The EU's decision last year to ban all aircraft regulated by Afghanistan from airports in the European bloc has been a blow to the country's second-largest airline, Safi Airways, a top executive says.
Dozens of staff have been laid off, the top management has been replaced, and there are plans to cut back on the number of planes.
Michael McTighe, the recently appointed chief operating officer of the airline and a former managing director of Arik Air in Nigeria, said the recent months had been challenging because the airline's service between Kabul and Frankfurt had been its most profitable.
The ban came "out of nowhere" and forced the company to lease a European-registered aircraft at peak rates to meet obligations to customers. "We had originally hoped to make a profit in 2011, but that is now pushed back to 2012," Mr McTighe said. "We are looking at a year of consolidation."
Mr McTighe said he expected the ban to last between three and five years - the period it might take Afghanistan's civil aviation authority to improve its regulation of the aviation industry and meet European standards.
Ariana Afghan Airlines had already been banned from the EU by the authorities there, but on November 23 last year the ban was expanded to all airlines regulated by the Afghan government.
Siim Kallas, the EU transportation commissioner, said at the time: "Where we have evidence that air carriers are not performing safe operations or where the regulatory authorities fail in their obligation to enforce the safety standards, we must act to ensure there will be no risks to safety."
The family-owned Safi vies with carriers such as flydubai, Ariana and Kam Air, another Afghan airline, to transport primarily expatriates working in Afghanistan. Safi flies twice daily between Kabul and Dubai.
Afghan airlines face difficult operating conditions, with fuel sold at three times the price in Dubai, the necessity of buying extra insurance for war zones and an airport shared with military operations that sometimes delay civilian flights by several hours.
After the EU ban, Safi had to reduce its staff by more than 30, leaving it with fewer than 100. It is selling three of its five aircraft so that it can focus on its Dubai-Kabul service.
Mr McTighe said the moves were a "direct consequence of the ban". He was appointed two months ago, along with John Roijen as chief financial officer and Mohammad al Hayek as deputy chief operating officer.
"It's a clean-up exercise right now," Mr McTighe said. "We are retrenching, but we are also focusing on improving our services."
New uniforms were being created and Safi would be upgrading its business-class cabins in a bid to hold the title of the higher-end airline flying into Afghanistan, especially as more international businessmen are travelling there to take advantage of opportunities in mineral extraction and in the country's rebuilding process.
To prepare against more governments banning aircraft registered in Afghanistan, including the possibility of the UAE taking action, Safi is seeking an air operator's certificate from a Gulf country so that its aircraft will be regulated by an authority other than Afghanistan's. Mr McTighe said that could take as long as eight months.
After selling its two Boeing 737-300s and negotiating out of its lease for an Airbus A340, Safi would be left with a Boeing 767 and an Airbus A320.
Safi hopes eventually to lease only A320s to create consistency in its fleet and cut costs. Operating different types of planes requires separate crews trained to operate each type of aircraft, adding to expenses.
By next year, Safi could be launching routes to India, Pakistan and Saudi Arabia, Mr McTighe said.
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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.”
