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Emirates airline Dubai in major profits setback.

Among the major pillars of Dubai in the United Arab EmiratesAAE (UAE) renowned tourism economy, Emirates appears to have entered a period of acute profit squeeze, as a

result of a fuel bill which has climbed by 44.4 per cent. Although that said, this is the carrierAAEs 24th year of consecutive profitability.

However, the Arabian Gulf emirate has some rather large debt repayments to make in 2012 and beyond, against which a 72 per cent drop in 2011 profits to 1.5 billion Dirhams

(US$ 408.7 million) in one of its major cash spinning state businesses, does not sit well. The IMFAAEs annual report on the overall UAE puts the level of Government Related

EntitiesAAE (GREs) debt maturing this year at US$30 billion, with a further US$24 billion due in 2013.

IMF confidence in the GREsAAE ability to repay this amount has since wavered, resulting in the head of the IMF team involved in what are regular annual consultations with UAE

authorities, openly stating that Aorollover risks remain substantial". The global financial body puts DubaiAAEs overall GRE debt at $84.3 billion which in turn resolves into 60.4 per

cent of GDP, accompanied by an observation that the city state enjoys few oil resources. By comparison oil-wealthy Abu Dhabi GREs' debt stood at US$100.6 billion at the

end of March, a figure which represents 45.6 per cent of the emirate's GDP.

Another factor to consider is that most European banks are stepping back from the region, as they try to regroup domestically with a difficult series of sovereign debt scenarios

rumbling dangerously within the eurozone. Therefore, as the appetite for debt is curtailed due to adverse conditions in other theatres of operation, traditional sources of overseas

institutional rollover diminish.

Emirates, is almost certainly among those DubaiAAEs GREs which help pay the bills, and certainly has high credibility as an enterprise amongst the banking

community. Nevertheless, the flag carrier undoubtedly continues to gather momentum as a worldwide force in civil aviation, with revenues reaching a record high of 62.3 billion

Dirhams (US$16.98 billion), up 14.9 per cent on 2010. However, the effects of a 24.3 billion Dirhams (US$ 6.6 billion) fuel bill for the year have proved extremely debilitating for

profits, a problem likely to persist.

On the positive side there are more fuel saving Airbus A380 and Boeing 777-300ER planes yet to be integrated into the Emirates fleet, according to analysts. The carrier is also

cash rich with roughly US$ 5 billion in the bank, leaving it in a far better position than most of the competition. There is also further room for expansion on well paid North American

routes, added to which Emirates carried 34 million passengers last year, a rise of 8 per cent, brightened in turn by an increased per-passenger yield, up by

7.8 per cent.

Copyright Andy McTiernan. All rights reserved.

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Publication:Andy McTiernan Property & Economy Bulletin
Date:May 11, 2012
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