Lebanon: MEA Requests Another 20 Years of Monopoly
By: Hassan Chakrani
Published Thursday, August 23, 2012
Lebanon’s main commercial carrier, Middle East Airlines, is applying to renew its monopoly over the sector which it has held since 1969. Airline experts argue that the company is bloated and inefficient, and might benefit from some competition to improve its bottom line.
How many people are employed by Middle East Airlines (MEA), Lebanon’s flagship carrier? Observers puzzle over this question. One informed employee in the company estimates the number at 3,000.
He says that the restructuring process lead to the termination of 40 percent of the total workforce. But due to hiring practices based on political favoritism, the process ended with a number close to what it previously was on the eve of Muhammad al-Hout’s appointment in 1997 as chairman of the company.
Hout settled the debate once and for all, explaining in an April 2012 letter to the Minister of Transportation Ghazi al-Aridi that “MEA and its subsidiary companies employ 4,000 people.”
The figure, however, is ambiguous because it is impossible to accurately determine the number of employees in the main airline company and those in its three subsidiaries: Mideast Aircraft Services Company (MASCO), Middle East Airlines Ground Handling (MEAG), and Middle East Airports Services (MEAS).
“The figure is probably somewhere around there, if we include contract, casual, and undeclared workers in the company itself and its subsidiaries,” says the same source.
It is important to know the number of employees in the company in order to assess its efficiency, especially as Hout’s letter is part of a complete file that includes an economic and legal study, which the company is using to justify its request for exclusive rights before the cabinet.
These rights guarantee that it will be the only registered commercial airline in the country for the 20 years, thus preventing the establishment of any other Lebanon-based carrier.
Using the company’s own figures, the airline currently includes 14 airplanes (with 10 new planes arriving in 2018), with an average of 266 workers per plane.
“This average is among the highest globally and is clear proof of the company’s low efficiency,” says a minister who is familiar with MEA’s request for exclusive rights. “Even when compared to Air France, which is currently struggling, the Lebanese number seems bloated. The French company’s average is 126 workers per plane,” he added.
This minister and a number of air transport experts have called for an end to MEA’s exclusivity deal, which has been in effect since 1969. The company was given this sacred commercial honor six years after merging with Air Liban.
This exclusive right to be the country’s sole commercial airline was renewed in 1992 after the end of the Lebanese civil war. Today, the management is demanding another renewal that will keep MEA’s monopoly on Lebanese commercial aviation after September 14, the expiration date of the current deal.
The company’s rationale for requesting the renewal can be summarized in two points. First, any new small company that intends to register to operate in Lebanon cannot survive in an increasingly difficult working environment in terms of safety and security. It will also face difficulties in terms of economies of scale, which might lead to a repeat of Air Liban’s experience when it went bankrupt and MEA was obliged to absorb the social burden of its employees.
Second, if this exclusivity deal is abandoned, the local market would be swallowed by giant companies, “many of which have huge financial capabilities enabling them to flood the market in terms of capacity and prices...and drive whoever works on a purely commercial basis out of the market. So the address will be Lebanese, but in effect the company will be foreign,” according to MEA sources.
Hout insists that exclusivity rights does not mean a monopoly, noting that “the company competes with 45 international airlines which operate in Lebanon under the open skies policy that has been applied since 2001 without imposing the principle of reciprocity,” he says.
Contradicting the company’s analysis, there is another logic that is no less plausible being proposed by experts. In addition to the critique regarding the efficiency of the company, one source points to the high cost that the company charges passengers, specifically those travelling to European destinations.
“No matter how convincing the company’s arguments for retaining exclusivity are, it cannot convince us to impose prices on travellers that are 40 percent higher,” says the expert. He goes on to describe the state of some flights as a duopoly, as MEA partners with foreign carriers who work these routes.
For example, a round trip ticket between Beirut and London costs as much on MEA as it does on the British company BMI (British Midland International).
On the other hand, MEA complains about the existing competition in the sector that, along with the rise in the price of fuel, has led to a decline in its profits. According to Hout, “operating profits declined from $91 million in 2010 to $41 million in 2011,” a drop of 55 percent.
The opposing minister responds to this point, arguing that “if MEA is open to foreign competition and is subject to speculation, why prevent other Lebanese companies from competing?”
Critics of the exclusivity deal also point to MEA’s share of the market. The company says that its share of flights through Beirut International Airport is 33 percent, and 37 percent of passengers. This means that foreign companies’ share is 67 and 63 percent respectively.
According to the aviation expert, this means that MEA wants exclusivity “even though its share is a third of the market and it faces foreign competition...This is completely illogical. It exploits the piece of the commercial airline pie it controls to impose – in collaboration with different companies – a quasi-monopolistic fare.”
All this drives the astute expert to describe the situation as follows: “The company achieves artificial profits without facing real competition and it requests exclusive rights to maintain the existing duopolies for 20 more years, which is the furthest possible thing from the concept of a free market economy that Lebanon and the Central Bank boast about.”
$700 million is the total loss incurred by MEA between 1982 and 2001, according to its chairman Muhammad al-Hout. Between 2002 and 2011, the company made $600 million in profits. Earnings, however, declined sharply in the last two years.
The Demands of 180 Pilots
MEA’s 180 pilots – who complain about the absence of clear contracts and hostile treatment by management – remember Air Liban in the mid 20th century and how its employees were protected.
The head of the pilots’ syndicate, Fady Khalil, says that “extending the exclusivity deal is a political decision,” but “when it is taken, there are two points that we stress.”
One is maintaining the continuity of the pilots’ work in light of the existing exclusionary management style.
And two, maintaining employees’ right to organize within the legal framework, including striking to improve their working conditions, particularly in light of the lack of competition and the absence of an option to go and work for another company.
This article is an edited translation from the Arabic Edition.