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Asset Managers Must Be Nimble In The Middle East

Oil, politics, desert sands complicate aviation.

After Asia-Pacific, the Middle East will see the most rapid fleet growth over the next two decades, according to the latest Boeing forecast. Yet unlike Asian markets, Middle Eastern aviation growth significantly depends on the volatile price of one commodity: oil. Oil revenues are an important part of Middle East GDP, which drives travel demand, and they have helped fund the region’s airline expansion. Political developments can also alter growth, either upwards or downwards.

Due to this, aircraft management in the region must be highly flexible with the ability to move aircraft into or out of the Middle East according to changing conditions. Asset managers must also recognize some major differences in national markets, according to Rob Watts, CEO of the Dubai-based consultancy Aerotask. “There is a large contrast between the Gulf countries and other Middle Eastern countries such as Iran, Iraq, Syria, Afghanistan, and so forth," he says.

Watts says trading, managing and maintaining aircraft in the Gulf countries is relatively straightforward, supported by a mature regulatory and legal framework in line with global best practice. On the other hand, “trading, managing and maintaining aircraft in countries such as Iran, Iraq and Afghanistan pose unique challenges.”

The Office of Foreign Assets Control of the U.S. Treasury requires import and export licenses to transfer aircraft and spare parts, and even to do certain maintenance on aircraft registered in several countries—primarily Iran and Syria at present. This creates enormous challenges for these nations’ airlines in adding to or even maintaining existing fleets, especially as the Treasury is revoking existing export licenses for Iran.

In addition to legal restraints, the political and safety situation in several Middle Eastern countries makes it difficult to procure staff who can uphold best practices. Several airlines in the region are thus barred from operating flights to the European Union and other key markets.

A more general challenge that affects even the Gulf countries and other stable nations is the Middle East environment. Heat, dust and sand particles reduce engine time-on-wing. “Engine overhaul is more frequent than in most other regions of the world,” Watts notes. For example, average time-on-wing for turboprops in Europe is 7,000 to 8,000 flight hours. In the Middle East, it is often less than half that time.

Watts says several techniques can increase engine time-on-wing. These include regular engine maintenance check-ups, compressor washes and multi-layer fan blade coatings, which help reduce the time interval for engine overhauls. Asset managers must takes into account both harsher conditions and required mitigation measures when calculating the correct maintenance reserves and power-by-the-hour rates to ensure that owners and OEMs are not exposed to undue risks.

But Watts argues the region has the infrastructure to manage its assets well. “Everything that is needed for aircraft maintenance, operations and financing is located in the region,” he says. Larger carriers such as Emirates, Etihad and Qatar Airways have in-house MRO capabilities, and global MROs such as Lufthansa Technik have opened facilities in the region. “There is also a growing number of lessors, such as Dubai Aerospace Enterprise and International Airfinance Corporation, that provide technical asset management for aircraft owners and investors," Watts adds.

Aerotask itself offers asset management and advisory services, having helped move a total of 60 aircraft—including ten for Middle Eastern clients. The firm also helped launch an aircraft leasing fund and advised on development of a new MRO facility.

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