Cleared for Takeoff

Saudi Arabia’s journey to greater economic diversity has already begun. While some sectors have yet to be touched, others have already seen significant restructuring or policy changes. The aviation sector’s momentum has been growing tremendously recently, largely due to a new venture aimed at bringing in greater private sector involvement. Not only is the aviation sector one of the first to begin a transformation, but the early and seemingly countless successes of the government’s endeavor thus far reveal the magnitude of success the vision is poised to be.

AIRPORTS

The country’s officials had been discussing the privatization of the state’s flag carrier, Saudia Airlines, for nearly 15 years. For much of that time, the process moved very slowly, until finally, in 2012, Saudi Catering was privatized and listed on the stock exchange, followed by Saudi Ground Services in 2015, which then went public.

It is not just former Saudia arms that are now flourishing. When TBY sat down with Adel Abdulmajeed Abuljadayel, the Chairman of Adel Abuljadayel Flight Catering, he described the company’s interesting history—not long after opening as the first airline catering business in the country, Saudia monopolized the industry. However, Abuljadayel, after spotting gaps in the market, came back and eventually broke the monopoly, winning a tender against Saudia with Flynas. Now, the catering company is shooting even higher. “We are planning to hold an IPO in around 2020 because that is in line with the government’s Vision 2030, to have 30-40% public ownership. This will create greater transparency and impose clear management procedures and standards for companies,” the chairman said. “Now is the best time for listing and going to the market. This is the only way to continue in the Saudi market and grow, otherwise we will be keeping ourselves limited to a restricted market share.”

On a much grander scale, the government has commenced plans to privatize at least 11 of the country’s airports by 2020. The first facility to be corporatized in this endeavor is King Khaled International Airport’s Terminal 5, located in Riyadh. In one of the first deals of its kind, the Dublin Airport Authority will run the airport as a concession for five years, when the rest of the airport is poised to be privatized as well.

This was quickly followed by other major boosts to the country’s privatization program. On June 8, 2017 the government signed a score of contracts corporatizing airports throughout the country. Jeddah’s King Abdulaziz International Airport will be operated by Singapore’s Changi Airports International for 20 years; the new Taif International Airport, set to be completed by 2020, is to be developed and then operated by a consortium consisting of the local Asyad Holding, Munich Airport, and Consolidated Contractors Co; and another consortium, consisting of Turkish TAV Airports Holding and Saudi’s Al Rajhi Holding Group, will operate three airports: Hail International Airport, Prince Naif Bin Abdul Aziz Airport in Qassim, and Prince Abdul Mohsen Bin Abdul Aziz Airport close to Yanbu. While the deal in Jeddah is strictly for the operation and maintenance of the facility, the airports in Taif, Hail, Qassim, and Yanbu are based on the build, operate, transfer (BOT) model.

AIRLINES

While certain arms of Saudia Airlines have been spun off and privatized, the airline still remains under the ownership of the government. Its days as a monopoly, however, are certainly no more. The General Authority for Civil Aviation has recently granted several operation licenses for airlines in the Gulf, both full service and low cost, setting the stage for a fierce competition for passengers.

In 2016, the country’s aviation sector encountered its most dynamic year in recent history, as a number of low-cost carriers sought to disrupt existing market forces. Namely, Dammam-based SaudiGulf Airlines was granted a license for domestic flights in June 2016, shortly followed by Nesma Airlines, which though Saudi-owned, is headquartered in Cairo. In addition, the local industry is embracing for another newcomer to enter the market, with the news that national carrier Saudia—the Middle East’s second biggest—would launch its own LCC. The newly formed Flyadeal is expected to hit the skies by 3Q2017, with a fleet target of 50 aircraft by 2020.
Saudi Arabia’s prime low-cost carrier, Flynas, stunned the industry on January 16, 2017 by confirming its purchase of 80 new aircraft from European manufacturer Airbus in a deal worth USD8.6 billion. The purchase, rivaled only by FlyDubai’s USD11.4 billion purchase of 111 Boeing aircraft in 2013, will likely prove a game-changer for the Saudi carrier as it looks to expand its existing fleet of 29 leased A320s, eventually making it one of the largest budget airline fleets in the Middle East. The airline has already played an integral role in transforming air travel in the country by going beyond Saudi’s three major cities and introducing fresh routes to smaller towns such as Abha, Bisha, and Tobuk,
The boom in Saudi’s aviation sector has everything to do with the vast reforms introduced by the government, principally through Vision 2030. Amongst its key initiatives lies the aim to drastically boost its Hajj and Umrah industry by increasing the number of visitors from 8 million in 2016 to 20 million by 2020 and 30 million pilgrims by 2030. As the Mayor of Mecca, Osama Al-Bar, pointed out in an exclusive interview with The Business Year, “With the completion of the new King Abdulaziz International Airport in Jeddah, with an annual capacity of 34 million travelers, bringing visitors here should be much easier. There are more airlines coming, and visa issuance has recently been eased for visitors, businessmen, and tourists, especially from Islamic countries.”

AEROSPACE

Saudi Arabia’s vision for a more diversified economy does not end at just privatization; the government wants as much as possible to be made or utilized in the country. For aviation, this means developing and cultivating a powerful domestic aerospace industry. The country has long been at work to make itself self sufficient for aircraft maintenance. While this effort has taken much time to move forward, the industry is now taking off at a faster and faster speed.

TBY recently discussed the changing industry with Ahmed Jazzar, the Vice President of Boeing International and the president of Boeing Saudi Arabia, which has a long history in the country. While Jazzar and his colleges welcomed the announcement of Vision 2030, the company made little changes to its strategy. “Over the years, Boeing has led the development of the aerospace industry in the country. Looking at the industry as it stands today, the major companies were created by Boeing,” Jazzar stated. “All along, Boeing had the strategy of being local in Saudi Arabia. We are part of this fabric; it is a market that benefits the company, and we always think of it as a partnership, so we do not shy away from investment in the country.”

Building infrastructure for the country’s formidable defense industry also relies on the success of the aerospace industry. The vision seeks to localize defense spending by 50%. Building a sustainable aerospace industry will require businesses in the area to obtain something currently in short supply in the country: skilled local labor. To satisfy the government requirement of increasing Saudization levels, industries are becoming closer to universities and are building training facilities of their own.

In an exclusive interview with TBY, the president and CEO of Al Salam Aerospace Industries, Yahya H. Al Ghoraibi, spoke of the importance of working with original equipment manufacturers (OEMs) to secure and build know-how in the country. The country’s goal of localizing defense spending is entirely possible, according to Ghoraibi, as the country already has all the resources it needs. “We have the raw materials and national companies that can process the raw materials and produce, for example, aluminum, and machine shops that can manufacture parts as well as companies that can manufacture and assemble high-tech components and equipment,” he said. “So all the components for local manufacturing are available and the individual companies are all working with each other to bring local defense manufacturing to reality.”