Royal Jordanian could be targeted by Gulf carriers in merger speculation

Bloomberg reported today that RJ – part of the Oneworld alliance – had said a merger with a larger carrier is inevitable as high fuel prices, competition from local rivals and a sluggish economy squeeze earnings.

The financial agency said that While Amman-based Royal Jordanian, founded in 1963 and one of the Middle East’s oldest airlines, has no concrete plans for a transaction, it views consolidation as “a must,”  according to the airline’s CEO Hussein Dabbas (pictured below).

Industry analyst Saj Ahmad said: "If Royal Jordanian is seeking out suitors, one that would look a good fit is Etihad. Partly because of their connection and ownership of another oneworld partner, Air Berlin, but going forward, the synergies from an operational and crew perspective would be much greater. All three carriers are operators of A320s and all have 787s due to enter service in a few years - but critically, Royal Jordanian has been looking at routes and curtailing and dropping destinations as it seeks to make profitable its network points that have, like other airlines, had profit eroded due to fuel costs.”

Etiihad is believed to be keen in getting into an alliance and at last month’s Aviation Outlook conference in Dubai, speakers claimed the deal could be done within the year.

Qatar too could be in the frame. It has been monitoring the Etihad investments. Last year it took 30% in the European cargo carrier Cargolux and is believed to be increasing its shareholding to 49% soon.

But Ahmad sees there are other alternatives as well. “British Airways' parent, IAG, may also be a suitor, especially now that it too has won BMI and will likely use those slots at Heathrow to launch more routes to the GCC, Asia and North America - but it's unclear just what Royal Jordanian can offer, particularly as it needs a big capital injection to pay for new airplanes and revamp its services. A shrinking network will concern buyers - that said, a tie up with a GCC-based carrier may be easier to enact given cultural and political similarities, whereas a foreign stakeholder may not share the same vision that Royal Jordanian does. The jury is clearly still out as to whether the carrier will merge, buy or be bought out - however, the admission by Hussein Dabbas about consolidation leads me to believe he wants something to materialise out of mutual co-operation, rather than be on the receiving end of a predatory move.

 “There's been little interest in investing in the GCC from outside the region - just a token interest in the recent moves by Saudi Arabia to open its airspace, almost no interest at all in Kuwait Airways or Gulf Air as they both languish - if Royal Jordanian can link up with one of the big "Arab Three", that may just guarantee their long term survival," Ahmad said.