Airlines in the Middle East will require 2,990 new aircraft worth a total $754 billion over the next 20 years, to meet rising demand as the region continues to grow its commercial aviation industry, according to US plane maker Boeing.
Demand for widebody aircraft will account for the bulk (52 per cent) of new requirements, said Boeing’s latest Commercial Market Outlook published on Tuesday.
“Widebody airlines comprise an unusually high share of the fleet in this region (approximately 47 per cent today),” the report said. “This preference is driven by two factors: their usefulness in serving high-volume routes to Asia and Europe; and their key role in providing one-stop itineraries on ultra-long-haul markets like London to Sydney.”
Boeing revised downwards earlier forecasts for the region made in November, when it predicted Middle East airlines would need 3,350 new planes over the next 20 years.
Middle East carriers’ passenger traffic grew 10.7 per cent in March, buoyed by strong travel to Asia, according to figures published in May by trade body the International Air Transport Association (Iata). The Middle East aviation market is predicted to grow “strongly” at an annual rate of around 5 per cent over the next 15 years – resulting in a total market size of 517 million passengers by 2036, Iata said last year.
Boeing’s latest forecasts for the region are in line with Iata’s projections. The report forecasts 5.2 per cent growth in traffic over the next 20 years, supported by a 4.9 per cent increase in total regional fleet size. The size of the Middle East market is expected to be worth $660bn in two decades, Boeing added.
Globally, more than 42,700 new airplanes worth $6.3 trillion will be required to service airlines’ needs, presenting a total market opportunity of $15tn.
“For the first time in years, we are seeing economies growing in every region of the world, and this synchronised growth is providing more stimulus for global air travel,” said Randy Tinseth, vice-president of commercial marketing for the Boeing Company.
“We are seeing strong traffic trends not only in the emerging markets of China and India, but also the mature markets of Europe and North America.
“Along with continued traffic expansion, the [Boeing] data shows a big retirement wave approaching as older airplanes age out of the global fleet,” he added.
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According to fleet data, there are more than 900 aircraft today that are more than 25 years old, Boeing’s report noted. By the mid 2020s, more than 500 planes a year will reach 25 years of age – double the current rate and fuelling this “retirement wave”. Almost half (44 per cent) of the forecast planes will be needed to cover replacement alone, it said. Including aircraft that will be retained, the global fleet is projected to double in size to 48,540 by 2037.
Globally, the single-aisle segment will see the biggest growth over the forecast period with demand for 31,360 new planes, an increase of 6.1 per cent over last year, driven by continued growth of low-cost carriers and strong demand in emerging markets.
The widebody segment will require 8,070 new planes worth nearly $2.5tn over the next 20 years, spearheaded by a large wave of replacements starting early in the next decade and airlines deploying advanced jets such as the 787 Dreamliner and 777X to expand their global networks.
The Asia Pacific region will continue to lead the way in terms of aircraft needs, accounting for 40 per cent of total deliveries and 38 per cent of total services value, followed by North America and Europe, according to the report.
The expanding global fleet will stimulate growth of “an enormous ecosystem of service providers”, Mr Tinseth said. Boeing forecasts 4.2 per cent growth in the commercial aviation services industry, including supply chain support, maintenance and engineering, aircraft modifications and other services, creating an $8.8tn market over the next 20 years.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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