Middle East is a perfect hub for long-haul flights

The economic recession has not evenly affected all the players in the aviation sector. AerCap for one – a New York-listed company engaged in engine leasing, trading and parts sales – remains to be highly profitable. With $300 million (Dh1.1 billion) cash in hand, a healthy balance sheet and an expectation of at least 15 per cent growth this year over last year, the company can easily shrug off the crisis commotion. And the secret to achieving this is by keeping the fleet portfolio young, says its chief executive officer. "If you look at how the crisis affects the owners of the aircraft, you have to understand how airlines reduce capacity," Klaus Heinemann told Emirates Business. "Airlines reduce capacity by parking very old and large aircrafts, both of which we don't have in our portfolio. That is why we are not making any losses. We are still profitable but we wouldn't be if we have all the aircraft." But that is not as simple as it sounds. Maintaining a portfolio of aircraft with an average age of six – half the industry average – means constantly disposing ageing ones. "You need not only buy brand new aircraft but you also have to find ways to dispose them of. This is where we could help Waha Capital because we have our own facility in Arizona where we park our aircraft and sell the spares. So we have a way out for all the aircraft," said Heinemann. AerCap has recently struck a 50 per cent joint venture with Abu Dhabi-based Waha Capital, a deal that will unlock further investment opportunities for the Amesterdam-headquartered firm. "This region is enormously strategic for us because of the advantage of the location. The Middle East is a perfect hub for long-haul flights," he said. "You have to consider space to become a big hub airport. This is the problem of Heathrow for example. It sits in the middle of the metropolis and cannot expand and therefore there is a limit to what it can do as a hub. Abu Dhabi hasn't got space problem. Dubai hasn't got space problem. They can expand as much as they want." You have been active in establishing joint ventures in various parts of the world like the one you had with China Aviation Supplier and Calyon Airfinance, and recently with Abu Dhabi-based Waha Capital. In addition to these deals what other prospects are you looking at, specifically in this region? In the airline side, we are focusing on two areas in the Middle East. One is the new generation of low-cost carriers that is establishing very fast in this area. Global operators such as Etihad, Emirates and Qatar Airways have proved that you can establish a global operations from a single hub successfully. Clearly on the airline side, the Middle East market has developed beyond imagination over the past 10-15 years and we want to see how we can increase our market share in this area. The second aspect is associated with the manufacturing process and Middle Eastern companies are becoming more involved in the supply chain both for engines and aircraft and we at AerCap/Aerventure of course are buyers of engines and spare parts. The third aspect is aircraft maintenance, spare trading and engine trading. Abu Dhabi has come into focus in aircraft maintenance. We are a large user of this, obviously for our fleet and through our subsidiary AeroTurbine – provider of spare parts to the maintenance industry. In addition, we have a significant engine business. We have about 70 engines in our lease business, which is also heavily associated with our MRO [maintenance and repair operations] business. So we saw opportunities in the region on the airline side, on the manufacturing side and on the maintenance side. Are you looking at creating a manufacturing hub in the region? We don't manufacture. We buy from manufacturers. But for example in this area, if spare parts need to be produced, then we will be interested in looking into that. With regards to maintenance, how do you plan to pursue the opportunities in that area? We need to discuss that. All I can say at this moment, we are a user of maintenance and Abu Dhabi increasingly wants to provide maintenance services. We believe in the future there might be interesting opportunities on how to operate the two areas together. Are these plans sustainable given the fact that about 90 per cent of the workforce here are expatriates? They are not only more expensive, but the movement and attrition of people are also high. Yes. But if you look at where the other core competencies are for maintenance, you will see that they are in Northern Europe, in Hamburg, Frankfurt… that is not low-cost environment either. Singapore operates mostly in Singapore and that's not low-cost either. From a cost perspective, I would not see a problem here. You don't necessarily need to have cheap labour. What you need to have is a good central location and you need to have scale and efficiency. Because if it would be about cheap labour the maintenance would be done today in China and India but it is not. It