Will Dubai debt crisis affect Boeing orders?

Dubai's state-owned Emirates Airline said the debt crisis afflicting the sheikdom won't halt a surge in profit or threaten the carrier's independence and jetliner orders with Boeing Co. and Airbus SAS.

Calling the media response to the city's debt-servicing issues "hate Dubai week," Emirates Vice Chairman Maurice Flanagan said net income in the second-half ending March 31 will surpass the $205 million posted in the first six months and that earnings should reach about $1 billion next year.

"We confidently expect our second-half to be stronger than our first," said Flanagan, who helped found the airline in 1985. "You wouldn't know it from the media comment, but Dubai has a number of substantial businesses."

Dubai's DFM General stock index fell 7.3 percent today in the first trading since state holding company Dubai World said it may delay loan repayments as it struggles with $59 billion of liabilities. Emirates, also owned by Sheikh Mohammed Bin Rashid Al Maktoum, added 22 percent more seats in the first half as most carriers reined in capacity to cope with the recession.

Flanagan said in a telephone interview that Dubai's rulers are unlikely to cancel plane contracts while Emirates continues to make money and that the carrier has a detailed business plan for the expanding fleet.

"We're not being stupid about it," he said. "We don't order aircraft without knowing what to do with them."

Still, Nick Cunningham, an aviation analyst at Evolution Securities in London, said the debt crisis has called into question the ability to finance a backlog that includes 58 Airbus A380 superjumbos, 50 A350s and a number of Boeing 777s.

"It makes the A380 and A350 orders look significantly more dubious as a prospect than they were before, and they were pretty dubious before," he said. "Do I think a lot of them will ever get delivered? No, I don't."

Airbus Chief Operating Officer John Leahy, who is also the planemaker's chief salesman, said he doesn't expect Emirates to abandon existing contracts as a result of the crisis.

"We have faith in Dubai and we believe in their world- class airline," he said in comments e-mailed to Bloomberg. "They are current in all their contractual obligations with us and we are confident that they will remain so."

Boeing Middle East spokesman Fakher Daghestani said there's no change to his company's forecast of demand for 1,710 new planes in the Middle East over the next two decades.

"We work in an industry that is long-term," Daghestani said in a telephone interview. "If you look at the order backlog in the region it stretches out for 10 to 20 years. We feel that the economic growth there can accommodate this." He declined to comment specifically on Emirates.

Dubai, the second-biggest of seven states that make up the United Arab Emirates, and its state-owned companies borrowed $80 billion to fund an economic boom and diversify its economy. The global credit crisis and a decline in property prices hurt companies like Dubai World as they struggled to raise loans and forced the emirate to turn for help to Abu Dhabi, the U.A.E. capital and holder of 8 percent of the world's oil reserves.

Dubai is unlikely to sell Emirates to help raise funds or to allow a merger, Flanagan said. The company also has no plans to join any of the global airline alliances.

Societe Generale economists said in a Nov. 27 note that Dubai might have to offer Emirates as "collateral" in order to broker a bailout by Abu Dhabi, possibly via a merger with the neighboring sheikdom's Etihad Airways.

"I seriously doubt if the government of Dubai would consider a merger of Emirates with Etihad, or a sale of Emirates," the executive said. "If a sale, or partial sale, were to be considered, it would be better later."

Emirates has developed a business model based on the transfer of long-haul passengers between North America, Europe, Africa, India, East Asia and Australia that uses Dubai as a transit hub rather than a primary source of traffic. That should leave it less exposed to the vagaries of the local economy, according to the International Air Transport Association.

"Many carriers in the region, including those based in Dubai, facilitate long-haul connections," IATA spokesman Anthony Concil said in a phone interview. "This buffers their businesses from the impact of shocks in the local economy."

Steve Double, an external spokesman for Emirates, said transfer traffic accounts for about 70 percent of the total.

Air traffic in the Middle East rose 14 percent last month, the most in any region, as the industry total advanced 0.5 percent, IATA said in a statement today. The market is also the only one to show year-to-year growth over the first 10 months.