Civil Aviation Policy and Privatisation in the Kingdom of Saudi Arabia Abdullah Dhawi Al-Otaibi

288 Pages·2013·3.98 MB·English

Civil Aviation Policy and Privatisation in the Kingdom of Saudi Arabia

Abdullah Dhawi Al-Otaibi

A thesis submitted
to the
University of Exeter
for the degree of
Doctor of Philosophy in Politics
September 2012

This thesis is available for Library use on the understanding that it is copyright material and
that no quotation from the thesis may be published without proper acknowledgement.
I certify that all material in this thesis which is not my own work has been identified and that
no material has previously been submitted and approved for the award of a degree by this or
any other University.
.................................................. (Signature)

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ABSTRACT

The study examines the extent to which the liberalisation and privatisation of the Saudi
Arabian civil aviation sector achieved the claimed benefits of transforming public utilities into
private ownership. At the theoretical level, it explored the nature of privatisation, and its
relationship with wider reform policies and modernisation paradigms, as an approach for
reforming public sector organisations. Empirically it examined the civil aviation sector in
Saudi Arabia as its main case study, comparing it with the British Airways and Kenya
Airways privatisations, and providing an overview of civil aviation liberalisation and
privatisation processes in the Gulf region. Qualitative data collection methods were used,
including personal interviews and official documents, and a broad meaning of privatisation
was adopted as more suited to the Saudi case.
An in-depth analysis of the interview material and data relating to the process of Saudi
Arabia‘s civil aviation privatisation and liberalisation, helped identify present successes as
well as major issues and problems facing the sector. Despite considerable market potential,
unfair competition and other bureaucratic restrictions and obstacles could still have negative
consequences for newly-established private companies. Certain issues concerning the
requirement for more private participation and more competition among operators and service
providers need to be solved, while policy makers and regulators must take many important
and crucial decisions to meet expectations and customer demands. All players in the Saudi
civil aviation market should be treated equally and a sound regulatory framework, along with
objective monitoring, needs to be established to support fair competition among the airlines
and other private operators Unless the situation changes, many opportunities for success in the
Saudi market for civil aviation might be lost. However, further success is expected to be
achieved with the eventual full privatisation of Saudi Arabian Airlines and the complete
liberalisation of the civil aviation sector.

Key words: civil aviation privatisation, civil aviation regulation, civil aviation in Saudi
Arabia.
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DEDICATION

This research is dedicated to:

My father and my mother for their encouragement, support, sacrifices and prayers throughout.

My wife and my sons and daughters for their love, encouragement, support, and sacrifices.

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ACKNOWLEDGEMENTS

I thank Allah for all support granted to me to finish this thesis. The research would not have
been completed without God‘s endless guidance.

I am most grateful to my supervisor Professor Andrew Massey for his guidance and valuable
remarks that kept this thesis on course during its various stages. His unconditional support and
encouragement have been constant. I owe him a great deal, and am proud to have been his
student..

I would also like to thank my second supervisor, Professor Stephen Wilks, for his help, and to
acknowledge my research mentors, Professor Claudio Radaelli and Dr Larbi Sadiki.

I also thank my sponsor, the Saudi Government‘s Ministry of Higher Education, for support
through the King Abdullah Foreign Scholarship Programme. My thanks also to everyone who
contributed directly or indirectly to this study, and in particular to my interviewees, who
generously shared their time and knowledge with me

My kind colleagues have given support and backup, and their help with locating references
has been much appreciated. My thanks also to the staff of the Department of Politics,
University of Exeter.

I am deeply grateful to my dear parents, brothers, sisters, my beloved wife, and my children,
for their understanding and their patience. Their love has sustained me throughout.

Abdullah Al-Otaibi

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Table of Contents
Abstract ...................................................................................................................................... 2
Dedication .................................................................................................................................. 3
Acknowledgements ................................................................................................................... 4
List of Figures ............................................................................................................................ 9
List of Tables ........................................................................................................................... 10
List of Abbreviations ............................................................................................................... 11
Chapter 1: General Introduction .............................................................................................. 14
1.1. Introduction ............................................................................................................. 14
1.2. Statement of the Problem and Research Questions................................................. 15
1.3. Significance of the Study ........................................................................................ 17
1.4. Research Methodology and Scope of the Study ..................................................... 17
1.5. General Plan of the Study ....................................................................................... 20
Chapter 2: Literature Review and Theory Of Privatisation ..................................................... 22
2.1. Introduction ............................................................................................................. 22
2.2. The Meaning, Forms, And Objectives Of Privatisation .......................................... 22
2.2.1. Privatisation and the New Public Management (NPM) ................................... 30
2.2.2. Why Privatisation? Historical Background And Explanatory Factors ........... 37
2.3. Perspectives On Privatisation .................................................................................. 40
2.3.1. An Economic Perspective: Privatisation And Performance............................. 40
2.3.2. A Political Perspective On Privatisation .......................................................... 41
2.3.3. A Social Perspective: Privatisation And Labour Adjustment .......................... 41
2.3.4. A Case Study Perspective On Privatisation ..................................................... 42
2.4. Conclusion .............................................................................................................. 44
Chapter 3: An Islamic Perspective on Privatisation ................................................................ 45
3.1. Introduction ............................................................................................................. 45
3.1.1. The Islamic Approach to Public Administration...............................................46
3.2. The Concept of Ownership In Islam ....................................................................... 46
3.3. The Functions of The State And The Property System in Islam ............................. 56
3.4. The Relationship Between Public and Private Ownership in Islam ....................... 59
3.4.1. Determinants of Transforming Public Ownership to the Private Sector........... 65
3.5. Conclusion: Privatisation in the Balanceof Islamic Law ........................................ 69
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Chapter 4: The Methodology of the Study .............................................................................. 72
4.1. Introduction ............................................................................................................ 72
4.2. Background of the Research Method ...................................................................... 72
4.2.1. The Case Study Approach ................................................................................ 74
4.3. Research Design ..................................................................................................... 79
4.3.1. Types and Design of the Case Study ................................................................. 80
4.3.2. Conducting the Case Studies ............................................................................ 82
4.3.2.1. Sampling .............................................................................................. 82
4.3.2.2. Data Collection ................................................................................... 85
4.4. Primary Data Collection ........................................................................................ 85
4.4.1. The Interview Procedures ............................................................................... 88
4.4.1.1. Preparing for the Interview ................................................................ 88
4.4.1.2. Conducting the Interviews .................................................................. 90
4.5. Collecting Secondary Data ..................................................................................... 91
4.6. Analysis of the Data ............................................................................................... 96
4.7. Conclusion ............................................................................................................. 97
Chapter 5: Civil Aviation Policy And Privatisation: A Comparative Perspective .................. 99
5.1 Introduction ............................................................................................................. 99
5.1.1. An Overview of Civil Aviation Reforms ............................................................ 99
5.1.2. The Experience of Civil Aviation Reform in Specific Countries and Regions 100
5.1.3. Economic Impact of Liberalisation and Deregulation of Civil Aviation ....... 105
5.1.4. The Global Regulatory Environment of the Civil Aviation Industry............... 113
5.2. Civil Aviation Policy and Privatisation: the UK Case Study ............................... 115
5.2.1. The UK Airline Industry: a Brief Historical Background ............................... 115
5.2.2. BA Reform and the Privatisation Process ....................................................... 116
5.2.3. Preparing for Privatisation: From Loss-Making to Profitability .................. 117
5.2.4. The Decision to Privatise ................................................................................ 121
5.2.5. The Results of the Reform Programme and Privatisation .............................. 122
5.2.6. The Reform Programme in Balance ................................................................ 125
5.2.7. UK Civil Aviation Policy: the Regulatory Framework ................................... 126
5.2.7.1.The Role of the CAA .......................................................................... 126
5.3. Civil Aviation Policy and Privatisation: the Kenyan Case Study ........................ 132
5.3.1. Kenya Airways: Historical Background ......................................................... 132
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5.3.2. Kenya Airways: the Commercialisation Phase ............................................... 135
5.3.3. Kenya Airways: the Privatisation Process ...................................................... 136
5.3.4.The Regulatory Framework ............................................................................. 144
5.3.4.1. The Regulatory Structure .................................................................. 144
5.3.4.2. Kenya Airports Authority: ............................................................... 146
5.4. Civil Aviation Policy And Privatisation: the Case of the GCC ........................... 147
5.4.1. Civil Aviation in the State of Kuwait ............................................................... 148
5.4.1.1. Regulatory Framework of Kuwait‘s Civil Aviation Sector ............. 151
5.4.2. Civil Aviation in The United Arab Emirates ................................................... 152
5.4.2.1. Regulatory Framework of the UAE‘s Civil Aviation Sector ............ 155
5.4.3. Civil Aviation in the Kingdom of Bahrain ...................................................... 157
5.4.3.1. Regulatory Framework of Bahrain‘s Civil Aviation Sector ............. 159
5.4.4. Civil Aviation in the Sultanate of Oman ......................................................... 160
5.4.4.1. Regulatory Framework of Oman‘s Civil Aviation Sector ................ 162
5.4.5. Civil Aviation in the State of Qatar ................................................................. 164
5.4.5.1. Regulatory Framework of Qatar‘s Civil Aviation Sector ............... 166
5.5. Conclusion ............................................................................................................ 167
Chapter 6: Saudi Arabia: Political Economic and Legal Contexts of the Case Study .......... 170
6.1. Introduction............................................................................................................ 170
6.2 The Political System of the Kingdom of Saudi Arabia .......................................... 171
6.2.1. The Constitution of Saudi Arabia ..................................................................... 171
6.2.2. The Saudi Monarchy ........................................................................................ 173
6.2.3. The Saudi Council of Ministers ........................................................................ 174
6.2.4. The Consultative Assembly (Majlis Ash-shura)...............................................176
6.3. The Economy of Saudi Arabia .............................................................................. 178
6.4. Privatisation in the Kingdom of Saudi Arabia ....................................................... 182
6.5. Conclusion ............................................................................................................. 193
Chapter 7: Privatisation, Liberalisation and Regulation of the Saudi Civil Aviation Sector 194
7.1. Introduction............................................................................................................ 194
7.2. An Overview of the Civil Aviation Sector in Saudi Arabia .................................. 194
7.3. Regulatory Reforms and The Legal Framework For Liberalisation ...................... 199
7.3.1. GACA and Civil Aviation Regulation ......................................................... 199
7.3.2. Liberalisation and Privatisation Strategy ......................................................... 206
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7.4. Carrying Out the Programme ................................................................................. 210
7.4.1. Public Private Partnerships For Improving the Sector’s Infrastructure .......... 214
7.4.2. Privatisation of Saudi Arabian Airlines – ‘Saudia’ .......................................... 220
7.5. Evaluating the Programme in the Saudi Civil Aviation Sector ............................. 225
7.5.1. The Implementation Approach .......................................................................... 225
7.5.2. The Impact of the Privatisation and Liberalisation Programme ...................... 226
7.5.2.1. Positive Impacts .................................................................................. 227
7.5.2.2. Negative Impacts and the Slow Pace of Implementation ................... 229
7.5.3. Unfair Competition and GACA Intervention .................................................... 230
7.5.4. Saudi Arabian Airlines:Dominance and Customer Satisfaction ..................... 235
7.5.5. Employment and Job Security .......................................................................... 240
7.5.6. The Competence and Experience of Decision-Makers .................................... 244
7.6. Conclusion ............................................................................................................. 247
Chapter 8: Conclusions And Policy Recommendations ........................................................ 249
8.1. Summary Of The Research And Its Major Findings ............................................. 249
8.1.1. Civil aviation liberalisation and privatisation in Saudi Arabia.....................255
8.2. Contributions And Limitations Of The Study ....................................................... 258
8.3. Discussion And Policy Recommendations ............................................................ 261
8.4. Directions For Future Research ............................................................................. 266
Appendix 1: Interview Questions Guide ............................................................................... 268
Appendix 2: Certificate Of Ethical Approval ........................................................................ 268
Appemdix 3: List of Interviewees ....................................................................................... 271
Bibliography .......................................................................................................................... 270

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List of Figures

Page
Figure 2.1: Forms of Privatisation..................................................................................... 24
Figure 5.1: The four factor menu of practices used in British Airways in 1984-85 .. 120
Figure 5.2: The CAA: The UK‘S Independent Aviation Regulator.................................. 127
Figure 5.3: Main UK primary legislation defining the CAA‘s role................................... 128
Figure 5.4: Main European Regulations with a bearing on the CAA‘s role 129
Figure 5.5: Aircraft noise high level policy framework..................................................... 130
Figure 5.6: Kenya Airways privatisation action plan......................................................... 139
Figure 5.7: Revenue Passenger kilometres (millions)....................................................... 140
Figure 5.8: Kenya Airways share price.............................................................................. 142
Figure 5.9: Kenya Airways shareholding structure............................................................ 143
Figure 5.10: Organogram Ministry of Transport Kenya.................................................... 145
Figure 5.11: Routes and Weekly Frequencies of Arab States Carriers (Sept. 1956) ....... 148
Figure 5.12: Commercial Aviation in Arab States............................................................. 149
Figure 5.13: Gulf Air‘s Network....................................................................................... 158
Figure 5.13a: Organisational Chart of Bahrain‘s CAA .................................................. 160
Figure 5.14: Oman Air‘s Organisational structure …........................................................ 162
Figure 5.15: Oman Air Fleet.............................................................................................. 162
Figure 6.1: GDP Composition by Sector............................................................................ 179
Figure 6.2: Labour force, by occupation........................................................................... 180
Figure 6.3: Annual growth rates of real GDP.................................................................... 180
Figure 6.4: Rank of countries regarding ease of doing business. ............................... 181
Figure 6.5: Five-year planning in the Kingdom of Saudi Arabia.................................. 182
Figure 6.6: Saudi Privatisation Model: Administrative and Implementation Procedures 190
Figure 6.7: Structure of real GDP in producers‘ value....................................................... 192
Figure 7.1: airport traffic in Saudi airports........................................................................ 198
Figure 7.2: number of flights by international airport........................................................ 198
Figure 7.3-7.4: number of passengers by international airport.......................................... 199
Figure 7.5: civil aviation market structure ....................................................................... 199
Figure 7.6: Organisation structure: safety and economic regulation ................................. 205
Figure 7.7: international organisation sector .................................................................... 206
Figure 7.8: Passenger Numbers using Saudi Arabian Airlines................................. 221
Figure 7.9: Saudi Arabian Airlines fleet plans: 2010–2015............................................. 222

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List of Tables

Page
Table 2.1: Methods of privatisation ……………………………………………. 30
Table 4.1: Qualitative Research: A Process in Four Acts…………………… 73
Table 4.2: Research questions according to the different research strategies… . 76
Table 4.3: Case Study Types and Their Characteristics…………………… 81
Table 4.4: Strategies for the Selection of Samples and Cases……………… 83
Table 4.5: Competing Perspectives on Interview Methods…………………… 87
Table 5.1: BA: group summarised profit and loss accounts 1982-87………… 123
Table 5.2: Airline earnings 1997 (in US$ m, exchange rate at 31March 1998) 124
Table 5.3: Summary of Shareholders as at 31st March 2009……………… 143
Table 5.4: Air transport infrastructure Kenya……………………………… 146
Table 5.5: Kuwait Airways Fleet…………………………………… 151
Table 5.6: Seat Capacity Market Share of Major Airlines in UAE 2007………… 153
Table 5.7: Emirates Financial and Operational Performance…………………… 153
Table 5.8: Emirates Fleet………………………………………………………… 154
Table 5.9: Etihad Airways Fleet………………………………………………… 155
Table 5.10: Gulf Air Fleet……………………………………………………… 158
Table 5.11: Qatar Airways Fleet………………………………………………… 152
Table 5.12: Qatar Airways - Aircraft on order (2011-13) ………………………… 164
Table 6.1: Kings of Saudi Arabia………………………………………………… 174
Table 6.2: Saudi Privatisation Objectives and Policies………………………… 188
Table 6.3: Private sector participation of in the Saudi economy……………… 191
Table 7.1: International and domestic airports in the Kingdom of Saudi Arabia… 195
Table 7.2: Major projects in the Kingdom of Saudi Arabia……………………… 216

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