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Collusion over our heads

MEA, minister prefer ‘open skies’ be closed

by Zak Brophy

Protesters burning tires on the airport road and the tit-for-tat kidnappings gripping the nation’s attention may justly be blamed for diverting planes and visitors away from Lebanon. However, protectionism and expedient political maneuvering may be responsible for a more insidious affliction in the country’s civil aviation, and the saga at Beirut airport surrounding one relatively minor executive jet operator perhaps best illustrates the culture dominating the sector.

Not welcome

Imperial Jet was established in Germany in 1983 but decided to set up a regional hub in Lebanon in early 2006. Other aviation hotspots in the neighborhood — such as Dubai, Saudi Arabia or Jordan — may have seemed like more logical choices but “Lebanon was underserved,” says Mohamed Alem, board member and external legal advisor to Imperial Holding. “It’s a great strategic location and it wasn’t really on the international aviation scene. We felt we could make a difference.”

Within a couple of years the company had consolidated itself firmly within the Middle Eastern executive aviation sector and from 2006 to 2008 bought nine aircraft, representing an initial investment of close to $200 million. Imperial Jet, either by good fortune or by shrewd assessment, had set up shop in Lebanon at a time when the aviation sector was on the up. The national carrier, Middle East Airlines (MEA), had been turned from a hemorrhaging and bloated beast into a multi-million dollar profit-making company, an aviation law had been passed by Parliament, the airport had been expanded and Lebanon’s aviation sector had been liberalized with the adoption of a complete Open Skies policy. Former Prime Minister Rafiq Hariri’s relentless pursuit of profits and ambition to restore Lebanon to its former glory as the region’s foremost business hub was the driving force behind these developments.

However, despite their promising start, by late 2008 Imperial Jet’s fortunes in Lebanon had begun to turn as relations with the authorities took a nosedive. Among the planes the company operated was a Boeing 737, which the Directorate General of Civil Aviation (DGCA) ruled was not fit to fly to Europe. When the company challenged this move at the Shura Council — Lebanon’s highest court and the legal body that determines the constitutional and legal authority of governmental decisions — the DGCA struck the Boeing 737 from the national register, meaning no airline could fly this model in or out of Lebanon. Again, Imperial Jet challenged this at the Shura Council.

Alem says when it became apparent that Imperial Jet was going to put up a fight, all of the company’s operational licenses at Beirut Rafiq Hariri International Airport, including two Air Operating Certificates (AOC) and one Fixed Base Operation (FBO), were revoked. “Somewhere between the Ministry of Public Works and Transport and the DGCA somebody decided that no matter what, they were not going to allow us to operate,” says Alem.

 

Friends with benefits

The head of the DGCA during this period was Hamdi Chaouk, a Lebanese aviation expert who had spent 30 years working in civil aviation in Australia, America, Europe and Dubai before returning to Lebanon in 1999. Hariri put him at the forefront of the restructuring of the Lebanese aviation sector and he stayed in his post at the DGCA until late 2010. The initial reasoning for revoking the licenses was, according to Chaouk, because of a series of management problems at Imperial Jet in which key posts, such as director of operations, chief pilot, director of maintenance and director of quality — all of whom are named on the AOC — were often changed and sometimes left vacant without the DGCA being informed.

However, after they were stripped of their licenses he admits the company got their act in order and fulfilled everything that was obliged of them. Chaouk says he advised his boss, the Minister of Public Works and Transportation Ghazi Aridi, to reinstate the company’s licenses, but such was not to be.

“It changed from being a technical problem to becoming a political issue completely,” argues Chaouk.

The company continued to fly to and from Beirut via the European arm of the business and on a German AOC until the DGCA made the decision to stop granting landing rights to Imperial Jet Europe. Despite two Shura Council decisons in favor of Imperial Jet regarding the European flight ban and the deregistration of the Boeing 737 as well as two interim rulings for the suspension of the DGCA decision to revoke the company’s licenses, no Imperial Jet aircraft is permitted to land at Beirut airport. The company claims this deprives the airport of what would be millions of dollars in annual airport fees. While Imperial Jet still has its headquarters in Beirut it is solely an administrative hub of some 70 staff.

It is not so much the technical or legal intricacies of the struggle between Imperial Jet and the Lebanese aviation authorities that is most illuminating but rather the cause of the dispute. Imperial Jet argues that there are two main reasons: First they gripe that they did not enter into the Lebanese business of “making friends” within the administration and making sure the right people got their cut of the pie. While Chaouk would not divulge details, he conceded that Imperial Jet was in the end targeted for personal and political reasons as opposed to any technical or professional rationale.

What is more, the company complains that there is resistance from the Lebanese companies operating at the airport — many of whom are affiliated with powerful business and political figures — to foreign outfits muscling in on the sector. “All of the talk of attracting foreign investment into Lebanon is false and misleading,” quips Alem.

Indeed, Captain Mohammed Aziz, spokesman for MEA, says, “If you completely open up the market, lots of people from outside Lebanon will come into the market and invest money and kick you out in no time.”

 

The man at the top

While Chaouk was head of the DGCA signing the papers that were squeezing Imperial Jet off the runway, the ultimate authority was coming from Minister Aridi. When challenged on why, despite the Shura Council rulings, Imperial Jet had been denied use of the airport — from ground handling to airplane management — the minister refused to offer details. Nonetheless, his resolve was unequivocal. “I know the file very well, and I have taken the decision and I am insisting on keeping on the same way. This is my decision,” said Aridi, before slamming the table.

Imperial Jet’s tribulations in Lebanon are perhaps indicative of a change in the philosophy and management of the whole of the aviation sector, one that is stifling its development. Chaouk, one of the principal architects of Lebanon’s aviation revival, says he eventually resigned in frustration  from the DGCA in late 2010. Watching his vision of liberalizing Lebanon’s aviation sector get squashed, under what he claims is political interference and self-serving protectionism, led to his eventual bowing out of office. In any case Chaouk argues that his role as the head of the DGCA was eventually stripped of virtually all authority, which he claims left him for the last few years of his tenure, “with my hands tied.”

When Lebanon signed up to the Open Skies agreement in 2001 it included the 5th freedom, which meant there were to be no limitations on the flights offered to and from Lebanon on the basis of airline, type of airplane or number of seats. While this policy was applied for several years it appears that Lebanon is now regressing on this commitment. “We went from a very open system to one that is practically implemented in line with MEA’s desire to reject flights it sees as a challenge,” gripes Chaouk. “We are not following the Open Skies policy but we are selective on the whims of MEA.”

The reach of MEA

Banque du Liban, Lebanon’s central bank, is the 99 percent owner of MEA, and yet the company is still listed as private. In addition to the airline, under the MEA umbrella are also MEA Ground Handling (MEAG), Middle East Airport Services (MEAS), Mideast Aircraft Services Company (MASCO), as well as a 77.5 percent stake in the airport’s primary catering company Lebanese Airport Catering Company (LACC). While not all of these companies hold a monopoly in their field of operations at the airport, it is clear that MEA’s interests extend into every corner of operations at Beirut airport.

Management at MEA, however, deny there is any resistance to competition; indeed they say they welcome it. Captain Aziz claims that the reason many companies have stopped flying, or at least cut back on their routes to Lebanon, is not so much because they have been refused the routes they requested but rather there simply is not the market there to maintain them. “MEA is always open to competition when it is fair competition,” he says. “There are a lot of competition and anti-trust regulations and if the licensing and the Open Skies policy is followed in accordance with these regulations then MEA has no problem.”

Regardless of their approach, what is perhaps most disconcerting is the power MEA has come to wield over the decision-making process for the sector as a whole. By the minister’s own admission, it is MEA and the DGCA that now make the decisions regarding who gets to fly in and out of Lebanon and when. According to Chaouk, affording MEA this authority is in complete contradiction to Law 442, which pertains to the aviation sector and was passed by Parliament in 2002. It is important to note that since Chaouk’s resignation, which is yet to be accepted by the government, the president of the airport is sitting as merely an acting head of the DGCA and therefore lacks the same clout that Chaouk had, even with his “hands tied”.

 

The damage of the status quo

Indeed, in recent months the Minister of Tourism Fadi Abboud has locked horns with the MEA President Mohammad Hout and Minister Aridi, claiming they are resistant to opening up routes for budget airlines because they are fearful of the competition it will bring. “Lebanon is losing valuable tourism dollars so MEA can profit,” reasons Michel Habis, advisor to Minister Abboud.

There is potential for a very damaging blowback for Lebanon’s aviation sector from these trends. If the country starts adopting protectionist measures that hurt foreign airlines or if foreign airlines, such as Imperial Jet Europe, are targeted for patently personal and political reasons, then foreign aviation authorities can play tit-for-tat against Lebanese airliners. “There is a chance that if any airline operator felt that Lebanon was not implementing its bilateral agreements properly or not really treating all airlines fairly, they can always take certain measures to upset the whole issue,” explains Chaouk.

Whether anybody is still paying any heed to Law 442 is further brought into question by the fact that the legislation stipulated that an autonomous Lebanese Civil Aviation Authority (LCAA) must be created to regulate the sector. Almost 10 years later and no board has been appointed to the LCAA; Minister Aridi assured Executive that by the time this story was printed the board would have been named; no board had been appointed, however, as Executive’s September issue went to print.

“The creation of this body would lead to the autonomy of the LCAA as a regulator, which would kill the existing political decision making within the organization,” explains Chaouk.

The vitality of Lebanon’s aviation sector feeds the economy by acting as a lifeline for business, trade and tourism. The case of Imperial Jet hints at how the business culture of “making friends” and having the right connections is hobbling a real growth. Aviation in Lebanon should not be another closed club in the economy profiting a small clique of the nation’s rich and powerful — the wealth and opportunity they are hoarding harms not just the prospective tourist or businessman, but Lebanon as a whole.

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Zak Brophy

Zak Brophy was Executive's Economics and Policy Editor from 2011 until 2013.
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