Having redefined its image in the regional and international arena, Royal Jordanian (RJ) is one of the latest heavyweight companies in Jordan treading the path of privatization. Lubna Bashiti asks Samer Majali, president and CEO of RJ, about the company’s recent expedited restructuring and the impact it hopes to make both on the ground and in the skies.

JB: RJ has embarked on a number of milestones during the past few years, and has tangibly improved its financial position. What other developments can we hope to see in RJ’s post-privatization era?
SM: Completion of privatization is scheduled for December 2007, but in the meantime, RJ has improved the Terms of Reference to the Executive Privatization Commission (EPC). When the transaction is complete, RJ intends to keep its bilateral agreements and remain Jordan’s local carrier. RJ also aims to revolutionize its strategy, renew its fleet and hopefully reach the 80 million passenger target. Operational performance in February 2007 alone grew by 12.5% over RJ’s estimates, and the seat factor reached 66%, so this is an optimistic indicator of what’s in store for RJ post-privatization.

JB: RJ issued bonds in 2004 totaling JD40 million. Will there be another bond issue after the privatization or is RJ self-sufficient enough to stir future growth?
SM: With the initial public offering (IPO) moving forward there will be no need for another bond issue. In fact, these bonds are the only remaining debt for RJ, as it intends to buy back a portion of them in the coming months.
 
JB: Since 51% of RJ’s paid-up capital is to be fully Jordanian, have local institutional investors like the Social Security Corporation (SSC) or banks expressed any interest in investing?
SM: Many parties have expressed interest to invest in RJ. The SSC will most probably be a shareholder, in addition to others; perhaps a local bank. High net worth individuals in Jordan, member nations of the GCC and other countries have shown interest in investing in the company. However, a clearer picture of RJ’s shareholder structure will emerge as the IPO approaches.

JB: What privatization options is RJ  considering? Is it inclined to take the route of strategic partnerships, influential long-term financial investors, or alliances with multi-national companies?
SM: RJ has joined OneWorld, which is a prime airline alliance, and will benefit from its network that serves more than 700 destinations in 135 countries. RJ will naturally enjoy access to the larger network of the nine other alliance members. Joining OneWorld clearly omits the option of a strategic partnership since RJ already reaps the benefits of this option. Also, as of April 1, 2007, members of Royal Plus, RJ’s frequent flyer program, will be able to collect points from their travel on RJ and other members of the alliance.

When it comes to privatization in the aviation sector, a strategic partnership route is not very popular. Institutional investors will be invited to become shareholders once the privatization process gets underway. In the long run, the government may decide to sell its stake, like in the case of Jordan Telecom; however, this is not clear at present. For now, priorities are  resuming our restructuring and reaching full commercialization. 

JB: Is the company considering a dual listing for RJ after its privatization?
SM: After our appointed financial advisor, Citigroup, conducts the valuation, we hope to tackle listing issues. In the short term, shares will be listed on the Amman Stock Exchange, but a few years down the line RJ might consider other exchanges, in the United Arab Emirates or possibly the London Stock Exchange (LSE).  
 
JB: How will Jordan’s aviation sector be boosted given the future privatization and expansion of the airport? To what extent are these two transactions explicit?
SM: Expansion of the Queen Alia International Airport will be among the country’s largest privatization transactions. The deal is still in the tendering process but winners for design and implementation will soon be announced. The airport’s expansion and privatization, along with RJ’s own privatization, all serve to make Jordan a hub for regional travel. This is where these two transactions work in tandem. However, progress on the RJ front is anticipated to be faster since early stages of the transaction have already started. 

JB: How would you assess competition in the aviation industry in the Middle East?
SM: I believe Open Skies is coming; however, there are some hurdles in the region, such as the absence of common Pan Arab standards allowing for better consolidation between carriers. Unfortunately, Middle East carriers are doing the opposite due to a disparity in government intervention, political issues and the sensitivity of the sector. On the up side, with privatization moving forward in a few countries, competition is anticipated to progress but at a relatively slower pace compared to Europe and Asia. 

Also, competition is imperfect due to the different regulatory issues of various Arab governments. Some airline companies in the Gulf are employed as marketing and branding tools for their respective countries. Also a number of airlines are fully or partially subsidized (oil subsidies) by their national governments. Other barriers include taxation as well as visa requirements, which affect regional travel.

JB: What lies ahead for RJ?
SM: I envision RJ growing as Jordan’s local carrier, enjoying a dominant position in the Levant and making Jordan the new hub for the region. This will hopefully be the case, since 50% of RJ’s traffic is for transfer passengers. Our hope for the future is to centralize Jordan as a new focal point in the Middle East and capitalize on RJ’s network to truly turn the country into a gateway for travel and transit and not just a final destination for travelers.