By Manoj Nair, Associate Editor www.gulfnews.com
For someone enjoying such a vantage position in the global aviation industry, Gary Chapman does not give in to flights of fancy.
The president of Dnata, which provides a slew of services from ground handling, ticketing to catering, much prefers outlining a vision that’s grounded in stark reality and backed by measurable goals.
“People often ask us why we are doing all these other things, but it never started off like that,” Chapman said in a recent media briefing at his voluminous office at the Emirates Group headquarters.
“At one time, our core business was a travel agency and the ground handling.
“As we acquired other businesses, there was a risk that if you were not careful, you could end up missing a beat and taking the focus off the core business,” he said.
“Emirates’ has been a fantastic growth story. In the next ten years, we are going to go from 150 aircraft to 250. But you also have to look at Brand Dubai when you talk about Emirates.
“Yes, it’s going through a difficult time, but the core values remain the same. Emirates will be a global airline with a global reach and one of the powerhouses of the aviation industry. It’s one even now.”
Chapman’s office walls are stacked with memorabilia that suggests a professional life closely tuned to the growth trajectory the Emirates Group had in its 25 years of existence. Its a vastly different situation from when he joined it in 1989.
“I was working in Kuwait, and a friend who was a banker said to me there was a job going in Dubai at a small airline. I was looking for a change at the time,” Chapman said, casting his mind to a point in the distant past.
“When I joined in March 1989, my predecessor had left three days before I arrived. I had no formal handover. Having not worked with an airline, it was quite interesting. I guess I picked things up as I went.
“Since I hadn’t done it before, I probably did a better job than when I got to know about it. Since you tend to challenge everything, you ask questions. In fact, that was not a bad position to be in and it’s amazing what came out of that process.
“That was what I did initially. I was here for six months when they said we need to improve the procurement function, which I did. Over the years, there have been other changes and additions to the portfolio.”
“Some of the functions that I did before, I don’t do any more. We have rationalised and restructured. It’s going to change again the way we are going.
“When I joined 21 years ago, Dnata was in fact the biggest part of the business. It’s interesting to see over the years that change. Emirates has obviously grown phenomenally. If anyone told you 20 years ago they knew it was going to be what it is today, I would have said they are stretching it.”
But stretching the possibilities of what can be achieved has become a default setting with the Emirates Group. When every other airline was hunkering down in the immediate post financial crisis phase, the group went out and placed more aircraft orders and leveraging competitive deals out of the manufacturers.
That it’s cash-rich has a got to do with the self-belief, but just as pertinently is the need to look at prospects beyond the present.
“We are entering a new league because we have to finance 24 to 25 aircraft per annum for the next six years,” Chapman said. “That’s substantially more than we had to do in the past. In the context of that, we will look at all the options.
“There are the traditional financial institutions and there’s export credit which are promising. Dnata is part of the group and continue to grow its profits. We are seen as being very bankable businesses.
“Moreover, Emirates probably has got the best rating of any airline in the world. The financial position is very robust – if you have been on a flight in the last three or four months, you would probably have noticed there weren’t too many spare seats, if any.
“As a group, we had Dh12.48 billion in cash at the end of March and will have no problem at all in arranging the financing. We had mandated and financed all the aircraft through this financial year, it’s all in place. That side of things we feel quite comfortable.
“The aviation industry in general is doing pretty well. Emirates because of its network, the strength of its product, its brand has really come to the fore. We went through an uncertain time after September 2008, but for the last 18 months instead of cutting back, we continued to invest in the product and we are bearing the fruits of that.”
But Chapman does not believe the time has come for seeking a formal credit rating. “It [credit rating] brings with it other things as well, it can be a bit intrusive. As you mature, I think that there will be a time when a rating is potentially needed. At this moment, we don’t have to.
“But I have no doubt that if we seek a credit rating, we will have the highest in the airline industry,” Chapman explained.
On the ground, there’s a lot more Dnata will be getting into over the medium-term. There are all the future requirements that will need to be filled in at the Al Maktoum International Airport. A ramp up in Dnata’s exposure to the new facility has already started.
“You will have more carriers seeing the advantages of moving to Al Maktoum, the first phase of that is the freighter business, a second will be the low-cost carriers and charter operators on the passenger side,” Chapman said.
“We have to deal with that, but the moment you do, you need to have a major investment. You can’t go down there with a handful of people. And you probably end up with 400 to 500 people before we even blink.”
“We will respond to the growth of the airport; obviously we are now managing the cargo side. When the airport moves to the passenger operations, that’s when the large numbers are required.”
Emirates Group’s overwhelming stature on the global aviation firmament has a lot to do with the near symbiotic relationship between the airline part and that managed under the Dnata umbrella. Chapman is emphatic that a fine distinction exists.
“While we are very integrated in many respects, in others we are not. Emirates is a customer of Dnata, and certainly in Dubai, it’s our biggest customer. So when you have a customer-service provider relationship, it changes the dynamics.
“You have to be as transparent as you would be with any independent customer. That’s quite challenging because Emirates is growing so fast. The necessity to make sure that Dubai works as a hub for Emirates is crucial to the Group’s success. You [have] got to have a functionally efficient hub because that drives everything.”
“It was five years ago that it was decided Tim Clark would take responsibility for the airline and I would continue to manage the group services – finance, IT, the HR functions, Dnata and the other businesses. I created a small management team to handle all that,” he said
“But I can’t be involved in MMI [a trading and distribution company the Emirates Group acquired] and have a completely different set of values from the Group’s values and that of Dubai’s. “There are loads and loads of opportunities, and if you demonstrate capability and deliver, you are given freedom. It gave us the opportunity do other things – we branched into other businesses, we have made acquisitions. It can’t stop. Once you stop, you stagnate. That’s not what we do. With any organisation, the freedom to act is important. We have that freedom.”
And with that comes the freedom to soar, for the Emirates Group, that’s true literally and otherwise.
Cause for concern
In recent weeks, the UAE’s leading airlines, Emirates and Etihad, have had to weather a fair bit of flak from European carriers over the perceived advantages enjoyed by them on multiple counts. Gary Chapman for one can’t make out what the fuss is all about.
“We are continually challenging the status quo – That’s causing concern amongst our competitors and they see us as a threat,” Chapman said. “Rather than bash us in the press, they will be better off looking at their own business.”
“That’s where their focus should be. It’s where our focus is on – to run the business in the best way possible. We need to do what we believe is right for our business.”
Chapman believes the immediate future for the global aviation industry looks healthy on all counts. But that does not mean there will not a fair share of crises that it – and the carriers – will have to take on and overcome.
“We have had plenty [crises] in the past and we have dealt with them. We believe the aviation industry will continue to grow, but it won’t be a straight line.”
Chapman is no stranger to crises. “About a year after I joined, there was the situation over Kuwait [in 1990] and the whole region was put by the insurers as a war zone. Airlines that wanted to fly into Dubai had to pay $50,000 a flight as insurance premium.
“Now, if that had applied to Emirates, it would have put us out of business. We went to London to meet the underwriters, explained to them what the reality was, how we were managing the fleet and exposures. In the end, we didn’t have to pay the insurance premium.”
In the years since, there have been other situations, but Chapman’s credo on how to overcome them has not changed. “The way to deal with problems is to do so quickly and logically and not get caught in the headlights,” he said.
And it helps when: “We have a workforce that looks at things from a half-full perspective, [rather] than from a half-empty one. Unfortunately in certain parts of the world that may not be the case with everyone. A can-do attitude and a can’t-do attitude make for a tremendous difference.”
“The strength of our global network will continue to grow. We are adding more flights to Houston, Los Angeles, there will be more destinations. It can’t stop. Once you stop, you stagnate. That’s not what we do.”
“We are not followers, but the leaders.”And all in a day’s work for Gary Chapman.
— M. N.
On the acquisition trail
Dnata is back on the acquisition trail. Earlier this month, it set the process in motion for the buyout of Alpha Flight Group, a catering company with revenues of £360 million (Dh2.08 billion) and a strong presence in Europe.
“We are always on the lookout for new acquisitions – let’s face it, the aviation industry at the moment is very buoyant, cargo is strong though it’s coming off a very low base compared year-on-year,” said Gary Chapman, president of Dnata.
“We are always looking for new business, our Australian operations are going incredibly well. The plane handling operations we acquired in Heathrow and Manchester last year has taken on new clients.”
“We had some consolidation work to do there; there’s a cleansing process to go through, these things take time because you are working in an environment where practices are well-established. It takes time, but it’s largely complete.”
Chapman does not believe the current global economic climate makes further acquisitions any easier by way of what it would cost Dnata. “If we see a niche where we can get a decent return, if it’s a business in line with our aspirations in terms of quality and standard, if we can take and improve it, and the environment allows us to do that, then we would be interested.”
Chapman is equally sanguine about the level at which fuel prices are hovering now. “We see prices in a trading range of where they are today. I don’t see them going below $60-$65 on the downside and on the upside between $65 to $85,” he said.
“We have a fuel risk management programme that’s been quite successful. Along with most airlines, we were caught out a bit in 2008 when the price crashed from $140 to $38.”
“When I joined fuel used to be about 9-10 per cent of an airline’s cost. Now, it’s about 30 per cent and a significant cost factor.
“Yes, if fuel prices fall substantially, that’s good for the airline.”
“To get a situation where you have a strong pullback in oil prices, it will be one where world economies are in disarray. Yes, there will be lower oil prices, but probably lesser number of people travelling and lesser yields. It will not be a positive in the longer run.”