Skift Take

You really have to give it to an CEO who, despite recent losses related to warfare in Syria, continues to push for the expansion and success of his airline.

Source: Lebanon Daily Star
By Osama Habib

Lebanon’s only national carrier has taken the bold move of beefing up its fleet with a brand new Airbus aircraft at a time when the country is coping with slow economic growth, a deeper political rift and heightened regional tension, especially in neighboring Syria.

Middle East Airlines chairman Mohammad Hout, who boarded the new Airbus 320 aircraft from Hamburg, Germany, along with a group of journalists, seems keen to keep the Lebanese carrier afloat even if the general political and security picture is not too encouraging.

“We have leased this aircraft for a period stretching from six to eight years, and this step is part of our general policy to expand this fleet,” Hout said confidently.

MEA has seen its operating profits in 2011 plunge from $90 million to $40 million, a drop of more than 55 percent, as the high cost of fuel, declining number of tourists and improvement in the packages of the company’s pilots, crew and staff eroded a big chunk of the firm’s overall revenues.

But despite the drop in profits, MEA’s performance was relatively acceptable under the current political situation in Lebanon and these results, according to some experts, are still better than many leading international airlines that suffered heavy losses last year due to high cost of fuel and intense competition.

Hout is reluctant to increase the MEA’s flight destinations at this time even with expansion of the fleet, although he does not conceal his ambition to make daily flights to Baghdad in the future.

“But [this step] requires some modifications to the transportation agreement between Lebanon and Iraq. We are also looking forward to reach Russia, but this also requires the cancellation of visas between Lebanon and Russia,” Hout explained.

The company suffered massive losses in the 1970s and 1980s, prompting the government at the time to ask the Central Bank to take full control of the carrier in order to ease the financial burden on the treasury.

After Hout took the helm of the company, the management decided to cut the number of flight destinations, close various offices overseas and above all lay off hundreds of employees to reduce the losses.

Hout had to win the support of all the main political groups in the country before he proceeded with the measure.

But once these deep cuts took place, MEA gradually returned to profitability, and this induced the management to replace all its aging Boeing planes with new Airbus aircraft.

The company intends to purchase new generation aircraft from 2016 and 2018 with special emphasis on fuel-saving planes.

By the year 2020, MEA hopes to have a fleet of 20 new aircraft and a further plane could join the company in 2021 if the need should arise.

The chairman is more inclined to lease new planes instead of purchasing them, noting that the value of aircraft would depreciate in a few years as more sophisticated models are introduced.

Hout refuses to talk about the market value of MEA, although a TV commercial prepared by the company estimated it to be worth about $1 billion, an amount that could be attributed to the net value of the fleet.

MEA had plans to list 25 percent of its shares on the Beirut Stock Exchange, but the political conditions and ensuing security incidents have discouraged the company from pursuing this goal.

The company also showed interest in bidding for the troubled Cyprus Airways as part of its expansion plans.

But details of the bid remain obscure as talks between the two sides are still shrouded in secrecy.

As for the prospects of the upcoming season in light of increased political tension, Hout hopes that Lebanese politicians will work to ensure a prosperous tourist season.

However, a prosperous tourist season this summer could be a pipe dream if some of the oil-rich Arab Gulf states refuse to lift travel warnings to Lebanon following the security deterioration in the past few weeks in the north and parts of Beirut.

The airline is capitalizing on the large number of Lebanese expatriates in the UAE, Qatar, Kuwait, Saudi Arabia and some African countries to make up for the possible drop in the number of Arab and foreign tourists.

“MEA has increased the number of summer flights in preparation for the tourism season. We hope not to cut the number of flights due to the local and regional conditions,” Hout said.

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Tags: beirut

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