Middle East Airline Business Risk

Rapidly growing Middle East airlines are becoming a new force in global aviation but they need to demonstrate they have business risks under control to win over increasingly cautious international financiers, according to a leading industry specialist.

Middle East Airlines

"Middle East airlines are capturing market share in their capacity-led push but the extreme financial pressures inflicted by the global economic downturn will impact their plans," says Roel Berendsen, an aviation division Vice President of ESR Technology, a leading engineering, safety and risk management consultancy with operations in the UK and the Middle East.

"In the current economic climate all finance providers are extremely cautious about new lending and demanding greater levels of reassurance," says Roel Berendsen, aviation division Vice President of ESR Technology, an engineering, safety and risk management consultancy with operations in the UK and Middle East.

The global influence of Middle East airlines is accelerating as they take delivery of large numbers of aircraft over the next two years. In total, Middle East airlines are expected to add 114 aircraft to their fleets in 2009 - 8% of total worldwide deliveries and 122 in 2010, or 9% of the world total, according to the Centre for Asia Pacific Aviation. In wide bodied aircraft alone, Middle East airlines are taking delivery of 21% of the world total this year, or 50 aircraft, and 13% of the global total in 2010.

"The Middle East remains one of the most dynamic aviation markets in the world, expanding as other parts of the world slip deeper into recession. But financing is now harder to come by so airlines really need to prepare their case well," said Berendsen, speaking at a recent aviation finance conference in Abu Dhabi.

"In the current economic climate, finance providers are extremely cautious about new lending and are demanding greater levels of reassurance. Their caution is not just in terms of security but also in wanting to analyse and understand the business plans of the airlines involved and their associated risks.

Airline Risk Management Systems

"It is important that companies have effective risk management systems in place so they can show that they have considered the full spectrum of risks that the business faces and that they are managing those risks."

Berendsen's advice to airlines is to ensure that their enterprise airline risk management systems take a bottom-up approach so that views and ideas from across the business can be heard, giving the company the best chance of identifying and managing foreseeable credible risks. The management of the risks will include assessing the likelihood and consequence of the risk and forming a view as to the level of priority it needs to be given.

"Showing how you are going to prevent the risks from materialising will form a key part of how airlines sell their financing case to lenders and will ultimately help them achieve both their business objectives and expansion plans," he added.

ESR Technology, which has offices in Dubai and Abu Dhabi, is an associate member of the British Aviation Group, Airports Council International, the North-West Aerospace Alliance and the British Business Group. ESR Technology's many aviation consultancy contracts have included a helicopter operations study for Shell in Nigeria; business contingency planning for Bermuda International Airport; corporate risk management review for Aer Lingus and Aer Rianta, third party risk assessments and aeronautical studies for London City Airport.