RIYADH, Saudi Arabia — This oil-rich kingdom unveiled a new international airline called Riyadh Air, which aims to compete with a handful of other Middle Eastern carriers that have used its geography to build world-class airlines and cater to business travelers and tourists to attract.
Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, is about to commit to a bulk order of Boeing Co. BA 0.91% jets to prop up the new airline, the Wall Street Journal first reported over the weekend. A deal that could be announced as early as this week would be a boon for the planemaker and a big bet by Riyadh that it can compete in an already crowded regional aviation market.
The new airline – and the billions of dollars in jet purchases it will require – comes as Saudi coffers swell on higher crude prices. The windfall has helped Crown Prince Mohammed bin Salman spur some of his most ambitious efforts to diversify the economy from the booms and busts that accompany its prodigious oil industry.
Separately, Saudi Arabian Oil Co., better known as Aramco, on Sunday reported record annual profits of $161 billion for 2022, the largest ever by an energy company. The record profits reflect a turnaround for the industry – and petrostates like Saudi Arabia – after the Ukraine war pushed up oil prices and upended commodity flows.
With the extra money, Prince Mohammed has more financial flexibility to try and fulfill years of promises to transform Saudi Arabia into a regional business and tourism hub. Some of his most lavish plans were met with skepticism by critics.
By branching out and creating a new airline, Riyadh is also challenging a market long dominated by its smaller neighbor, the United Arab Emirates. The two have long been close allies in regional and oil politics – as key members of the Organization of Petroleum Exporting Countries. But lately, they’ve clashed over a number of issues.
At the same time, Saudi Arabia has tested its historically close ties with the US during the Biden administration, pushing to exert more regional influence of its own and to court larger powers like Russia and China as a counterbalance to decades of American hegemony in the Persian Gulf. On Friday, Saudi Arabia and Iran agreed to resume diplomatic ties in a China-brokered deal, underscoring Beijing’s growing influence in the region.
Saudi Arabia first announced plans for 2021 to launch a new regionally based international airline. Emirates airline, Qatar Airways Ltd., controlled by the Emirate of Dubai in the United Arab Emirates. and Gulf Air of Bahrain have for years used the location of their home airports to establish themselves as long-haul airlines for travelers between Asia and Europe and to and from North America.
Dubai and Qatar have also used their airlines to transform their small desert emirates into world-class tourism hubs. Last year Qatar hosted the World Cup. Dubai, on the other hand, has spent decades building an industry of luxurious and more affordable resorts and hotels that have proved popular with European tourists.
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Saudi Arabia faces potential challenges as a newcomer despite their deeper pockets. The existing Middle East airlines compete fiercely with each other. Some have struggled: Etihad Airways, backed by Abu Dhabi, also part of the UAE, could not effectively differentiate itself from the region’s already established players and expanded globally.
The potential Boeing plane order is estimated at about $35 billion, according to people familiar with it. It could not be determined whether this included the usually large discounts that aircraft manufacturers give their customers.
Boeing and Airbus SE have been fighting over the Saudi deal for months, people familiar with the matter said. A potential Saudi order is said to be for up to 100 aircraft or more, according to people briefed on the competition.
Aircraft deals may involve a mix of confirmed orders and options to purchase additional aircraft at a later date. They can also fall apart in later stages.
People familiar with the package said the mix is expected to include wide-body jets commonly used in long-haul international flight. On its new website, Riyadh Air said it is looking for pilots for new Boeing 787 Dreamliners.
Saudi Arabia had previously said it plans to create a second national airline as part of a broader agenda to create new non-oil sectors of the economy. Saudi Arabian Airlines, known as Saudia, currently serves as the country’s flag carrier.
Saudi Arabian Airlines, known as Saudia, serves as the country’s flag carrier.
Photo: Mi News/Zuma Press
The government has earmarked $1 trillion over the next decade to transform the kingdom into a mass tourism destination after many years of self-imposed isolation. A burgeoning cruise sector, luxury Red Sea resorts and desert eco-lodges are all in the works. A second international airport in Riyadh is also being planned.
The new airline will “take advantage of Saudi Arabia’s strategic geographic location between the three continents of Asia, Africa and Europe, enabling Riyadh to become a gateway to the world and a global destination for transport, trade and tourism,” according to Saudi Crown Prince Mohammed bin salman said sunday.
Tony Douglas, who led Etihad for five years, has been appointed Chief Executive of Riyadh Air. Yasir al-Rumayyan, the governor of the public investment fund, will chair it.
The deal, if finalized, would mark another major aircraft order for Boeing in recent months, following a major order from China for Airbus and some high-profile departures from loyal Boeing customers.
In February, Air India Ltd. a total of 470 jets at the US aircraft manufacturer and its European competitor. Participating in the announcement of this deal were President Biden, Indian Prime Minister Narendra Modi and French President Emmanuel Macron.
The deal with Air India, which included 220 new Boeing aircraft, was the largest commercial aircraft order in aviation history and was valued at around US$85 billion based on list prices of the aircraft, which exclude customary discounts. United Airlines Holdings Inc. said in December it would buy 100 787 Dreamliners from Boeing in a deal that included orders for the manufacturer’s smaller 737 MAX narrowbody jets.
Write to Stephen Kalin at [email protected], Summer Said at [email protected], and Andrew Tangel at [email protected]
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