Thu, Feb 24, 2011
Analyst: Fuel Cost Spike Could Impact Manufactures, Leasing
Companies, Airports, Airlines
The global aviation sector was expected to make good profits in
2011, but that outcome is now in question considering the current
political situation in the Middle East region. Frost & Sullivan
forecasts this Middle Eastern crisis to hit the aviation sector
soon. The Aviation Turbine Fuel (ATF) prices account for a major
portion of the operational expenses. The crisis in the countries in
Middle Eastern states has raised the oil prices per barrel.
Assuming the situation continues, the oil prices are expected to
touch US $ 115- US $ 120 per barrel within the next two weeks which
would result the global airlines in losses for the current
year.
The Middle Eastern crisis has also restrained the inflow of
tourists into the region, especially in countries like Egypt and
Tunisia. The economies of Egypt and Tunisia are strongly supported
by Tourism and these economies are in grave danger if the tourist
inflow does not get back to normal. Another key threat is the rise
of political unrest in the region which would impact the aerospace
sector at all levels. The key area which would feel its impact is
the offset sector where the foreign investors would be reluctant to
procure from this region. The continuation of political turmoil
would also lead to a dip in the defence budgets in the region.
There is also a risk of civil war in the region which would lead to
the unstable airport infrastructure, airline operators and MRO
market apart from destabilizing the entire economy of the
region.
On advent of a civil war, it is expected that the radical
Islamic groups would venture into the countries in this region;
this is a key risk to the Western countries. The oil economy of
this region would financially support the radical groups to procure
advanced weaponry system in large scale. Libya produces about 1.6
Million barrel of oil, majority of which is exported to Europe.
Saudi Arabia would need to increase its production to cater to the
European needs, failing which the economies in Western countries
would be in a risk because the oil prices would increase. This
would risk the stability of the economy as the oil prices form a
part of the inflation.
Iran has also been restless due to the political turmoil and it
has sent two warships across the Suez Canal (Khark and Alvand) and
is expected to move towards Syria which has created a platform for
international intervene from Israel. The US defence budgets are
expected to decrease over the next few years and it would be
interesting to witness if the US would intervene, its interest in
oil reserves would force the US intervention.
However, if the oil prices continue to rise it will be bad news
for Aircraft Manufacturers, Airline Leasers, Component
Manufacturers, Airports and the MRO houses. All the associated
trade with each of these sectors would also be affected. It is
strategically important for Aerospace and Defence companies to have
a huge cash capital to acquire financially hit companies which
would add value in the long term. The political turmoil in Middle
East is a good platform for the entry of radical groups which need
to be addressed with utmost caution, failing which the entire
Middle East would turn out to be another disturbed region and would
affect the entire global economy.
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