Aircraft leasing sector worth $800m

The aircraft leasing sector has grown from $40bn to $500bn globally in the past 20 years. (IMAD ALAEDDIN)

The aircraft leasing market in the Gulf is worth $800 million (Dh2.9 billion), according to sources in the sector, and the value is expected to rise to $1bn by 2010.

The sources put the number of companies involved in the sector in the region at between 50 and 85 official operators. In addition there is a large number of unofficial mediators who illegally acquire some 25 per cent of market revenues.

The unofficial companies work as brokers offering services to businessmen who own aircraft and want to lease them out when they are not using them. Brokers sometimes lease aircraft from Europe - robbing official leasing and consultancy companies of business.

The market is witnessing high demand despite challenges such as rising fuel prices and other increased rising operational costs and the failure of some countries to open up the skies.

Despite that fact that many airlines have signed large deals to purchase new aircraft, the high demand for aviation services has enabled several leasing firms to play a major role in the industry.

Leasing experts believe the sector will play an even bigger role over the coming two decades as demand continues to increase.

This will require vast amounts of finance – a fact that has made many airlines opt for leasing aircraft rather than buying.

International Air Transport Association (IATA) reports indicate the growth rate for international air travel rose from 5.9 per cent in 2006 to 7.4 per cent in 2007. Flights by Middle East airlines have registered a record rise of 18.1 per cent for the fourth successive year – the highest growth rate in the world.

Aircraft leasing helps airlines to work within a limited budget, freeing them from the huge financial burdens faced by purchasers of aircraft. According to IATA, returns in the aircraft leasing sector worldwide have risen over the past 20 years from $40bn to $500bn.

Matar Al Suwaidi, owner and manager of Safwa Aviation Consultancy, said Dubai International Airport (DIA) had received 100 requests from companies wishing to enter the leasing sector.

He said the sector was growing by six per cent a year worldwide and by between 12 and 15 per cent in the Middle East.

DIA figures show that the number of trips taken by executive directors and senior officials over the past few years has grown by 70 per cent in some months.

A study on the future of aviation in Dubai said the number of flights taken by senior staff handled by the new Al Maktoum International Airport could reach 100,000 trips a year.

Al Suwaidi expected returns in the sector to double as the giant new airport opens and Dubai's strategy of targeting 15 million tourists a year by 2015 proceeds as scheduled. He said the UAE occupied the second position after Saudi Arabia in the region's aircraft leasing market. Dubai's 2015 strategic plan names travel, tourism, trade, transport and logistics as major sectors that will stimulate future economic growth.

Dubai has put the value of investments it intends to employ in tourism, hospitality, entertainment and real estate development projects over the few coming years at some $350bn, including $38bn for the airports and related industry.

Al Suwaidi said aircraft leasing will witness huge levels of activity following the opening of Al Maktoum Airport during the first quarter of 2009 as a large number of private aviation companies would like to launch their businesses there.

He says the most significant challenges facing the sector are competition from brokers and unofficial leasing agencies, lack of expertise and staff such as technicians, pilots and maintenance engineers, and a lack of services offered at some airports. A special building is set aside at Dubai International Airport for services aimed at businessmen and senior executives.

Al Suwaidi said aircraft leasing firms were affected by rising oil prices, adding that manufacturers are designing aircraft that consume less fuel through the use of more efficient engines.