Direct Competitors

1
Welcome Aboard Emirates Airlines
Fareeda Gaffoor, Janita Kanjibhai, Jennifer
Koenig, Devanshi Patel, Sara L. Yue
2
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
3
Agenda

• ? Middle East Region Overview
• United Arab Emirates
• Political
• Social
• Economic
• Airline Industry
• Company Overview
• Emirates Airline Valuation
• Project New York/ Dubai Route
• Conclusions
• QA

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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

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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

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Political Structure

• ? Federal Supreme Court, Supreme Council,
  Cabinet of Ministers, Parliamentary Body, Federal
  National Council and an independent judiciary
• ? President Sheikh Zayed bin Sultan Al
  Nuhayyan, ruler of Abu Dhabi
• ? Vice President Prime Minister Sheikh
  Maktoum bin Rashid Al Maktoum, ruler of Dubai
• ? No political parties
• ? Ruling families
• Its all in the family

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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

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Economic Structure

• ? 2001 GDP 67.6 bn or 21,000 bn per capita
• ? 70 of government revenue from oil production
• ? Free zones
• ? Dirham pegged against dollar
• ? Uneven oil distribution among 7 emirates
• Markets
• Dubai Financial Market (DFM)
• Abu Dhabi Securities Market (ADSM)

3.67
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US UAE Relations

• ? Established formal diplomatic relations since
  1974
• ? Goal security assistance and the shared
  commitment to security and stability of the Gulf
  region
• ? Link of petroleum
• ? Gulf War
• ? September 11th UAE severed its ties to the
  Taliban

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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

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Airline Industry

• History
• Conflicts
• Economy
• Terrorism
• War in Iraq
• SARS

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Costs

• Labor
• Aircraft maintenance
• Debt servicing
• Fuel
• Aircraft delays

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Industry Ratios

• Load Factor
• passenger-kilometers expressed as a percentage
  of seat-kilometers
• Revenue Passenger Kilometers the number of
  revenue passengers carried on each flight stage
  by the flight stage distance
• Available Seat Miles
• the number of passenger seats available for sale
  on each flight stage by the stage distance

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Competitors
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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

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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

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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

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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 - Cost15 Billion
• 22 aircraft are Airbus 380-800 largest aircraft
  in production- to be used for Dubai-New York
  route

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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

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Ratio Analysis
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Financial Status

• Government-owned but does not receive subsidies
• 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

1.5 Billion Dirhams!!
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Relative Valuation

• Comparable firm selection
• Beta
• Growth
• Route structure
• Size
• TEV and Equity multiple analysis
• Equity value of 4.01 billion using EBITDA
  multiple

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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

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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

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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

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DCF Valuation
Emirates Airlines should not begin flying to New
York in 2004
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Option to Delay for One Year
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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!

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Questions ?
His HighnessSheikh Ahmed bin Saeed
Al-Maktoum,Chairman