Why the oil price might be good news for Saudi Arabia and the Middle East

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The oil price continues to make headlines as it hits new 10-year lows and creates obvious challenges for the big oil producing States, including those in the Middle East. But it can also be good news for the region's aviation sector.

Many States are dependent on oil for revenues, Saudi Arabia more so than most. The Economist's interview last week with Muhammad bin Salman, Saudi Arabia's deputy crown prince highlighted how the Kingdom is facing up to the challenges, including selling or privatising assets and even a potential IPO of Aramco. This is not entirely new to Saudi Arabia or aviation, but the urgent need to reduce the budget deficit should be a catalyst to drive existing initiatives and identify new opportunities that can deliver benefits to the government and aviation sector.

Saudi Arabia is not starting from scratch. In the airline sector, Saudia continues the long running privatisation of some its business areas, although still has some way to go in its overall transformation programme. In airports, the PPP process started in 2012 when the operation of Al Madinah was awarded to the TAV-led Tibah Airports consortium. Ta'if Airport was recently tendered and bidders are currently being shortlisted for Jeddah. GACA has also confirmed that Riyadh Airport will be privatised later this year, Dammam Airport will follow in late 2017 and even some of the regional airports are now being considered.

As for the air navigation services, GACA ANS will be also be transformed later this year into Saudi Air Navigation Services - a corporatised and eventually self-funding entity. State-owned monopolies are also being challenged and forced to compete. Helios recently supported GACA in a tender process resulting in the award to Swissport of a second licence to provide ground handling services at all GACA operated airports in the Kingdom. Cargo and catering are the next logical targets.

The timing is perfect for Saudi Arabia and potentially other Middle East States to act. As we have seen through our work elsewhere in the world over the last 20 years, the corporatisation or privatisation of State-owned assets can create a win-win for all stakeholders – including end users. Moving from a government department to a government‐owned corporation or even a more commercialised operation will reduce the reliance on State funding. It will also generate revenues whilst creating more commercially focused organisations and a more competitive environment that will drive improvements in efficiency and performance.

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