I LOL'ed hard at this. 101 pages later and you're *still* basing your argument on "nobody wants to visit Dubai" :confused:

Yeah, because EK is only looking for DXB O/D traffic...
Do you have the faintest idea about EK's route network? Have you ever heard the term "connecting traffic"? Have you ever flown on EK?
Since when are you interested in facts?

Like I pointed out some months now..., looks to me that you finally joined the folks with balanced opinions. Welcome!

Oman Air CEO Gregorowitsch on AlJazeera the other day confirmed the fact that every state owned airline received massive massive amounts of Government support during certain stages of their existence.

He also mentioned the most important point and main reason for the cont. financial support for the ME3 despite horrendous losses from operations.

He pointed out that Oman Air is responsible for $1 billion in add. economic surplus for Oman. As long as the losses from running the airline are lower than that the owner seems to be happy.

Once again, this is the main reason why airlines operate certain routes, airports support certain parts of their operation and Governments spend massive amounts of their tax income to support basket-case airlines.

At the end of the day, someone figured out that there is a reason and that under the bottom line someone should benefit from flying backpackers around the planet. Some people (mostly from certain parts of the world) might even conclude that such an operation is "profitable".

No need to make snide and inaccurate comments another other posters: edy4eva clearly, judging by his post history, is forming rational, fair and balanced opinions based on the facts presented to him. Balanced doesn't mean he can't have strong views on the subject, it means he has taken into account everything presented to him, regardless of whether it fits any preconceived narrative - in fact, balanced means he comes to the thread with no preconceptions whatsoever.

He has already acknowledged the substance of your point (for example here on page 23, months ago http://www.flyertalk.com/forum/emira...l#post23987715), and given his reasons for why he believes it should not be counted as government expenditure (as it's not budgeted or run by the government).

Please define "massive, massive" - EK did indeed receive support: cash to start up, planes to start up and having some facilities constructed for it. It also received ancillary support in the fact that the government wanted to promote aviation and therefore built airports to try and spark that. It is not as if EK is the only user of these airports - FedEx for example established their DXB hub in 1998 - as a regional hub for ME, Indian Subcontinent and Africa. https://smallbusiness.fedex.com/cont...binars/UAE.pdf. In fact that pdf might help the OP with his view that DXB is in the middle of nowhere: "mid-way between Asia and Europe connects more than 120 shipping lines and 100 airlines to 140 global destinations", according to FedEX.

How do you back up the claim that there are "horrendous losses from operations"? That is a strong claim to make with no evidence to back it up, considering there are plausible other scenarios (major losses...minor lossses...break even...minor profits...etc. etc.).

No one at all denies that this is a state capitalism strategy, and far be it from a situation where readers are being enlightened as to it being a "new thing" - everyone reading this thread already knows that. It is an obvious, time-tested strategy.

Readers of this thread also have another question which is, given state capitalism means you need a lot of money to prop-up inefficient businesses, where does Dubai get the money from? Oman is a petroleum state - over 70% of its exports come from the Oil and Gas industry. Dubai doesn't have this, and its government, which doesn't budget for EK, runs at either a deficit or a slight surplus. The thesis is that Dubai has been giving EK money for decades to cover "horrendous losses" - but if Dubai hasn't got the money, why hasn't EK stopped operating or cut back, if it's losing so much money?

As noted above - borrowing money to pump into EK, for EK to ignite an economic surplus from which Dubai would have levy tax revenues to fund both the borrowing costs and continued cash injections for EK would mean that Dubai would need absolutely stellar GDP growth rates - at least 8-10%, year on year, to continue this support, as the tax take as a percentage of GDP in Dubai is only around 13%. But GDP growth in Dubai is nowhere near that. How can it continue to borrow to fund EK when debt is already extremely high - over EU levels.

Why the fixation with backpackers and your characterisation of them as unprofitable customers - when evidence from this century shows that plenty of companies can make money on low fares. Why can't backpackers provide adequate margins for EK?

Presumably because carriers like Lufthansa can't break even on leisure-heavy, "backpacker" routes to destinations like Bangkok (which is a huge destination for both Emirates and Etihad - if not also for Qatar - these having "stolen" the bulk of European travellers).

But perhaps the OP also considers travellers who seem to have no qualms about travelling on the superconnectors as unsophisticated, and hence presumably unprofitable, travellers.

One wonders, then, given that EK and its ilk are apparently scooping up all the unprofitable "backpacker" segment, why the established carriers are not ringing up record profits, with only high yield passengers left for them to make handsome profits from? If Emirates removes the unprofitable pax from the equation, then there must be huge margins earned by the European (and Asian) carriers on the high-yield, and premium cabin, traffic?

Well, according to an article by the Economist, the Holding Company behind Emirates (aka The Government) had debt totalling some $70 Billion already in 2009 and, even officially, the EK Group accounted for roughly 5% of the sum, $ 3.7 billion

http://www.economist.com/node/13186145

One should not forget that EK also paid the hedging losses from its cash reserves as well as the 15-20% lump sum on each aircraft they order..., each single aircraft. ;)

And they make all their cash and pay for all their massive communication activities from all the money they make flying backpackers on el cheapo Economy tickets around the world.

I have to repeat myself again, this is by far the best business model in the World (not the artificial island, I am sorry for the word play)

Let me guess, BKK is solely responsible for 80% of EK's profits or is it more like 70%

I mean charging roughly €300-400 net for a RT ticket from Europe to BKK is def. the backbone of the business model. Add India to the mix and we have a highly profitable airline.

I really really wonder why nobody is copying this brilliant idea...

You do have EY, QR and TK in the same region. Now no-one is saying EY and QR are not getting help from their governments to establish their airlines. But EK has been in operation for 30 years and the other two airlines are playing catch-up by throwing money at their ventures.

But didn't you also state that what EK is doing is nothing new? They are a super connector in the same way that SQ and CX was and KL before them (using the airline to make profits for the airport), so EK is copying other models but they are introducing a new model that doesn't work? Pick which one it is.

Indeed, if we count debt on government-owned/related entities as a whole, then EK now has even more than then: 11.4 billion USD (42.5bn AED) by last accounts.

Part of that is lease obligations - 28 billion AED (7.6 bn USD) and 10 billion AED (2.7 bn USD) in outstanding publicly traded bonds.

Before there are claims that these are fraudulent statements, clearly the publicly traded bonds exist and are listed on the London Stock Exchange, as noted in post 638: http://www.flyertalk.com/forum/emira...l-scam-43.html

For easier reference, one of the bonds: http://www.londonstockexchange.com/e...33553LUUSDCWNR

We can take the issue of leases and your statement about aircraft deposits together.

EK does not generally ever purchase its aircrafts - 190 out of 205 of its passenger aircraft are leased, 117 on operating leases and 73 on finance leases, as per their accounts. All 12 of their freighters are leased.

Therefore it is unreasonable to expect EK to put down 15-20% of the purchase price (after the EK discount of 30%+ of course) on each plane they order, as they aren't the ones buying it. If Vietnam Airlines can put down a deposit of 200,000 USD for each A350 they are buying http://english.thesaigontimes.vn/606...-delivery.html, you could reasonably expect EK doesn't have to put up 20 million USD for an A380 or 777. Indeed, being such a good customer, I would hardly expect them to have to pay very much at all for firm delivery options up front (instead of reservations).

How do we know that operating leases aren't provided in some dodgy opaque transaction? Here's an investment trust where you yourself could buy equity in some A380s that are leased to Emirates: http://www.londonstockexchange.com/e...33553LUUSDCWNR. Other lessors include Air Lease Corporation, of whom EK is a "long-term customer". http://airleasecorp.com/2015/03/09/a...200-to-iberia/ - Amedeo we've mentioned: http://www.amedeo.aero

It would be ridiculous to think that EK is paying out free cash flow and retained earnings the entire capital expenditure for aircraft delivery. They obtain financing from debt capital markets and leases over aircrafts, supported by their track record, along with various legally sanctioned state support schemes, such as Export Credit Guarantees (Ex-Im bank!).

Instead of being flush with cash being deployed on wanton expansion, EK is clearly a highly leveraged business, given its massive lease liabilities.

Now, the point about fuel hedges - without knowing more of the terms of the hedge settlement, I can't comment further other than to say that we don't know whether the 4.1 billion USD in question was the nominal value of the trade, or whether it was the margin call at the time, or whether the counterparties accepted something else. We do know however that EK had cash on hand for at least some of it, and that EK was clearly credit-worthy enough to plausibly borrow to settle any hedges, if what they claim is untrue (namely, they sold the hedge on).

Still, one fuel hedge loss is not in the same league as the accusation of billions of dollars of sustained subsidy year after year.

Taking the points in 1521 and 1522 together, I should perhaps rephrase - clearly no one is going to be making much, if anything on 400 USD fares that are 4 sectors on an A380 of 6 hours each. But given the strong loads and fare distribution data, I think we can safely say that not everyone on these planes are on "el cheapo economy" tickets (even though they may be the thrust of their marketing campaigns) - members of this forum can attest to that - and even within the economy cabin some of those fares are quite expensive. Far be it from the Dubai government subsidising this cheap travel, I think it much more the premium pax (they do exist) and DXB residents who subsidise it instead.

As to your comments about the business model - I agree with the general point, in fact: I think EKs business model is far from brilliant: it is extraordinarily capital intensive, given the financing needs to operate so many big aircraft, and the returns seem to be extremely low: net margin in the 2-3% range. I can think of far, far better things to invest my money in. No one has said that EK is highly profitable - just look at their results compared to publicly traded peers. What people are saying is that 2-3% margins means it doesn't get funded by its owners and the allegation that all their accounts etc. are fraudulent by extension doesn't seem to be supported by evidence, given the problems with that hypothesis.

However, the commoditisation of air travel marches onwards - the golden days of 10+% margins year on year by all the legacy carriers is over. Unless you can get your costs under control and give people what they want...

Yeah, I can attest to that! "Quite expensive" would be an understatement for economy fares between most US points and DXB.

Or more locally AA fly to Manchester daily. I can't believe there are 300+ people from Chicago a day who want to visit Manchester.

QED American Airlines is a Financial scam.

Or perhaps the flight is full of happy Northerners who will pay to avoid LHR

That is a great summary. If I recall correctly most failed major corporations like Enron & Worldcom had exact symptoms (highly leveraged and very low margins) just before global financial crisis.

What makes Emirates different?

You mean like Walmart started out. Highly leveraged (Those stores cost a lot.) Razor thin profit margins. No, that never works out.:rolleyes:

Sorry, I can cherry pick comparators, too. Keep trying. Perhaps you could try using data. It is what many of us are waiting for.

Is this a joke? Plucking two proper scams out of thin air and demanding proof to differentiate Emirates from them!

And for the record both Enron and Worldcom went bust half a decade before the GFC. What's that got to do with anything!!!

I don't think having high leverage and low margins necessarily indicates accounting fraud.

Enron and Worldcom, although ending up the same way were different frauds, perpetuated for different reasons.

Worldcom's fraud was directed by Bernie Ebbers - he had a lot of private business interests that were funded using his stock in Worldcom as collateral. In 2000 as Worldcom's business was starting to show issues and its stock started dropping, to keep his own personal businesses alive, he did two things, persuaded the board to loan him money personally and to guarantee his personal loans, and then he was forced to commit accounting fraud by inflating revenue and reducing operating expenses improperly in order to prop up the stock price.

Eventually after taking on so much debt (after assets were inflated by billions) to pay for all these invisible expenses like loans to the CEO and Worldcom collapsed.

http://www.sec.gov/Archives/edgar/da...htm#ex991902_2

Essentially, Ebbers was enriching himself (or at least, using the company to plug his own personal finances) at the expense of the company and its shareholders.

Enron was different, in that the accounting fraud was a systematic attempt to hide poor deals and loss making projects - and when the losses kept increasing, to use even more and more arcane methods to hide the losses from shareholders, creditors and the markets. Then the losses kept on coming. So more attempts were made to artificially prop up the stock price to avoid embarrassment (and of course, criminal charges). Hoist on their own petard, as it were. Here it was more of a case of a group of people whose own egos wouldn't let them admit they made mistakes and so snowballed the whole process into a massive cover up, until eventually the losses caught up to them.

So in order to make a similar comparison to EK, we need:
- motive for the fraud
- funding

Say for a moment there is accounting fraud going on at EK, perpetrated by the owner, the Dubai government. The question therefore is - why are owners overstating revenues and minimising losses/transferring liabilities off balance sheets, when there is only one owner of EK, themselves - and presumably all of these others entities as well. There is no share price to prop up, as it's privately owned, albeit by the state. Why are they ripping themselves off? What would be the point? For a few basis points of improved borrowing costs? It seems rather expensive and backhanded - if you have the money to prop up losses, why are you going to borrow at commercial rates in the first place? If all the accounts are only for one shareholder, why go through the charade?

Clearly it's not an issue to allow loss making airlines to carry on operations - the world is littered with loss making airlines, or state-backed airlines bailed out repeatedly; yet their access rights are still preserved. I don't think I need to point out any examples of this, I'm sure you know of a few!

So, perhaps management are ripping off the owners, trying to steal funds from the airline. But surely in this case you would understate revenue and inflate costs, in order to receive regular bailout money from the owners? Perhaps management are getting illegal kickbacks through related entities - but once again, surely you would want to overstate your costs in order to take advantage?

The next issue is the funding. Enron and Worldcom collapsed because no one had the cash and desire to give them any more money to fund operations. If the operations for EK are so loss making, where is Dubai going to get the money from to pay for continued operations. Airlines are expensive to run, and EK only has 2.7 billion dollars in outstanding bonds and not much more in loans. Clearly that isn't enough to do things like pay all your fuel costs and external creditors like international leasing companies. But we've already shown that Dubai doesn't have any money - it itself is already leveraged and has to borrow on capital markets. GDP growth and the tax base isn't strong enough to make any cash injections sustainable - so, after 30 years, one would think the scam has collapsed by now, especially having gone through a major recession where a government entity needed backing from a rich neighbour (Nakheel/Dubai World).

So, yes - EK is highly leveraged and makes low margins. Are the margins anomalously low? I would say not, considering IATA thinks average net margins in the aviation industry are going to be 3.2% http://www.iata.org/pressroom/pr/Pag...-12-10-01.aspx

Far be it from EK operating a great business plan with a licence to make money - they are doing something that is incredibly high risk, that requires exceptional efficiencies to just about work, for a low return - but a return acceptable to its owners nonetheless.

It won't take much of a black swan even to throw a massive spanner in the works (say, a serious political incident in Dubai, or an air safety tragedy affecting EK). But there is a long way from a high risk, low return business, to actual fraud.

No one is disputing that it is likely EKs owners have other objectives to the maximisation of profit. If money was the only thing they were interested in, they could invest it somewhere else (obviously). But surely it is the prerogative of a sole owner the amount of return on capital they are happy with? Rather than US3 airlines complaining that they are competing against government money, perhaps they should say that are competing against owners who are happy with 2-3% margins, whereas their own owners will be unhappy with anything less than 10%.