Do US Airlines compete? ADIA becomes active. Does Arabtec make sense?

When the “no laptop” ban on flights was announced by the US government there was a lot of discussion as to whether there was a commercial driver to that decision. I decided to investigate and with the help of the staff of The National, I was surprised to find that we could not identify any American airlines operating planes out of the UAE, only codeshares with other airlines.
So why was I surprised? Well, as people in the region are well aware, some of the largest American airlines have been complaining about Etihad, Emirates and Qatar and in particular they have accused them of unfair competition. Now, for there to be unfair competition there needs to first be competition. For there to be competition the airlines have to be doing the same thing. The three Gulf airlines focus on super long-haul routes, that is they don’t fly between American cities. I therefore assumed that since the American airlines were accusing the Gulf carriers of unfair competition then they must also be flying the non-stop long haul routes that Etihad, Emirates and Qatar are famous for.

It turns out that the Americans don’t in actual fact fly these routes. So the accusations are dishonest as presented. Why are the American airlines engaging in this subterfuge?
One thought that occurs is that they don’t have any airplanes cap­able of super long-haul flights. These airlines are so old that their fleets have short ranges, while the newer airlines bought Boeing 777 ER and Airbus A380 super long range airplanes.

If this analysis is correct then basically the American airlines failed to plan for technological advancements, saddled themselves with an obsolete fleet and are now trying to legislate their customers into using their inferior products and services. The UAE’s Telecommunications Regulatory Authority must be relieved that they are not the only ones using this tactic, as in their banning of Skype.
As an aside I am unhappy that American Airlines is the name of an airline as it means I’ve been wrestling with my autocorrect to type “American airlines”.

I read in the news that the Abu Dhabi Investment Authority has sued the Brazilian petrochemical giant Petrobras over alleged corruption issues within the company. I am extremely proud that Adia has taken such a strong shareholder advocacy and corporate governance stance. This is how investors extract value, be they sovereign wealth funds or individual investors. It starts with advocacy and corporate governance.

I would love to see Adia publish its shareholder advocacy and investor corporate governance standards and announce when it has taken action to enforce them. This would be a great example for all to follow, in particular the likes of the Abu Dhabi Investment Council, which has major stakes in important companies in our economy, including several banks, that greatly affect the investment landscape and even the economy of the UAE.

One important issue is that best global practice has three levels of corporate governance: shareholders, board members and management. Just like the more well-known issue of not mixing the board and management, if shareholders started appointing their own employees, or other related directors, to the board then they effectively remove one level of governance and oversight.

The reported possible Amazon acquisition of has people talking about what, exactly, the valuation is. To me, that is not the instructive number. The instructive number is how many years it took to get to this point. Founded in 2005, is now 12 years old. This is how long it takes to build a company. If you’re lucky, or based in a large, rich economy, aka the US, you might get a sale faster than that. I think that it is an important lesson for all entrepreneurs, building a company is a decade long process. Best of luck to the team, they deserve it.

Arabtec. What can I say? As of this writing, the share price is Dh0.88 and the price for its rights offering is set at Dh1 a share. This is for a company that lost Dh3.4 billion last year and is raising the money not to build new business, which might explain a premium, but to extinguish losses and pay off liabilities. They say they are on top of their risks. I don’t think that phrase means what they think it means. Their main explanation for their losses is an impairment charge on their receivables of Dh1.9 billion. There is no explanation why this was impaired, or how they might try to recover it. How do you write off Dh1.9bn and just walk away with no explanation?

Arabtec might do well to visit Adia and learn about good corporate governance. The good news for shareholders is that since the capital increase is underwritten, then if they don’t subscribe, even though they will be diluted in ownership terms, they will actually increase the value of their shareholding. It’s sort of like the reverse of going ex-dividend.

I wonder if the Abu Dhabi Accountability Authority will be asking Aabar why it is subscribing to a capital increase in a company that is losing huge amounts relative to its equity, why it is investing money to pay off liabilities instead of for growth, and why would it pay approximately a 16 per cent premium?

Sed quis custodiet ipsos custodes?

This article was originally published in The National.


  1. With all due respect, but the analysis of US carriers not competing doesn’t make a lot of sense.

    US carriers compete with the Gulf carriers on US to/from Asia routes, not on routes to/from the Gulf countries. US carriers offer the respective flights non-stop (e.g. UA72 EWR-DEL on a Boeing 777) and with codeshare partners through Europe, Gulf carriers offer them with a stopover in AUH/DXB/DOH. Just because US carriers do not fly planes to the UAE doesn’t mean that they are not competing for the same passengers (between Asia and the US).

    1. I don’t understand your argument. Are you saying travellers are shunning non-stop Asia/US flights by American airlines for the privilege of stopping in the Gulf? These are absolutely not the same service, a non-stop flight will always be able to command a higher price, which from a free-market capitalism point of view means it is a different service. The issue was never about flying from the UAE, it was about whether they competed, and having the same origin and destination simply is not the same service. Number of stops, transfers, time facets (departure time, transfer time, arrival time) not to mention quality of on board experience are also relevant. That, in the end, is my point.

Comments are closed.