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 غ Middle East Region Overview United Arab Emirates
Political
Social
Economic
Airline Industry
Company Overview
Emirates Airline Valuation
Project – New York/ Dubai Route
Conclusions
Q&A

4. 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

5. 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

6. Political Structure “It’s all in the family”
غ Federal Supreme Court, Supreme Council, Cabinet of Ministers, Parliamentary Body, Federal National Council and an independent judiciary
غ President: Sheikh Zayed bin Sultan Al Nuhayyan, ruler of Abu Dhabi
غ Vice President & Prime Minister: Sheikh Maktoum bin Rashid Al Maktoum, ruler of Dubai
غ No political parties
غ Ruling families
“It’s all in the family”

7. 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

8. Economic Structure غ 2001 GDP: $67.6 bn or $21,000 bn per capita
غ 70% of government revenue from oil production
غ Free zones
غ Dirham pegged against dollar
غ Uneven oil distribution among 7 emirates
Markets
Dubai Financial Market (DFM)
Abu Dhabi Securities Market (ADSM)
= 3.67

9. US & UAE Relations
غ Established formal diplomatic relations since 1974
غ Goal: security assistance and the shared commitment to security and stability of the Gulf region
غ Link of petroleum
غ Gulf War
غ September 11th: UAE severed its ties to the Taliban

10. 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

11. Airline Industry
History
Conflicts:
Economy
Terrorism
War in Iraq
SARS

12. Costs
Labor
Aircraft maintenance
Debt servicing
Fuel
Aircraft delays

13. 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

14. Competitors

15. 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

16. 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

17. “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

18. 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 - Cost:$15 Billion
22 aircraft are Airbus largest aircraft in production- to be used for Dubai-New York route

19. 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

20. Ratio Analysis

21. 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!!

22. Relative Valuation Comparable firm selection
Beta
Growth
Route structure
Size
TEV and Equity multiple analysis
Equity value of $4.01 billion using EBITDA multiple

23. Calculating the WACC Cost of Debt After-tax cost of debt: 4.28%
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%

24. 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

25. Route Expansion Project Valuation
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 A

26. Emirates Airlines should not begin flying to New York in 2004
DCF Valuation
Emirates Airlines should not begin flying to New York in 2004

27. Option to Delay for One Year

28. Thank you for flying with
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!

29. His Highness Sheikh Ahmed bin Saeed Al-Maktoum, Chairman
Questions ?
His Highness Sheikh Ahmed bin Saeed Al-Maktoum, Chairman