We had warned on 14 Aug 2018, that 1 Indian airline may go bankrupt and our bet was on Jet Airways.
Due to all the politics and reality behind the scenes and the massive losses due to loans given by Indian Govt owned banks, somehow this airline has continued to remain alive so far but we give it no more than a few months before it will shut down.
Etihad just declared a massive loss for the 3rd year in a row totaling USD 4.8b in 3 years and has sold several planes last year, laid off employees, cut passenger benefits and is bleeding heavily with it's past investments in airlines around the world and has defaulted on a bond guaranteed by it.
Things have gone bad to worse and now Jet Airways has shut all it's flights to their hub owned by their partner and shareholder of 24% of Jet Airways, to Abu Dhabi.
Jet has not been paying it's bond holders or bank lenders, nor their employees, their lessors have taken away dozens of their planes, while, Etihad has a terrible track record of not supporting their own partners like Alitalia and Air Berlin. Air Berlin has even sued Etihad, Abu Dhabi.
A total of 64 planes out of 119 in the fleet of Jet Airways are grounded which is 53.78% of all planes. Hundreds of flights have been cancelled across India and international destinations.
Now, Jet will shut due to a stalemate with Etihad, one can see the animosity and vindictiveness between the 2 partners whereby Jet has shut all flights to Abu Dhabi's airport as well effective immediately today.
In addition, all airlines globally, have the Boeing 737 MAX problem. All 737 MAX planes of Jet Airways have already been repossessed by their lessors for non payments.
As many as 35 airlines have completely shut flying to Dubai airport. The list is below:
Taag Angola Air
Afriqiyah Airways
Air Malta
Alexandria Airlines
Djibouti Air
Equatorial Congo Airlines
Eritrean Airlines
Euro-Asia Air
Georgian Airways
Iran Aseman Airlines
Jordan Aviation
Jupiter Airlines
Kabo Air
Kam Air
Kyrgyzstan Air Company
Libyan Airlines
Nordstar Airlines
Primera Air
Qantas
Sudan Airways
Taban Air
TAROM
Transaero Airlines
Tunisair
Uzbekistan Airways
All the above have shut their flights to Dubai, while many others have reduced their services and now Jet Airways has shut Abu Dhabi and has reduced Dubai flights dramatically.
It seems all airlines are abandoning UAE for various reasons with the major reason being lack of tourism business and/or profitability.
We had also argued back in Oct 2018, that entire UAE will freeze, crumble and fall apart including their banking systems.
There were a few 'experts" including a few senior bankers who came upon us and suggested that we were wrong in our predictions and asserted that bank mergers are positive in UAE.
They are working in Govt owned banks so they need to toe the Govt line in order to keep their jobs intact so we sympathize with them that they are completely oblivious to reality and totally clueless.
They do not even wish this reality to reach their shareholders and/or the Govt or to their bank's employees or customers which is truly sad.
Everyone is running on "hope" and that's not a good strategy!
They do not even wish this reality to reach their shareholders and/or the Govt or to their bank's employees or customers which is truly sad.
Everyone is running on "hope" and that's not a good strategy!
Here is our original Oct 2018 article.
Now in March 2019, when everyone knows that the entire country of UAE is crumbling some "experts" have come out and been noted in a newspaper that things are bad and to expect more mergers!
Well, guess what, we predicted it here first in Oct 2018 when no one believed us and now "experts" are coming out of the woodworks repeating what's known to any human being who lives in UAE that the banking system is failing apart and needs mergers or shut downs or closures.
Where were these "experts" 10 years ago, when even more banks existed in UAE?
Suddenly, "experts" and media note that banking system is over banked for a small population.
In fact, UAE Govt was allowing opening of new banks as recently as a decade ago. Al Hilal Bank, Noor Bank, Abu Dhabi Islamic Bank etc were born barely 10-15 years ago.
Add Amlak and Tamwheel and more who were mortgage finance companies as well as Duniya Finance and so many others.
How come no one predicted then, that the population is small?
These "local" banks were never meant to be focusing on UAE but as far as Singapore or Switzerland where Falcon Private Bank of Abu Dhabi was shut in Singapore. Al Hilal Bank has operations in Azerbaijan since Abu Dhabi is building a complex of towers there in Astana.
Many UAE banks have offices in UK, India & other countries while First Abu Dhabi Bank even expanded into Paris and 4 other global cities but all that has failed.
Mashreq, FAB and others have a presence in India and Egypt etc. ENBD has been expanding in Turkey and other countries.
Plus Govt is pulling out all the deposits (instead of adding) and expats are in fear and thus are remitting more money abroad while trade/business has come to a halt.
Imagine Abu Dhabi is unable to pay a bond and losing billions in just one airline (plus dozens of other worldwide mega projects) and people wonder why is there a collapse?
There is no damn money anywhere.
Abu Dhabi is so broke that they just sold the iconic Chrysler building in NY at a hefty loss because they need the cash.
What else could be the reason to sell an iconic building that they bought at USD 800m in 2008 and then sell it for just USD 150m after a decade?
That's why the Govt needs cash and needs it now and they keep pulling it out of anywhere around the world including their own banks.
10 Mar 2019: Iconic Chrysler Building is selling at massive 80-percent discount, reports say
Qataris, Iranians, Syrians and dozen more nationalities have been asked to shut their bank accounts and leave.
It's too hard for non residents to open bank accounts nowadays in UAE while every day various bank accounts get frozen from some country or the other when some Govt discovers their looted money to be sitting in UAE and they want it remitted back or get it frozen.
Mashreq, FAB and others have a presence in India and Egypt etc. ENBD has been expanding in Turkey and other countries.
Plus Govt is pulling out all the deposits (instead of adding) and expats are in fear and thus are remitting more money abroad while trade/business has come to a halt.
Imagine Abu Dhabi is unable to pay a bond and losing billions in just one airline (plus dozens of other worldwide mega projects) and people wonder why is there a collapse?
There is no damn money anywhere.
Abu Dhabi is so broke that they just sold the iconic Chrysler building in NY at a hefty loss because they need the cash.
What else could be the reason to sell an iconic building that they bought at USD 800m in 2008 and then sell it for just USD 150m after a decade?
That's why the Govt needs cash and needs it now and they keep pulling it out of anywhere around the world including their own banks.
10 Mar 2019: Iconic Chrysler Building is selling at massive 80-percent discount, reports say
It's too hard for non residents to open bank accounts nowadays in UAE while every day various bank accounts get frozen from some country or the other when some Govt discovers their looted money to be sitting in UAE and they want it remitted back or get it frozen.
Those are the reasons of collapse not because UAE population is small or over banked.
The main issue here is that the entire system has failed for several reasons and people will blame it on any silly excuse (that can be mentioned publicly because the truth cannot be mentioned in public) because the gullible public has no clue anyways what's going on behind the scenes, whether a bank is opening or when it is closing.
Another major news has come out in the last 24 hours which will not be reported in the local media in GCC much or at all, is that Qatar has banned all new business for UAE's largest bank, FAB, in Qatar.
However, small Qatar maybe, but it has about 3m residents and gets over 3m tourists which makes it a large consumption market.
Many large UAE conglomerates have business in Qatar and now won't have access to their own bank for trade finance etc going forward.
This is a big blow to UAE.
Things are really coming to a tipping point.
Imagine, even Qatar is retaliating like UAE did on Qatari banks and is banning UAE banks in Qatar.
How can banks make money when all their customers, plans and ideas have all failed and thousands of businessmen are running away from every single GCC country causing billions in losses to all the banks combined?
This "largest" theme park has been on sale for years yet the CEO is denying it. Either they will shut or get sold for a fraction of their value any month because the banks will be after them.
Last week, Abu Dhabi Free zone cut their fees by 65%. This is a sure sign of distress.
13 Mar 2019: ADAFZ cuts business setup costs by over 65%
According to our information, not only UAE is getting the lowest spending budget tourists but there is no spending and we have heard from reliable sources that over 1 million residents (especially the affluent ones) have left UAE due to which sales of everything is plunging.
The panic in Abu Dhabi is apparent. They reduced tourism fees that are an important source of revenue for the Govt over the last few years.
The only time anyone in the world puts a price down of any item (i.e. discount) when it's not selling!
Dubai's famous developer had a 69% plunge in it's profits.
6 Mar 2019: Dubai developer Nakheel’s Q4 profit falls 69%
The triple bank merger of ADCB and their job cuts of 1,000 bankers is yet to occur and shall happen any week.
Sharjah was forced to bail out a bank in Dec 2018 but all news since then has been blocked from the public.
But some hints are filtering out suggesting that more "mergers" because of billions of losses and hence, thousands of job cuts are going to occur very soon in Sharjah in 3 of the largest banks.
"The bailout of the Invest Bank by the government of Sharjah two months ago could be followed by a merger between Sharjah’s three biggest banks, Bank of Sharjah (BOS), Invest Bank and United Arab Bank (UAB), a senior UAE-based financial researcher told Zawya."
19 Feb 2019: Merger on the Mind: Sharjah's bailout of Invest Bank could 'compel' further restructuring
Damac Properties, Nakheel Developer and Majid Al Futtaim are some of the largest companies in UAE with thousands of employees plus they employ contract workers in tens of thousands each.
All of them are firing employees.
Construction sector is at a standstill and official data says that only 25% of contractors are active on projects.
This means millions of laborers along with contractors, engineers, suppliers, draughtsmen, accountants and architects are having no work which means thousands have been laid off.
"While 865 developers were registered with the Dubai Land Department in 2018, one in four had projects currently active"
Mashreq Bank is a large privately owned bank who used to have over 65-70 branches until 2015. They closed 5-10 branches every year since then.
They must be down to 50 odd branches approx by 2018.
Now they have announced that they are closing 50% of ALL their branches.
They have already cut many back office jobs and outsourced them to India. Business is already weak so hiring must be slow or frozen.
Mashreq has always been the proxy of UAE economy just because they had so many branches and because they catered to every single sector and quite aggressively.
Hence, if this bank goes up, you can assume Dubai is rising and if this bank goes down, that means Dubai is declining.
You can take it for what it's worth after our experience of UAE for over 25 years including over 2 years in Mashreq.
Meanwhile, the worse is yet to come...
You mean Kazakhstan, not Azerbaijan.
ReplyDeleteHello and Good day!
DeleteThank you so much for catching that silly mistake.
Astana is in Kazakhstan not Azerbaijan and is a beautiful city because it is entirely newly built.
But thank you for catching this error. Much appreciated.
Abu Dhabi has 90+ billion barrels of crude oil reserves and produces 3+ millions barrels per day. Why then should we panic at the sight of a slight slowdown? Business/Economics moves in cycles and after several years of an up-cycle, we are now witnessing a down-cycle. Businesses that have good fundamentals and prudent management will survive and those that don't deserve to perish. I don't think we can write-off the entire country's future prospects as portrayed in this blog. Overreaction? Isn't the US Fed more to blame for the world's twisted financial conditions since the 1980s and more so after their handling of the 2008 financial meltdown? Why just the UAE, isn't every other country affected by this?
ReplyDeleteDear JM,
DeleteThank you for visiting and for your comment.
We kindly suggest that you read several posts which are all filled with facts (and not opinions) on how there is a major economic crisis going on since 2015 (that began in 2008) and you call it a "slight slowdown"?
35 airlines stopping their flights including major American, Australian, European and Malaysian carriers is a "slight slowdown" for you as well?
Can you please tell us which other city in the world in history has ever lost so many airlines when a city whose entire business depends on shuttling people between east and west and doing trade with them?
We highly recommend that if you live anywhere in GCC to ask any stranger or a friend or any acquaintance how they are doing in the last 2-3 years? And how their real estate if they own it has risen by? And are they facing stress due to mortgage or inability to sell their properties in a country where they don't have citizenship?
You don't need to believe us at all.
If you claim that this is a business cycle, then please show us one country besides UAE where for 6 years in a row real estate, business, banking, retail, hotels etc all simultaneously have gone down while several multi billionaires have run away or bankrupted?
We are not writing off an entire country's future, you are seeing it happen in real time which is verifiable, the panic may be in your mind, we are only portraying only the facts that are provable.
We hope things will turn around like they did in Iceland or Spain after 2-3 years, but so far we are in the 6th year of a decline and you may go look at the stock markets of Dubai, as one more example.
2/2....
DeleteFed has nothing to do with this. The decision to peg the currency is made by GCC countries.
They have a choice else business will continue to move elsewhere being the most expensive place in almost every aspect with less than 2% domestic business. Interest rates also under pressure and GCC countries pay 3-5 times more interest to retain money today than the US. This has happened for the first time since 1971 else it was "pegged"
So to blame the Fed means you are unaware of current situation in the banking and financial world.
You are also wrong that a country with high oil "reserves" should not "panic" (in your words not ours) with a slight slowdown.
Did you know that the fact is that Venezuela has 3 times more oil reserves than UAE while Iran has 1.5 times more.
Do you have any clue what's happening in those 2 countries?
This is geo politics being intersected with economics and we sincerely urge you to read all our posts to learn more facts.
Indeed, other countries are affected by a trade slowdown, currency drop, bankruptcies etc but Middle East is impacted the greatest on the planet, in our view, based on the various facts we have mentioned like the crisis in Etihad, price of oil down by 50-60% for the longest time in history, money being pulled out for multiple reasons, trade decimated to unimaginable levels, bans on dozens of nationalities, airlines shutting flights to UAE, impact of wars and ISIS on trade of which Dubai was the largest beneficiary and now is the biggest loser, currencies of other nations declining massively hurting Dubai more than any other nation because Dubai used to trade heavily with all of Africa, Middle East and Asia.
You also mention about strong businesses, are you suggesting that Investbank of Sharjah, Abraaj Group, Schon Properties and many more were not good fundamental businesses? Or the 486 real estate businesses who closed in 2018 all were having bad managements?
Job creation and paying generous salaries while maintaining healthy profitability is the key to any economy's growth and continued success which we are not seeing happen here in the UAE by any measure.
Hope this helps you give a perspective.
If you still believe that 2019 or 2020 will be better than 2018, please let us know the reasons why because you did not provide any facts in your message unlike what we have done in our posts and just provided your opinions and some "hope".
Thank you and best wishes,
Never in my 30+ years in Dubai, I have come across UAE citizens (locals) complaining about their income and finances. A few local landlords owning buildings in the popular mid scale neighborhood, burjuman / golden sands area, have their rent yield dropped by nearly 50%. With all the residential supply coming in the market, we have always heard about the expat landlords suffering, but now its all across the city even in the non freehold area. A lot of them had refinanced their building and invested it elsewhere. Now as the interest rates have gone up these local landlords are having difficulties servicing their debts. A few have defaulted but being local they either get an extension or some sort of bail out from the governments fund.
ReplyDeleteHello,
DeleteThank you for visiting and for your comment.
While what you say is 100% true and we have known of this since 2015 when this whole thing first began and even Ramada Hotel was brought down and over half a dozen hotels shut in the area that you mention of Bur Dubai / Golden Sands area and vicinity.
Closure of Spinneys super market after 20 years along with 10 stores inside it and a large book store, Standard Chartered Bank building converting into an Al Maya super market and so much in that area has occurred that it was a matter of time, before more Emiratis got hurt.
What is happening or is coming will not leave even the Emiratis untouched.
We are aware of the first Emirati who has run away in Dec from Dubai since he could not pay back his debts to another more powerful Emirati.
Of course, nothing is in the news.
What you have described happened to expat developers in 2008 but now it is happening to developers plus old and strong Emiratis in much stronger and established areas of Deira, Bur Dubai, Karama etc which were the heart of Dubai for so long and is very disturbing and scary.
They all used to borrow from previous solid assets (buildings) and re invest elsewhere. This modal used to work and does work when markets rise (which was promised by Govt to everyone into perpetuity), however, if the markets go down, it blows up in everyone's face.
Last month, the Govt bailed out over 3,000 Emiratis.
Let's see until how long they can do so.
UAE waives Dh361 million loans of over 3,000 Emiratis
https://gulfnews.com/business/banking/uae-waives-dh361-million-loans-of-over-3000-emiratis-1.62253180
Gov has taken away the livelihoods of Emiratis by allowing everyone to be in a free zone instead of LLC, then allowing freehold instead of leasehold properties and now making them work longer and harder with almost no bonus, the things are coming to a very sorry end where everyone including the Govt, Emiratis and expats have run out of money.
Thank you and best wishes,
Real estate companies are closing every single day. I know of a real estate company which was doing very well. Staff who could move on have moved on. Its just the owner who was operating the company without any office. Somehow he renewed the trade license without office but now he is also packing to move back to his country. He says he will never ever go back to Dubai. This was the same guy who had a staff of 24 and now....He had immigration approved to another country which he gave up. Either it was his arrogance or destiny he went back to UAE after two weeks. Now the same guy is applying for immigration again and going back to his home country.
ReplyDeleteSadly middle east has become no mans land for expats. I would never ever advise to go the middle east. At the same time I pray for the situation to improve as the livelihoods of many families of the Indian sub continent depends of their family members working there.
Dear friend,
DeleteThank you very much for your valuable anecdote, comment and for visiting here.
We are well aware of many such people but this one is shocking because this owner did not see the crisis coming that too in real estate.
If anyone wants a guaranteed way to lose money they should certainly buy real estate in the ME. :)
We know so many people in UAE who have become wealthy in ME and who keep believing that things will somehow (as if by magic) turn around.
We have bet with many since 2015, that GCC and Dubai in particular is over.
Anyone who believes otherwise should actually not be in business because they do not know how to plan or manage their own future, their own business and their own family's safety.
We had warned everyone whom we could, continuously and our predictions have been 100% accurate since 2015.
It is so sad to hear about this person and we hope that he can find some new business to start or get a Plan B of immigration quickly.
Please suggest to him to cash out and just leave with whatever cash he can get because next year this cash will decline even further.
It is unfortunate but whoever is currently in the ME, except in extremely rare cases, will lose everything that they have.
As the free flowing oil money of all countries has finished, they can barely take care of their own citizens, there is and will be chaos all around unfortunately in every aspect from social life, business life, work life, financial life etc.
On top, interest rates are rising in US for the first time in 45 years which they never did because since Reagan era in 1980, when interest rates peaked above 18-20% and had dropped consistently all the way to almost zero in 2008. Now since 2015, they have started rising and this will create havoc everywhere which is why they are trying to keep them low but it's simply not possible, because markets are markets and no man or one country can control them.
That is why we wish everyone good luck, always.
However, Indians or people of any nationality will suffer severe consequences for being in the ME. We can pray but we cannot alter what is readily apparent and can be seen all around us in every single neighborhood.
There is exactly zero chance of improvement unfortunately.
That is why we always end a ME blog post with our words since 2015, which are: "Worst is yet to come".
Thank you and best wishes,