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Peter Cooper is the editor and publisher of the ArabianMoney Investment Newsletter and ArabianMoney.net website. He was formerly a partner in AMEInfo.com, sold in a private equity deal in 1996. His book 'Opportunity Dubai: Making a Fortune in the Middle East' was a best seller, and his latest... More
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Dubai Sabbatical: The Road to $5,000 Gold
  • Dubai on a recovery fast track as Emirates spends $11.5bn on 32 A380 super jumbos 0 comments
    Jun 9, 2010 2:11 AM

     Dubai yesterday placed an $11.5 billion order for 32 A380 super jumbo aircraft for delivery by 2017. It is an audacious effort to jump start the stalled Dubai economy comparable only to the $15 billion aircraft order placed by Emirates on November 4th 2001, including 22 A380s, eight weeks after the 9/11 terrorist attack on New York.


    Then as now the Dubai economy was at a low point, and investing in so many new aircraft was a particularly bold act in the aviation panic that followed September 11th. It was one of the government actions that led to the Dubai boom of 2003-8. The other was the freehold property title for foreigners.

    Can Dubai pull it off again? Perhaps. The city has endured a 21-month recession since the global financial crash of late 2008. Its real estate crash has been the worst in the world. But no regional trading hub city stays down forever.

    Great infrastructure

    As Citi chief economist Farouk Soussa pointed out in a timely report yesterday Dubai has built an unrivalled urban and logistics infrastructure that will return to growth as the global economy picks up. He forecasts 1.6 per cent growth this year, 4.7 per cent in 2011 and 6.3 per cent in 2012. This is more optimistic than the IMF base scenario of a 0.5 per cent contraction this year.

    The Citi report brushes off the Dubai debt and real estate correction as less significant than the city’s trade, tourism and commercial strengths. But the author does concede that global headwinds such as sovereign debt issues in Europe and overheating in China could yet derail a resurgence of Dubai.

    Indeed, the double dip global recession is a big issue for Emirates Airline and Dubai. Emirates has just posted bumper profits for the year to end of March but the recession crashed profits the previous year. A double dip global recession would mean more of the same at a time when more and more A380 aircraft are joining its fleet.

    A380 orders

    Emirates is after all the largest buyer of this huge aircraft with 58 A380s previously ordered and now another 32 confirmed orders. The Dubai carrier will take delivery of its 10th A380 next month and expects to have 90 of them flying by 2017.

    Of course, size counts. The A380 is one of the most efficient aircraft in the sky and with non-unionised labour Emirates has an advantage in cost and youthful staff and planes. But there is a downside in having to fill so many seats. The A380 was taken off the New York route in the recession due to falling demand.

    With the new order yesterday Emirates has $60 billion worth of aircraft orders, some 143 wide-body planes including 80 more A380s, 18 Boeing 777-300s and seven Boeing air freighters.

    But the motto of the British Special Air Service comes to mind: ‘He who dares wins’. Besides with government related entities more than $100 billion in debt, the A380 fleet expansion seems a far better way to boost the Dubai economy than an ill-focused public spending package.

    Only credit worthy sector

    That is Dubai, focused and commercial to the end. Investing in the most profitable sector of the local economy makes more sense that bailing out failures. Aviation is also the only local business sector with any credit left, so the choice is pretty easy.

    European banks will doubtless fall over themselves to lend the money that Emirates needs to buy European built A380s to put the European long-haul carriers out of business. Nothing will be more competitive than the aviation market over the next few years, and the lowest cost operator will be the winner.

    So this order probably is the beginning of the Dubai recovery but those global economic headwinds are about to return with a vengeance, and there is still more turbulence ahead.



    Disclosure: One villa in Dubai

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