Diversification ambitions take flight in Oman

15 October 2012

The Omani government hopes its drive to overhaul its aviation industry, along with attracting private-sector investment, will play a leading role in its economic diversification strategy

Salim al-Aufi is a busy man. As the chief executive officer of the Public Authority for Civil Aviation (PACA), he has been tasked with establishing aviation as a key growth sector to spearhead Oman’s long-term economic diversification strategy.

Al-Aufi is the first to admit he faces significant challenges in meeting this stated ambition, particularly with regard to attracting private investors to the sector.

“We should have been talking about inviting the private sector to invest in aviation services two or three years ago, so we are playing catch-up,” said al-Aufi at MEED’s Oman Investment Forum 2012 in Muscat on 8 October.

PACA was established by Oman’s Transport and Communications Ministry earlier this year to enhance the efficiency of the sultanate’s aviation industry. Although Oman’s aviation sector maintains a far lower profile than the UAE’s and Qatar’s, for example, the country plays a crucial role in the ongoing success of both rivals.

State funding

“Let me tell you a fact,” said al-Aufi. “Oman has the busiest airspace in the region, with flights from the UAE to Europe and Africa in the West, and Asia in the East passing through Omani airspace.”

Oman hopes to convince more airlines in the future to view the country as a destination in its own right. To encourage this, the government is investing heavily in its airport infrastructure. According to regional projects tracker MEED Projects, there are more than $5bn-worth of airport projects currently planned or under construction in the sultanate.

The largest of these is the expansion of Muscat International airport. In late 2010, the Transport and Communications Ministry awarded a OR706m ($1.8bn) contract to a consortium of the US’ Bechtel, the local Bahwan Engineering and Turkey’s Enka to build a new passenger terminal. The building will cover 300,000 square metres in total and is due to open in 2014.

The redevelopment will expand the airport’s capacity to 12 million passengers annually. Future planned stages of expansion will increase capacity to 24 million, then 36 million.

As work on the terminal building proceeds, other parts of the development are nearing completion. “We are close to finishing the new runway and expect it and the control tower and centre to be completed in late 2013,” said Al-Aufi.

Other projects include the development of Salalah airport in Dhofar Governorate. A joint venture of India’s Larsen & Toubro and the local Galfar Engineering & Contracting is working on the estimated $712m contract to build the terminal building.

Other airports, either being developed or to be developed in the future, are located in Sohar, Duqm, Musandam, Ras al-Hadd, Adam, Shaleem, Haima, and Al-Wusta. Oman’s tourism sector will be one of the main beneficiaries of this regional development. Tourism currently accounts for 3 per cent of gross domestic product, or RO650m annually. The government is hopeful this figure will reach 5 per cent by 2015, tipping revenues over RO1bn annually, as it develops new hotels and tourism attractions across the country.

While new and redeveloped airports will facilitate growth, Al-Aufi plans for these facilities to be a commercial success in their own right. The challenge lies in attracting private-sector investment.

“As the civil aviation authority, we are not investing,” he said. “We are a regulator, and we will do whatever we can to help [attract investment]. Unless we get the private sector involved … our projects [will not be] a commercial success.”

Private investment in Oman

There are many opportunities available for private investors, including the development of a low-cost airline. Oman’s current sole domestic and international airline is the full-service flag-carrier Oman Air, meaning there is space in the market for a low-cost carrier serving regional destinations. This model has been developed successfully in the UAE by Flydubai and Air Arabia.

Al-Aufi would like to see a low-cost Omani airline compete with both. “There are low-cost airlines flying into Oman, so why not have one to compete with them?” he said.

Other aviation opportunities are wide ranging. A helicopter service could be developed to travel to more remote regions of the sultanate not easily accessible by road. Similarly, a flying boat service could create routes to remote coastal settlements on the Musandam peninsula or transport tourists to isolated coastal resorts.

On the ground, investment opportunities include a private-sector duty free operator, the development of freight and logistics companies, maintenance, repair and overhaul services for aircraft, and local car hire services.

As Oman moves closer to completing its airport infrastructure, the private sector will be increasingly aware that the sultanate does offer significant opportunities for businesses serving the aviation sector. If that can be converted into actual investments, then aviation could quickly become one of the country’s most exciting areas of economic growth in the coming years.

In numbers

$5bn: The value of all airport projects currently planned or under construction in Oman

RO1bn: Oman’s annual revenue target for its tourism sector by 2015

Source: Meed Projects; Oman Ministry of Tourism

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