Saudi Station

Traditionally a military MRO, Riyadh-based Alsalam Aircraft Company is quickly growing the commercial side of its business.

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By  Neil Denslow Published  January 3, 2006

|~||~||~|Saudi Arabia is on the cusp of a major liberalisation of its commercial aviation market. A number of new domestic airlines are planning to launch services within the Kingdom and more international carriers may soon be flying into the country as well. This liberalisation should have great benefits for wide swaths of the Saudi economy, but Alsalam Aircraft Company, the Kingdom’s sole commercial MRO, is particularly looking forward to the advent of open skies in Saudi Arabia. “We are certainly very excited about the liberalisation,” comments Prince Faisal Ibn Farhan Ibn Abdullah Al-Saud, Alsalam’s acting chairman. “We already see one domestic passenger service starting [Al-Khayala], and we know that there are several others coming.” These new Saudi carriers will be a prime target for Alsalam as it looks to build up the civil side of its business. The Riyadh-based MRO was set up in 1988 under the Saudi government’s offset programme as a joint venture between Boeing, which owns 50%, and four Saudi companies, including Saudia, which has a 25% stake. Traditionally, the company has predominately focused on supporting the needs of the Royal Saudi Air Force (RSAF). However, while the RSAF will still remain as Alsalam’s main customer, the company is striving to achieve a more even split between its military and commercial operations. “The major developments [over the last few years] have been on the commercial side,” says Prince Faisal. “Three years ago, the ratio was 75:25 military/commercial. We are now at 70:30, while still having grown [overall] at an average of 8% a year for the last five years. We have grown both businesses,” he adds. “But we have grown the commercial business faster.” The company does not publish annual reports, but according to Prince Faisal this growth enabled the company to record a profit from revenues of over US $165 million in its last financial year. He attributes the company’s success in growing its commercial operations to two main factors. “I think the first is the growth of commercial aviation both regionally and globally,” says Prince Faisal. “I think it has picked up very well after that slump we had three years ago. And, especially in the last year and a half, we have seen a lot of activity within the aviation sector.” “The much stricter regulations globally have also incentivised all kinds of companies to look for much higher standards of quality and performance in their MROs, which is certainly something we can provide for them,” he adds. The bulk of Alsalam’s civil work is on Boeing 747 and 737 Classics, which it supports up to D-checks. However, the company is also pushing into Airbus types as well. “We have had some Airbus business this year — some A300s — but we are still very heavily a 747 house,” says Prince Faisal. This situation is likely to continue for some time into the future, even though the company is looking at adding new civil aircraft types. Embraers have been ruled out, as Saudia will support its new fleet of regional jets inhouse. However, Alsalam is considering other types, even if the large fleet of Classic Boeings flying in the region means that there is no need to rush into new markets. “The 777 looks set to become the workhorse of the future, and we will certainly make a decision within the next year and a half on whether to go into that,” says Prince Faisal. “You also see a lot of A320s and A319s coming into the region as well, but you still have a lot of operators of 747 Classics and 737 Classics that need a quality maintenance provider, which we are,” he adds. The company has won a wide number of customers for its commercial operations. Saudi Arabia accounts for around a third of Alslam’s civil work, including both Saudia and Saudi Aramco, the national oil company, but the MRO has also won work from across the Middle East and Africa. “We have some very good customers from Africa, especially from Nigeria,” says Prince Faisal. “From Dubai, we have also had some nice movements, with several 747s and 737s coming over.” Work in the local commercial MRO market continues to be largely ad hoc, however. In contrast to the large multi-year contracts that Alsalam is used to working with for the RSAF, its civil customers continue to send over only one or two planes on very short term deals. This largely reflects local operators’ preference for continually taking on older aircraft near the end of their lifecycles rather than investing in new aeroplanes. However, it is frustrating Alsalam’s attempts to move into more advanced products than C- and D-checks, such as component pooling and flight-hour deals. “If a customer desires to have a more structured long term product, we have that available, but it is not a concept that has been taken up regionally yet,” says Prince Faisal. “We have seen growing interest in longer term relationships, but nothing that can be compared to power-by-the-hour or similar arrangements yet. This is simply because most operators in the region prefer to have [fleet] flexibility, which is not provided for by signing a five-year contract.” Alsalam is seeing more success in developing its VIP and business aircraft division. It recently completed a refurbishment on a Gulfstream IV, one of the types it is certified for. The MRO can also handle work on larger aircraft, such as BBJs, and it is hoping to win a contract for completing a new aircraft in the near future. “It is a very competitive market in the sense that there is some very strong and established players who have a fairly strong hold on the [VIP] market,” says Prince Faisal. “However, we are very hopeful that we will be able to penetrate that sector and to show our true capabilities.” On the military side, Alsalam is also drawing up plans for expansion and new services. In particular, the company is possibly going to build a new hangar, which would be its fourth, to support an avionics upgrade programme for the RSAF’s fleet of Panavia Tornados. This plan is yet to be confirmed though, as the RSAF is still finalising its requirements. The company is also linking up with Boeing to offer improvements to Saudi Arabia’s fleet of 50-plus Lockheed Martin C-130 Hercules aircraft. Boeing has previously implemented the C-130 AMP upgrade programme with the US Air Force, and it is now providing the same technology to Alsalam, which will implement it for RSAF. Once this project is finalised, it will likely require the use of a dedicated hangar at Alslam’s base. “At this stage, we are marketing it [the C-130 AMP] to the Royal Saudi Air Force, but we will expand regionally once we have concluded that,” adds Prince Faisal. The growth of Alsalam’s operations on both the commercial and military sides is also forcing the MRO to concentrate more heavily on staff recruitment and training. The company already has a strong Saudisation programme, with over 60% of its staff being from the Kingdom. However, it is looking to tap into the local workforce even more through the development of a dedicated training academy. “Our main focus is on recruiting Saudis to work in our company,” says Prince Faisal. “We spend a great deal of money and effort on training them, and we have had a great deal of success in finding very well qualified and very well motivated young Saudis at all levels of our company… I think our biggest challenge is the competitiveness of the marketplace, as a lot of people are hiring,” he adds. More widely, the company also faces competition from other MROs looking to the benefit from the explosive growth of aviation in the Middle East region. However, with its central location and strong experience of the local marketplace, Alsalam is well placed to continue taking an increasing share of a growing market. And, once Saudi Arabia eventually opens its skies, the company will have a particularly fast growing market right on its doorstep.||**||

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