines to continue on the expansion trail — they are very into having a young fleet and are determined to be superconnectors who try and hoover up traffic flows on a global basis,” said Stephen Furlong, transport analyst at Davy Research in Dublin.

“While in other parts of the world you have things like the EU emission scheme and night-time flying bans, in the Gulf, the governments and the airlines are joined at the hip — the governments are totally in line with the growth plans.”

Orders are likely to include dozens of new sales for Airbus’s revamped A320neo short-haul jet, which has enabled the European planemaker to pass Boeing in the order race this year.

But the EADS subsidiary will also be under pressure to explain delays in the A350 passenger jet directly to Gulf customers whose support is crucial for Europe’s answer to Boeing’s carbon-composite 787 Dreamliner to succeed.

Chief among those is Qatar Airways Chief Executive Akbar Al Baker who regularly blasts Airbus and Boeing over design decisions and delays and has abruptly cancelled air show deals.

EURO ZONE THREAT?

Emirates and Qatar Airways have some 370 planes on order to be delivered over the next few years but the euro zone debt crisis could mean some orders being cancelled or put on hold.

Financing is increasingly an issue as the industry’s traditional backers — European lenders and particularly French banks — have become more risk averse and are shying away from new deals. Emirates CEO Tim Clark told Reuters recently the airline was looking at the Islamic finance market to fund aircraft deliveries.

That said, the shake-out in Europe may bring advantages of cost for Gulf carriers.

Daniel Broby, chief investment officer at Silk Invest, said Gulf airlines could snap up bargain deals as the world waits for Europe to resolve its debt crisis and ease doubts over growth.

“The advantage of buying at the air show at this stage in the cycle is that they are bound to secure good prices, because there will be little demand from Europe or the United States.”

Airlines placed around $14 billion in orders at the last biennial show in 2009, sharply down from $155 billion in 2007.

IRAN TENSIONS

The show, its tarmac bristling with the latest warplanes, missiles and defences, will also serve as a pressure gauge for regional tensions as the European Union considers new sanctions against Iran following an IAEA report which suggested Iran is seeking nuclear weapons.

The United States and Israel have refused to rule out any option to prevent Iran from acquiring a nuclear arsenal.

Iran denies trying to build atom bombs and its Supreme Leader Ayatollah Ali Khamenei said any U.S. or Israeli attack on its sites would be met with “iron fists”.

“The fear of Iran is the main driver of armament in the region,” said Riad Kahwaji, analyst at Institute for Near East and Gulf Military Analysis.

Although U.S. fighter jets are traditionally an important part of the show and its aerial displays, the business end of the show is likely to feature a publicity battle between the Eurofighter Typhoon and the Rafale as they face off in a $11 billion contest for 127 aircraft in India.

The show is the first industry gathering since the Libyan conflict ended and both manufacturers will be keen to play up the performance of their combat jets in the NATO operation.

Analysts will be also be listening for any news about talks between the UAE and France over the purchase of 60 Rafale jets, estimated at $10 billion.

Others to watch are UAE early warning system orders — with Boeing, Northrop Grumman and Swedish aerospace group Saab likely to be in competition — and purchases by Qatar, which is modernising its air force.

Qatar Airways, Dubai’s Emirates and Kuwaiti lessor Alafco could place hefty aircraft orders at the Dubai Airshow starting on Sunday, industry sources said.

By Sitaraman Shankar and Praveen Menon