Friday, March 29, 2024 | Ramadan 18, 1445 H
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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Oman Air privatisation will boost aviation business

Saleh-Al-Shaibani
Saleh-Al-Shaibani
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The privatisation of state-owned Oman Air can offer a lifeline to the carrier to save it from a cut-throat regional competition and inherent crippling losses. In September 2013, Minister Responsible for Financial Affairs Darwish bin Ismaeel al Balushi told Oman News Agency (ONA) that Oman Air was considered for privatisation but five years later the idea is still on hold. Oman Air, which no longer relies on government funding, had earlier delayed its income break even date from 2017 to this year but its new Chief Executive Officer Abdulaziz Al Raisi said in April this year “it was difficult to set a date because stemming losses would partly depend on external factors.”’


The “stemming losses” he was referring to is detailed in Oman Air’s annual financial report. The airline lost RO 180.146 million last year against the loss of RO 129.820 millions in 2016. In the last five years since 2013, the airline lost a combined RO 619.223 million. It is employing over 8,000 staff from which over 70 per cent are Omanis. In its annual report, Oman Air said it is paying RO 2.2 million to its “top ten executives” per year. It comes to an average salary of RO 220,000 per executive annually. Oman Air’s latest annual financial report said, “These conditions indicate the existence of a material uncertainty which may cast significant doubt about the group’s ability to continue as a going concern.”


It is clearly showing that Oman Air either needs a big financial bail out to keep it afloat or sell it off to private investors. In the 1980s, when Oman Air was owned by Oman Aviation Services, the company was traded in the Muscat Securities Market (MSM) but it was decided to nationalise its operations that led to the creation of Oman Air in its present form. It was a step that led to the current financial setback.


It made sense in 2016, when Oman Air off-loaded its ground handling division and the company concentrated on airline business. However, it is still facing heavy liquidity risks and its maturity profile on liabilities is mounting.


On the operations side, the Gulf Cooperation Council (GCC) is home to the “three big ones,” Etihad, Emirates and Qatar Airways. Stiff competition from other airlines that operate directly to the world’s major destinations obviously have crippling affect on its profitability. Oman Air operates a fleet of 51 aircraft, most of them are a family of Boeing 737s. But it has five Dreamliners and ten Airbuses. The Dreamliners cost an average of $160 million each. The servicing of such aircraft comes with massive costs, not to mention the fuel consumption on longer routes.


The biggest competition for Oman Air is not just other airlines but destinations. Code sharing and alliances have been illusive for Oman Air and not very ground breaking for the airline. However, the only step forward is to privatise the airline, or partially privatise it to share costs. But the government must consider losing its national pride of having the airline owned by international investors. This could be another reason why the government is hesitating to let it go to the private companies.


Another factor that has dogged the privatisation ambitions of Oman Air is losing control of it. The Board of Directors would no longer be dominated by officials but private investors who will be making investment decisions.


The obvious decision would be to follow the route of an IPO (Initial Public Offering) and float shares in the Muscat Securities Market as against a straight bailout.


This would give access to private funds. It would also boost the MSM and give an opportunity for Omani citizens to own a part of their national airline.


Of course, private investors would have the opportunity too, to own it, especially international institutions. The IPO would raise hundreds of millions for the government.


SALEH AL SHAIBANY


saleh_shaibani@yahoo.com


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