Welcome Aboard
Emirates Airlines
Fareeda Gaffoor, Janita Kanjibhai, Jennifer Koenig, Devanshi Patel, Sara L. Yue
“When Paul Astin, a British executive of a big construction
company here on the Persian Gulf, travels by air, he no longer
drives to the airport. His favorite airlines, Emirates Airlines, sends
a car to pick him up, as it does with all its business and first-class
passengers in London, Paris, Hong Kong, and 12 other cities. In
business class he has a choice of 48 movie cassettes he can load
when he wants, and a couple of dozen music and talk programs.
Even in economy, passengers may choose from 17 movies and 18
video games available on personal screens. Mr. Astin dines on
meals set on pink linen and sips fine wines.”
New York Times - January 5, 2003
Agenda
غMiddle East Region Overview
United Arab Emirates
Political
Social
Economic
Airline Industry
Company Overview
Emirates Airline Valuation
Project – New York/ Dubai Route
Conclusions
Q&A
Middle East Overview
Characterized by countries whose economies are over-
dependent on oil
Differ on size, wealth, and political agendas
UAE, Saudi Arabia and Qatar enjoy higher GDP per capita
compared to other countries (Iraq, Iran, Syria) due to more
political stability
United Arab Emirates
British - Trucial States (150 yrs)
Perpetual Treaty of Maritime Truce (1850s)
Federation state formed on December 2, 1971
Seven Emirates: Abu Dhabi, Dubai, Ajman, Fujairah,
Sharjah, Ras Al-Khaimah, and Umm Al-Qaiwain
Political Structure
غFederal Supreme Court, Supreme Council, Cabinet of
Ministers, Parliamentary Body, Federal National Council and
an independent judiciary
غPresident: Sheikh Zayed bin Sultan Al Nuhayyan, ruler of Abu
Dhabi
غVice President & Prime Minister: Sheikh Maktoum bin Rashid
Al Maktoum, ruler of Dubai
غNo political parties
غRuling families
“It’s all in the family”
Social Structure
Population: 3,480,000 people
Religion: Muslim (96%)
Spoken Language: Arabic
Labor force: 1.6 million people
78% in services, 15% in industry and 7% in agriculture
Economic Structure
1002 غGDP: $67.6 bn or $21,000 bn per capita
%07 غof government revenue from oil production
غFree zones
غDirham pegged against dollar
غUneven oil distribution among 7 emirates
Markets
Dubai Financial Market (DFM)
Abu Dhabi Securities Market (ADSM)
= 3.67
US & UAE Relations
غEstablished formal diplomatic relations since 1974
غGoal: security assistance and the shared commitment to
security and stability of the Gulf region
غLink of petroleum
غGulf War
غSeptember 11th: UAE severed its ties to the Taliban
Current Situation
UAE lends help to the US
Access to its airfields
President Zayed attempt for peace in the Middle East
Urge Arab world to ask Hussein to step down
Telephone conversation between Zayed and Bush
Altered attitude since US air strikes on Iraq
Airline Industry
غHistory
غConflicts:
Economy
Terrorism
War in Iraq
SARS
Costs
غLabor
غAircraft maintenance
غDebt servicing
غFuel
غAircraft delays
Industry Ratios
غLoad Factor :
passenger-kilometers expressed as a
percentage of seat-kilometers
غRevenue Passenger Kilometers :
the number of revenue passengers
carried on each flight stage by the
flight stage distance
غAvailable Seat Miles :
the number of passenger seats
available for sale on each flight stage
by the stage distance
Competitors
Company Overview
Launched in 1985 to boost tourism in Dubai
Currently services 60 destinations in 42 countries
Emirates strives to be known as an international airline
based in the Middle East rather than just an Arabic airline
that flies abroad
Emirates: “the finest in the sky”
Received over 200 international
awards of excellence
First Middle Eastern Airline to
win Passenger Service Award
One of the youngest fleet of
aircraft in the business- 3 years
“When the going gets tough Emirates gets
going”
Gulf War
Only airline to continue flying to Kuwait
Increased number of flights by picking up competitors’ slack
Still profitable despite open skies policy at Dubai
International Airport
Post September 11th
Posted an 11% increase in net profits in 2001
Increased flight service to Pakistan and Afghanistan
Announced plan to purchase 58 new aircraft as part of
expansion strategy - Cost:$15 Billion
22 aircraft are Airbus 380-800 largest aircraft in production-
to be used for Dubai-New York route
Current Emirates Situation
Currently increasing number of flights out of Dubai,
especially to Southeast Asia
War not really effecting business due to no direct flight
with the United States
Expansion routes planned for New York, San Francisco,
Atlanta and Chicago
Ratio Analysis
Gross Profit Margin 8.77%
Net Profit Margin 6.56%
Return on Assets 3.97%
Return on Equity 15.68%
Current Ratio 1.88
Quick Ratio 1.75
Debt to Assets 0.75
Debt to Equity 2.95
Interest Coverage 22.28
Financial Status
Government-owned but does not receive
subsidies 1.5 Billion
Dirhams!!
Dh1.5 billion bond issuance in June 2001
First Emirates Airlines bond issue
Largest dirham-denominated bond issue
First to be listed on Dubai Financial Market
Private-equity
Relative Valuation
Comparable firm selection
Beta
Growth
Route structure
Size
TEV and Equity multiple analysis
Equity value of $4.01 billion using EBITDA multiple
Calculating the WACC
Cost of Debt
UAE sovereign risk-free rate: 2.93%
Altman Z-Score Rating: BBB+
After-tax cost of debt: 4.28%
Cost of Equity
Built-up Beta: 0.87
S & P IFCG Market Return
Cost of equity: 7.79%
WACC: 5.48%
Discounted Cash Flow Valuation
Cash flow estimation
Margin analysis
5-year projection
Equity Value: $4.72 Billion
Relative Valuation: $4.01 Billion
EVA: $39.5 million
Route Expansion
Should Emirates Airlines add a direct flight between New
York and Dubai to its route structure in 2004?
Project Valuation
Determining Discount Rate
Adjusted beta for added risk = 1.37
Estimating Cash Flows
Malaysia Airlines Newark-Dubai revenue percentage
Costs based on Emirates current route structure
Initial Outlay – Utilization percentage multiplied by cost of
Airbus A380-800
DCF Valuation
Present Value of Cash Flows$ 192,749,220.28
Initial Investment $ 220,930,232.56
Net Present Value $ (28,181,012.28)
Emirates Airlines should not
begin flying to New York in 2004
Option to Delay for One Year
Begin operating New York Dubai route now or delay for one year
Time 0 Time 1 PV of future cash flows Totals
$11,978,026.41 $359,592,483.73 $371,570,510.14
$11,451,268.08
$11,749,001.05 $352,716,910.43 $364,465,911.48
Option Value if delay and lose first period cash flow
$ 138,662,251.17 Option Value
=153,698775.52*.17
1.0293
NPV to Delay $22,227,991.30
$0.00 NPV to begin NY-Dubai $ (28,181,012.28)
The value of the option
suggests that Emirates
should delay the New
York to Dubai route for
one year.
Conclusions
Emirates Airlines is a profitable company that consistently beats
industry standards by emphasizing quality service and pursuing
strategies that appear to contradict what majority of carriers follow
Route Expansion between New York and Dubai should begin in 2005
Thank you for flying with
Emirates Airlines!
Questions ?
His Highness
Sheikh Ahmed bin Saeed Al-Maktoum,
Chairman