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Kuwait’s High Flyer

Hannah Stewart
Kuwait’s High Flyer
Forget flying high, for the global aviation industry, the current situation remains one of fight or flight. Though the end of 2012 is now on the horizon, the lingering effects of the global financial crisis refuse to dissipate. Economic recession and the sovereign debt crisis plague beleaguered Europe, the Arab Spring has all but halted travel to key destinations in the MENA region, and high oil prices continue to strain the finances of airlines already under stress. And the list goes on. Against this backdrop, the achievements of Ahmad Alzabin, chairman and CEO of Kuwait-based Aviation Lease and Finance Company KSCC (Alafco) are all the more impressive. Despite the adverse operating conditions that hindered growth and even threatened survival of companies in the aviation industry, Alafco’s financial performance was not only strong, it was unprecedented. With aircraft leasing expected to account for 50% of the fleets of global airlines by 2015, the sky is the limit for Alzabin’s leasing empire.

Robust results across Alafco’s three main business lines—operating lease, sale and leaseback, and aircraft lease management—led to the generation of gross revenues totaling $185.5 million in 2011, a 31% increase on 2010’s figure of just over $142 million. The financial pièce de résistance—a four-fold increase in net profits to $166.9 million up from $38.5 million in 2010. “We are setting up our company for future growth and have had a very good year,” asserts the ambitious Kuwaiti.

Alzabin attributes the outstanding financial performance of his company, which currently boasts 48 owned aircraft in its lease portfolio and an additional six under management for investors, to the amendment of aircraft purchase agreements with manufacturers as well as growth in leasing activity. NBK Capital’s Kuwait In Focus report published last year agrees, “Alafco’s main revenue stream comes from operating leases, effectively turning it into an asset-heavy company.” Total assets for 2011 of $2.06 billion up from $1.9 billion the year before suggest little to the contrary for this aviation leasing frontrunner. Alzabin’s prudent strategic move to put Alafco’s aircraft on long term leasing also mitigated the impact of short term economic and political turbulence and helped the company to success last year. Meanwhile, a strong and stable client base afforded the aviation leasing company an additional layer of security.

Alafco’s leading man proved that 2011 was not only a year of limiting risk and maximizing security, but one of growth for his company. Demonstrating its increasing presence in the Middle East, Asia, Europe, Africa, and Latin America, Alafco delivered eight aircraft during the last financial year; one for Caribbean Airlines of Trinidad and Tobago, two for Saudi Arabian Airlines, two for Okay Airways of China and three for Ethiopian Airlines.

Reflecting a strong demand for leased aircraft, particularly in the MENA region, Marty Bentrott, Boeing Commercial Airplanes’ vice president of sales for the Middle East, Russia and Central Asia explains, “Here in the Middle East, as a result of the rapid growth of regional carriers, leasing often proves to be an attractive, though interim, option allowing airlines to continue their fleet and network expansion without being held back by delivery timeframes.”

In a simultaneous move to both meet demand and grow business, Alafco obtained financing facilities from local and international banks of almost $308.5 million during 2011 in order to finance a number of acquisitions. Alzabin recently firmed up an order for 85 Airbus A320 neo aircraft and 12 A350-900XWB with significant interest from emerging regional and international markets already translating into deals. “Out of the twelve ordered A350-900XWB aircraft, six have already been leased to Thai Airways on long term leases,” explains the chairman-CEO, adding that all aircraft with leases that expired during the year have been released. Not content to stop there, Alafco’s ambitious leader has also firmed up an order with Boeing for eight B787-9 aircraft and has recently signed a commitment for twenty 737 MAX aircraft valued at $1.9 billion at current list prices. Commenting on the recent Boeing-ALAFCO agreement, Bentrott remarks, “Significantly, this represented the first commitment for the 737 MAX from the Middle East.”

Alafco’s new additions promise to deliver the latest engine technologies, increased efficiency and significantly reduced fuel consumption and harmful emissions, pointing to not only a bright but a greener future for the company. As a father to one son and two daughters and now also a grandfather, Alzabin takes his responsibility to protect the planet for future generations seriously. “Our way of contributing to environmental sustainability is by ordering new technology aircraft that are more fuel efficient and significantly reduce noise and Co2 emissions,” he explains. Alafco has ordered the latest Airbus aircraft with the Pratt & Whitney PurePower PW1100G-JM and CFM Leap-1A engines, which are anticipated to tick all Alafco’s boxes, providing double digit return in the reduction in fuel burn, environmental emissions and noise compared to today’s engines. “In the wide body category, the B787 and A350XWB aircraft shall also use less fuel and emit less Co2,” adds the CEO, demonstrating that profit does not have to come at the expense of the environment.

From progress in the field of environmental sustainability to profit growth, Alafco’s success falls into the context of the GCC’s developing reputation as fertile ground for the growth of airlines looking to build international hubs. “The GCC states have invested in infrastructure that is critical for the growth of the industry,” explains Alzabin, adding, “Airlines in these countries are expanding their fleets and recording growth in number of passengers carried.” Nevertheless, like countless other industries, while the airline industry in the GCC may be on the up, the situation on the wider international scene presents an entirely different scenario. In a year marred by economic crisis and political upheaval, the International Air Transport Association reports that between January and September 2011, growth in passenger traffic dropped to 7.5%, down from 8.3% for the same period the previous year. Meanwhile oil prices stood at over $82 per barrel for crude oil, and more than $106 for Brent as Alafco rounded out their financial year on September 30th.

Alzabin remained on the periphery of the fuel price debate—as a leasing company Alafco was not directly affected by soaring oil prices. However, he empathizes with fellow industry players who bore the brunt. “The high cost of fuel affects all the airlines that we lease to including the airlines in the Middle East,” explains Alzabin. “Airlines try to pass on the cost of higher fuel to passengers as much as possible. Unfortunately, this remains to be a drain on their finances,” he adds.

The challenges of 2011 hit smaller and state-owned airlines in the Middle East particularly hard. According to CAPA Centre for Aviation, Gulf Air reported losses of around $500 million and Royal Jordanian recorded a loss of $81.4 million. Kuwait Airways also suffered last year and Oman Air is expected to return to profit in 2014, due in part to an ambitious redevelopment program. Nevertheless, according to Alafco, the aviation industry still possesses strong long-term fundamentals. For Alzabin, these fundamentals translate to great opportunities for aircraft leasing.

Looking ahead, the goal of the experienced Kuwaiti businessman is growth. As part of these ambitions, Alafco’s chairman-CEO intends to increase his portfolio to one hundred aircraft by the end of the decade, investing in planes equipped with the latest technology that optimizes efficiency and minimizes fuel consumption—a win-win situation for both customers and the planet. From Co2 footprint to geographical footprint, Alzabin’s ambitions are grand. “Alafco does not confine itself to leasing aircraft to airlines in the MENA region, but will expand into markets globally,” he explains.

According to Peter Harbison, executive chairman of CAPA Centre for Aviation, the double constraints presented by the “risk-averse mode” of European and North American markets, as well as a lack of understanding of the fast growing MENA and Asia markets makes Alafco’s response very timely. “Its expansion path follows very closely on the region’s growth from a standing start in 2000…and a tailored Islamic financing model positions it well to respond to growing markets in the region,” he explains.

For the Kuwaiti aviation frontrunner, a successful business leader is not only capable of defining the company vision but also building a strong organization to make it a reality. Ahmed Alzabin seems to have this down to an art. With 2011’s triumph and new deals setting Alafco on a good footing for future growth, this competent leader is well on his way to fulfilling his company’s long term vision to become one of the most successful and prominent aircraft leasing companies in the world. The aviation industry may be struggling to get off the ground in these turbulent times, but this aviation leasing powerhouse is set to keep flying high.
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