Flying Free

The growing number of aircraft management companies in the Middle East is allowing owners to forget about the hassles that surround operating a private business aircraft.

  • E-Mail
By  Neil Denslow Published  March 1, 2004

I|~|Irani_m.jpg|~|ExecuJet's Horm Irani|~|Traditionally, business jets have been bought by high net worth individuals who have then taken on the task of managing the aircraft themselves. However, these transactions are now becoming the exception in the local market, as people interested in buying or using private jets turn to more service-oriented solutions. The problem with buying an aircraft outright is that the associated costs can quickly spiral. Aside from the price of the plane itself, there are also running costs, such as fuel and maintenance, as well as the high fixed costs needed to support the operations of the plane. “The traditional thinking has been: ‘I’m going to pay cash for an aeroplane and run it myself.’ However, the next thing is they need to set up a whole flight ops operation to support that aeroplane, so they bring in dispatches, flight planners, the whole caboodle,” comments Horm Irani, managing director, ExecuJet Middle East. This not only costs a great deal, but it also creates a host of management headaches for the owner. They soon have extra personnel to manage, including crew, as well as a mountain of paperwork to complete in order to register the aircraft and to secure the necessary flight permits. Then there is also maintenance to plan for, as well as other operational requirements. “There are a lot hassles involved in having a private aircraft,” says Ammar Balkar, sales & marketing director, Royal Jet. “Especially if you are a businessman, you have other worries. You have to worry about your own business basically, and taking care of an aircraft is a major job.” To help relieve owners of these burdens, a number of businesses in the Middle East are now touting private aircraft management services. These companies run their own fleet of business aircraft, and they help private owners by running their aircraft as part of the company’s larger fleet in return for a monthly management fee. The major benefit of this arrangement to the owner is that the company takes over the entire management and operations side of running the aircraft. As such, all the owner needs to do is say where they want to fly to and then turn up at the airport — everything else is taken care of for them. “This is what we do every single hour,” says Balkar. “And we can include an owner’s aircraft as part of our fleet, handle it as part of our fleet, and accordingly take a lot of pressure off their back,” he explains. Aside from removing the hassle factor, owners also benefit from the economies of scale that being part of a larger fleet can offer. For instance, instead of each owner having their own pilot, a pool can be created and shared between a number of operators. Similarly, the management companies can use the leverage offered by their size to negotiate bulk discounts from suppliers. “Because of our buying power, owners will get a preferred price that the manufacturers provide for us, as well as cost-savings in operations because of the volume discounts we get in everything we do,” says Mohammed Al Zeer, NAS’s president & CEO. On top of these cost savings, management companies are also able to generate revenue for the owner by chartering out the aircraft. “It is not just sitting on the ground idly. It’s actually managed by us and they get a return on it,” explains Mark Lawson, sales manager for Bexair. Despite these advantages, aircraft management is still a developing business in the region with only a small number of aeroplanes being managed. Bexair, for instance, only has one managed aircraft, although it expects to take on a Global Express next year as well. ExecuJet has two aircraft under management, while Royal Jet, which only really began to seriously explore management this year, has yet to sign up its first client. However, the Abu Dhabi-based company is in advanced talks with two owners and these aircraft are expected to come into its fleet by the third quarter of the year. At present, however, the only operator in the region with a significant sized fleet is NAS, which manages a number of aircraft for the Saudi government as well as for private owners and the fractional ownership scheme, NetJets. ||**||II|~|balkar_m.jpg|~|Royal Jet's Ammar Balkar|~|Aircraft management has yet to truly take off in the Middle East mainly because it is still fairly new in the region. It has been common in Europe and North America for some time, but companies have only recently begun to heavily promote the concept in this region, so owners are still unfamiliar and unsure about the idea. “It’s something they have to be educated about and they have to understand the concept of it,” says Lawson. “I am sure they would be worried at first, as we are dealing with an aircraft worth several million dollars.” “It’s a learning process,” agrees Balkar. “You have to show them the presentation, show them the figures and show them that you can make their life easier… [and] it’s a matter of time before you can win the trust of these owners.” Owners also need to be assured that outsourcing the management of an aircraft will not affect their ability to use it. “Some people still feel that they want full vested control and rights over their aeroplane, but that’s changing,” says Irani. “They realise that they still have those rights over that aeroplane; it’s just that we are administering them on their behalf.” Existing owners with their own pilots or crew also need not worry about having to fly with other people, as the management company will take on these personal and use them on the owner’s flights. “We are completely flexible because in some cases we will get a customer coming to us saying that they would like us to operate and manage the aircraft… but they have grown to trust their pilots and they would like us to take them in,” says Irani. “We evaluate these individuals, make sure they are up to our standards, and if we are comfortable, then we are more than happy to oblige the owners,” he adds. For new owners, management companies are also able to help buyers decide which aircraft to purchase in which configuration, as well as providing assistance with securing financing and registering the aircraft. “If the owner is in the process of buying an aircraft we can step in and say ‘we can help you even in buying the aircraft. We can accept this aircraft on your behalf, we can check this aircraft on your behalf’ and accordingly start from there,” says Balkar. Beyond aircraft management arrangements, other non-traditional methods of aircraft ownership are also beginning to gain ground in the region, most noticeably fractional ownership. In this type of scheme owners buy a share in an aircraft fleet, as small as one-sixteenth of aeroplane, which then allows them access to an aircraft for a certain number of hours per year. Fractional ownership allows customers to have the convenience of business jet travel, but without having to purchase their own. It is more cost effective than chartering, and because the owner has access to a fleet of aircraft around the world it is also a more flexible solution than outright ownership. “If you buy an aircraft then the service is only available when the aircraft is available and that’s it,” notes Al Zeer. “If you have a business partner, your spouse or someone else flying in a different region [of the world] then you have to send them the aeroplane or find them a different means of transportation,” he adds.||**||III|~||~||~|Globally, fractional ownership schemes, led by NetJets, which is owned by Warren Buffet’s Berkshire Hathaway, Bombardier’s FlexJets and Raytheon’s Flight Options, have become the single biggest source of orders for business aircraft manufacturers. NetJets, alone, has orders pending for 1170 new aircraft, on top of the almost 400 factory-new aircraft it has placed in service since 1986. However, whether fractional ownership suits the local market is open to debate. NAS, which represents NetJets in the Middle East, has nearly 60 owners on its books and while most of these owners have increased their shares, it is clearly not a huge number. “I don’t think fractional ownership is very popular in this part of the world for two main reasons,” says Royal Jet’s Balkar. “Firstly, [the attitude is] I don’t want to share my aircraft or my car with another 10 users. I want to have my own aircraft… It’s a private item that I want to take care of myself.” Secondly, the tax-free regimes also means that fractional ownership is not as financial advantageous as it is in other parts of the world. “That is why it is popular in Europe and in the United States because people can always make taxation deductions by operating an aircraft or buying one-eighth or one-sixteenth of an aircraft, but this area is a tax-free market,” says Balkar. However, Al Zeer says the market is beginning to embrace fractional ownership and other non-traditional purchase options as people become aware of the advantages they bring. “Most of the business individuals in the Middle East are graduates from the leading universities in the West. They run their businesses as smartly and assuredly as anybody in the world… and they just look for smart business solutions,” he says. “This is [therefore] a great market for non-traditional service solutions.” Al Zeer backs this up by noting that the vast majority of new sales in the region to private individuals or companies are made to owners replacing their existing aircraft rather than to new owners. Newcomers to business jet travel are deciding not to buy an aeroplane outright, but are instead opting for non-traditional solutions. “There aren’t any newcomers in the market, but if you look at the growth of the economies in the Middle East, especially over the last two years, it’s unbelievable, so why aren’t all these people buying new aeroplanes? It’s because they are buying or leasing shares [in fractional ownership schemes],” he contends. ExecuJet also reports interest in fractional ownership-type arrangements, even though it is not something the company has actively promoted thus far. “I told myself when we came into this market that the region would probably never accept a shared asset like an aeroplane, but I am developing two prospects that have come to us, saying they would like to share an aircraft as part of a group,” says Irani. “It is surprising how the dynamics are changing and evolving here.” “People are now looking at their requirements and asking what is the most efficient way they can serve these requirements. And they are realising that if they are a little bit flexible with their travel, then maybe they can share an aeroplane with others and reduce the cost of aircraft ownership and operations that way… It is very different from the traditional thinking,” he adds.||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code