Saudi shake-up


The Ritz-Carlton Riyadh, Saudi Arabia.

Mohammad bin Salman bin Abdulaziz Al Saud (MbS) – crown prince, first deputy prime minister, president of the Council for Economic and Development Affairs and minister of defence of Saudi Arabia, has only been in his many roles since June last year. But he is certainly working hard to shake-up the Kingdom.

He has announced plans to diversify Saudi Arabia’s economy from oil, relaxed bans on concerts and cinemas and is making it possible for women to drive.

Backed by his father, he has also led a blockade of Qatar and locked up hundreds of prominent Saudi business people, princes and ministers in Riyadh’s Ritz-Carlton as part of a so-called anti-corruption drive. These last two policies have been popular in the country. But they have been terrible for the region’s business-jet market.

The air blockade of Qatar has removed an important domestic charter route for operators around the region. Aircraft registered in Qatar can no longer overfly (let alone fly into) the UAE, Saudi, Bahrain or Egypt. Aircraft flying into Qatar have a small corridor to fly in and out. The only Qatari aviation statistic that has improved since the blockade is the number of cows travelling by air – so far more than 3,400 have been flown in as the country tries to become more self-sufficient.

The Ritz-Carlton incident has also damaged Saudi’s domestic business aviation market.

Around 200 business people and members of the Saudi royal family were detained in November, with most being released in January. A significant number of the people in the Ritz-Carlton owned business jets with several being arrested after their private aircraft had landed at Riyadh airport. At the time a list was circulated to operators giving tail-numbers for aircraft that were not allowed to take-off.

This no-fly ban still applies even though the Ritz-Carlton has now reopened to paying clients.

Some of the people who were held were released without charges. Others reached financial agreements with the government. A statement released by the Saudi Press Agency said: “The attorney general has indicated that the estimated value of settlements currently stands at more than SAR400 billion ($100 billion) represented in various types of assets, including real estate, commercial entities, securities, cash and other assets.”

These assets include a significant number of large and very-large business jets. It is unclear how many business jets were handed over as part of the settlement. But some local experts believe it could be more than 30 aircraft. No one knows what the country is going to do with these jets.

Some of these aircraft were financed – leaving lenders in a very difficult situation where they now need to argue their rights to a judiciary that thinks it owns their assets. Some lawyers believe that financiers may be able to claim on their insurance policies. The other option is to simply seize aircraft when they leave the country for flights or maintenance. Both would be a public relations disaster for the country. Most loan deals also included personal guarantees that lenders can call on.

Financiers and operators say everything is still far from clear (and most of the people who have handed over aircraft are still paying). The government may choose to resolve these issues quickly. MbS is keen to promote Saudi Arabia as a place to invest. If financiers are not confident about their rights with moving assets, they are unlikely to support infrastructure projects. Until things settle down you can expect many Saudi owners to look at charter and move aircraft away from the Kingdom.

Saudi Arabia has been an important business jet market for the past 30 years. And it will be again. But 2018 is going to be a tough year.

NOTE: The below originally appeared as the editorial in our One Minute Week newsletter. To find out more, and sign up for free, please click here.

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