S A L

Your Investment Reference

THE BRIEF

ISSUE 972 Week of June 06-10, 2016

ECONOMIC RESEARCH DEPARTMENT BLOMINVEST Bank Headquarters Bab Idriss, , Lebanon T (01) 991 784/2 F (+961) 1 991 732 [email protected] www.blom.com.lb

TABLE OF CONTENT

FINANCIAL MARKETS 1 Equity Market 1 Foreign Exchange Market 3 Money & Treasury Bills Markets 3 Eurobond Market 4

ECONOMIC NEWS 5 Lebanon’s Balance of Payments Deficit Recorded $899.1M by April 2016 5 Lebanon’s debt burden, one of the highest in the world, has been consistently growing as a percentage of GDP and therefore needs to be reset on a more sustainable path. 5 Lebanon’s Fiscal Deficit Broadened by 36% Y-O-Y to $1.44B in Q1 2016 6 Lebanon’s Commercial Banks’ Assets Ticked up by 1% (Y-t-D) by April 2016 6 The Number of Airport Passengers Reached a 5 Year High by May 7

CORPORATE DEVELOPMENTS 8 BLC Bank Announces 2015’s Dividends 8 BEMO Bank Announces Distribution of 2015’s Dividends 8

FOCUS IN BRIEF 9 Middle East : Resilient As Its Cedar Emblem 9

This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the recipient.

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FINANCIAL MARKETS Equity Market Stock Market As we expected, activity on the Beirut Stock Exchange 10/06/2016 03/06/2016 % Change (BSE) retreated this week with the BLOM Stock Index BLOM Stock Index* 1,147.82 1,155.17 -0.64% (BSI) declining by 0.64% to 1,147.82 points. This was Average Traded Volume 122,681 178,679 -31.34% also translated by a narrower market capitalization, Average Traded Value 1,016,637 1,558,467 -34.77% which stood at $9.48B by the end of this week down *22 January 1996 = 1000 from $9.54B last Friday. In addition, trading activity BLOM Stock Index slowed down over the week with the daily average traded volume going down from 178,679 shares worth 1200 HI: 1,192.56 $1.56B to 122,681 worth $1.02B this week.

1180 On a comparative scale, the BSI was outperformed by many of its regional peers such as the Morgan Stanley 1160 emerging index (MSCI), the S&P AFE40 and the S&P Pan Arab Composite LargeMidCap Index which respectively 1140 rose by 3.42%, 1.85% and 1.75%.

In the Arab world, the Lebanese and Tunisian stock 1120 markets were the sole losers this week with the latter LO: 1,108.49 recording a drop of 1.40% from the previous week. 1100 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 In contrast, Dubai, Qatar and Abu Dhabi were the Banking Sector week’s best performers after posting weekly gains of 3.31%, 3.19% and 2.97%, respectively. Mkt 10/06/2016 03/06/2016 % Change BLOM (GDR) BSE $10.20 $10.25 -0.49% Financial stocks dominated this week’s trades grasping BLOM Listed BSE $9.90 $9.96 -0.60% 84.33% of the total traded value, while the real estate and industrial sectors took the remaining shares of BLOM (GDR) LSE $10.25 $10.35 -0.97% 15.39% and 0.28%, respectively. Audi (GDR) BSE $6.00 $6.00 0.00%

Audi Listed BSE $6.00 $6.00 0.00% In the banking sector, BLOM listed shares lost a weekly Audi (GDR) LSE $5.95 $6.12 -2.78% 0.60% to $9.90, whereas its GDRs recorded a 0.49% Byblos (C) BSE $1.65 $1.64 0.61% slip from last week to $10.20. On the contrary, Byblos Byblos (GDR) LSE $75.00 $75.00 0.00% common stocks marginally improved from last week’s Bank of Beirut (C) $18.80 $18.80 0.00% BSE price of $1.64 to close at $1.65. BLC (C) BSE $1.69 $1.69 0.00% BEMO (C) BSE $1.75 $1.75 0.00% As for the BLOM Preferred Shares Index (BPSI), it revealed a weekly drop of 0.08% to 104.16 points. This

has resulted from the 0.10% and 0.99% weekly

declines in the prices of Audi preferred shares class “F”

Mkt 10/06/2016 03/06/2016 % Change and Byblos preferred shares class 09 to $100.20 and Banks’ Preferred 104.16 104.24 -0.08% $100.00, respectively. However, BLOM preferred 2011 Shares Index * Audi Pref. F BSE $100.20 $100.30 -0.10% shares registered another weekly gain and rose from Audi Pref. G BSE $100.10 $100.10 0.00% $10.05 last week to $10.10 by the end of this week. Audi Pref. H BSE $100.10 $100.10 0.00% Byblos Preferred 08 BSE $100.20 $100.20 0.00% In the real estate sector, Solidere class “A” and “B” Byblos Preferred 09 BSE $100.00 $101.00 -0.99% shares decreased by 2.85% and 3.44% to $9.56 and Bank of Beirut Pref. I BSE $25.25 $25.25 0.00% $9.54, respectively. Bank of Beirut Pref. H BSE $25.25 $25.25 0.00% Bank of Beirut Pref. J BSE $25.25 $25.25 0.00% On the London Stock Exchange (LSE), the GDRs of BLOM Preferred 2011 BSE $10.10 $10.05 0.50% Solidere, BLOM and Audi lost 3.10%, 0.97% and 2.78% BEMO Preferred 2013 BSE $100.50 $100.50 0.00% to $9.69, $5.95 and $10.25, respectively. * 25 August 2006 = 100

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Real Estate In the industrial sector, HOLCIM shares witnessed a 1.04% drop this week to $14.31. Mkt 10/06/2016 03/06/2016 % Change Solidere (A) BSE $9.56 $9.84 -2.85% The sluggish performance of the BSE is expected to Solidere (B) BSE $9.54 $9.88 -3.44% continue in the coming weeks; unless a positive Solidere (GDR) LSE $9.69 $10.00 -3.10% development on the political front took place.

Manufacturing Sector

Mkt 10/06/2016 03/06/2016 % Change

HOLCIM Liban BSE $14.31 $14.46 -1.04%

Ciments Blancs (B) BSE $3.00 $3.00 0.00%

Ciments Blancs (N) BSE $3.10 $3.10 0.00%

Retail Sector

Mkt 10/06/2016 03/06/2016 % Change RYMCO BSE $3.23 $3.23 0.00% ABC (New) OTC $27.00 $27.00 0.00%

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Foreign Exchange Market Demand for the Dollar in the Lebanese Forex Market remained Lebanese Forex Market unchanged over the past week as the value of the dollar steadied 10/06/2016 03/06/2016 % Change at $/LP 1,513.75-1,514.25 with a mid-price of $/LP 1,514. Euro / Dollar 1.1302 1.1149 1.37% Foreign assets (excluding gold) of the Central Bank increased Sterling / Dollar 1.4441 1.4430 0.08% 0.59% since the beginning of the year to $37.31B by May 2016. Dollar / Swiss Franc 0.9651 0.9914 -2.65% The dollarization ratio of private sector deposits fell from 64.88% Dollar / Yen 106.91 108.84 -1.77% in December 2015 to 64.73% in April 2016. NEER Index** 166.19 167.14 -0.57% By Friday 10th of June, 2016, 1:23 pm Beirut time, the euro *Close of GMT 09:00+2 appreciated against the dollar-pegged LP as the exchange rate **Nominal Effective Exchange Rate; Base Year Jan 2006=100 **The unadjusted weighted average value of a country’s currency relative to all major rose by 1.37%, over the last week, rising from €/LP 1,680.71 to currencies being traded within a pool of currencies. The NEER represents the approximate €/LP 1,703.78. As for the Nominal Effective Exchange Rate (NEER), relative price a consumer will pay for an imported good. it lost a weekly 0.57% to 166.19 points, registering a 1.31% year- to-date decrease. Nominal Effective Exchange Rate (NEER) Given the weaker dollar, the gold prices edged higher from $1,236.52/ounce at last Friday to $1,269.86/ounce this week. 173 The dollar lost momentum over the past week given Janet Yellen’s 170 statement that the Federal Reserve will wait for the economic 167 picture to be less mixed before hiking interest rates. 164

161

158 155 Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16

Money & Treasury Bills Markets During the week ending May 26, broad Money M3 increased by LP 397B ($263.49M) to reach LP 189,526B ($125.72B). M3 registered a 4.77% yearly growth and a 1.57% year-to-date uptick. Likewise, M1 rose by LP 95B ($62.74M) over the mentioned period, due to the LP 198B ($131.34M) increase in demand deposits which Money Market Rates outweighed the LP 103B ($68.33M) decrease in money in circulation. 10/06/2016 03/06/2016 Change bps Total deposits (excluding demand deposits) grew by LP Overnight Interbank 4.00% 4.00% 0 302.8B ($200.86M) during the week, given the $173M BDL 45-day CD 3.57% 3.57% 0 growth in deposits denominated in foreign currencies and BDL 60-day CD 3.85% 3.85% 0 the LP 42B progress in term and saving deposits in LP. Over the above mentioned period, the broad money

dollarization rate went up from 57.99% on the 19th of May Treasury Yields to 58.01% on the 26th of May. According to the Central 10/06/2016 03/06/2016 Change bps Bank, the overnight interbank dropped from 4% in 3-M TB yield 4.39% 4.39% 0 February 2016 to 3% in March 2016.

6-M TB yield 4.87% 4.87% 0 In the TBs auction held on the 19th of May, 2016, the 12-M TB yield 5.08% 5.08% 0 Ministry of Finance (MoF) raised LP 90.94B ($60.32M), 24-M TB coupon 5.84% 5.84% 0 through the issuance of bills maturing in 3M and notes maturing in 1Y and 5Y. The highest demand was achieved 36-M TB coupon 6.50% 6.50% 0 on the 1Y notes, which grasped a 44.93% share of total 60-M TB coupon 6.74% 6.74% 0 subscriptions, while the 5Y notes and 3M bills captured the remaining shares of 42.41% and 12.66%, respectively. The discount rate on the 3M bills stood at 4.44%. Meanwhile the coupon rates on the 1Y notes and 5Y notes registered 5.35% and 6.74%, respectively. New subscriptions exceeded existing maturities by LP 47.27B ($31.36M).

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Eurobond Market Eurobonds Index and Yield 08/06/2016 02/06/2016 Change Year to Date BLOM Bond Index (BBI)* 103.86 104 -0.06% -0.11% Weighted Yield** 6.21% 6.17% 1 115 Weighted Spread*** 493 475.35 -0.1 45.4 *Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market ** The change is in basis points ***Against US Treasuries (in basis points)

Lebanese Government Eurobonds 08/06/2016 02/06/2016 Weekly 08/06/2016 02/06/2016 Weekly Maturity - Coupon Price* Price* Change% Yield Yield Change bps 2017, Oct - 5.000% 99.88 100.32 -0.38% 5.09% 4.75% 28 2018, Jun - 5.150% 100 100.38 0.13% 5.15% 4.95% -7 2018, Nov - 5.150% 99.75 100.25 -0.50% 5.26% 5.04% 22 2019, Apr - 5.500% 99.75 99.88 0.12% 5.59% 5.54% -5 2020, Mar - 6.375% 101.75 101.75 0.13% 5.85% 5.85% -4 2020, Apr - 5.800% 99.75 99.75 0.13% 5.87% 5.87% -4 2021, Apr - 8.250% 99.25 108.88 0.12% 6.13% 6.11% -4 2022, Oct - 6.100% 97.88 99 0.12% 6.24% 6.29% -2 2023, Jan - 6.000% 97.38 98.13 0.12% 6.40% 6.35% -2 2024, Dec - 7.000% 96.75 102.38 0.39% 6.67% 6.63% -6 2025, Feb - 6.200% 99 97 0.26% 6.70% 6.66% -4 2026, Nov - 6.600% 99.75 99 0.25% 6.73% 6.73% -3 2027, Nov - 6.750% 98.5 99.88 0.00% 6.78% 6.77% 0 2030, Feb - 6.650% 99.75 98 0.00% 6.89% 6.88% 0

 Mid Prices ; BLOMINVEST bank Weighted Effective Yield of Eurobonds 7.00% 6.50% 6.00% 5.50% 5.00% Jun-15 Aug-15 Oct-15 Dec-15 Feb-16 Apr-16 Jun-16

Demand for the Lebanese Eurobonds fell over the past week, as reflected by the BLOM Bond Index (BBI) which lost 0.06% to reach 103.86 points.

The BBI was outperformed by the JP Morgan Emerging Markets’ Bond Index which gained a weekly 1.52% to 730.84 points. Demand for Lebanese Eurobonds maturing in 5 years declined over the past week with the 5 year yield rising from 6.11% to 6.13% and with the 10 Year Yield rising from 6.71% to 6.73%.

With no strong hint at a US interest rate hike, demand for safe haven assets was more pronounced over the past week. The 5Y and 10Y yields for US treasuries dropped from last week’s 1.36% and 1.81% to 1.23% and 1.71%, respectively.

Therefore, the spread between the yields on the 5Y and 10Y Lebanese Eurobonds and their US comparable broadened from 475 bps and 490 bps to 490 bps and 502 bps, respectively.

5 Year Credit Default Swaps, Mid-Prices (in basis points) 08/06/2016 02/06/2016

Lebanon 457 456 KSA 170 166 Dubai 211 220 Brazil 334 344 Turkey 248 260

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ECONOMIC NEWS

Lebanon’s Balance of Payments Deficit Recorded

$899.1M by April 2016 Balance of Payments by April ($M) Lebanon’s Balance of Payments (BoP) revealed a deficit of $899.1M 256.0 in the first four months of 2016, compared to a deficit of $714.2M in the same period last year. The widening deficit is the result of a lesser flow of Foreign Direct Investments and remittances since regional economies are now facing their own set of economic and -17.9 political woes.

Up until April, Net Foreign Assets (NFA) of the Central Bank (BDL) dropped by $902M, while that of commercial banks rose by $2.9M.

In April alone, Lebanon’s BoP also registered a deficit of $254.9M, -714.2 compared to a surplus of $136M in April 2015. The NFAs of BDL decreased by $494.9M and that of commercial banks inched up by -916.1 -899.1 $240M, from the prior month. 2012 2013 2014 2015 2016

Source: BDL

Lebanon’s Gross Public Debt Rose to $71.65B by April

Gross Public Debt by April According to the Ministry of Finance, Lebanon’s Gross Public Debt

reached $71.65B by April 2016, up by 3.16% from April 2015 and 80,000 11% 1.91% since year-start. 64,875 69,458 71,654 70,000 10% 59,123 Gross domestic debt amounted to $44.02B by April and by that 60,000 55,046 9% 52,627 registered a 4.77% year-on-year increase while foreign currency 8% 50,000 debt reached $27.64B rising by a yearly 0.69%. 7% 40,000 6% Net public debt, which excludes public sector deposits at 30,000 5% commercial banks and the Central Bank, totaled $62.52B and rose by an annual 5.85%. 20,000 4%

10,000 3% Lebanon’s debt burden, one of the highest in the world, has been - 2% consistently growing as a percentage of GDP and therefore needs 2011 2012 2013 2014 2015 2016 to be reset on a more sustainable path. Gross Public Debt (In $M) Yearly Growth Rate (In %)

Source: ABL

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Lebanon’s Fiscal Deficit Broadened by 36% Y-O-Y to

$1.44B in Q1 2016

Yearly Fiscal Deficit (In $M) According to the Ministry of Finance, the fiscal balance recorded a deficit of $1.44B in the first three months of 2016 compared to a 1,600 36% 40% deficit of $1.06B in the same period in 2015. 26% 1,441 1,400 30% 17% In the first quarter of 2016 (Q1 2016), total revenues grew by an 20% annual 17% to $2.43B while total expenditures grew at a faster rate 1,200 7% 1,062 of 23% to $3.87B. 10% 1,000 840 783 0% The fiscal balance is in deficit even when Lebanon’s debt payments 800 669 are excluded. Accordingly, the primary deficit widened from -10% $138.04M in Q1 2015 to $400.87M in Q1 2016. 600 -20% 400 In terms of revenues, total tax revenues increased by a yearly 9% to -30% $1.67B with customs revenues rising by an annual 4% to $321.97M 200 -39% -40% and with VAT revenues rising by an annual 7% to $528.21M.

- -50% Telecom revenues, which represent around 60% of non-tax 2012 2013 2014 2015 2016 revenues, grew from $241M in Q1 2015 TO $347.50M in Q1 2016. Fiscal Deficit, $M, LA In terms of expenditures, the heavyweights are usually transfers to Annual Growth Rate, In %, RA EDL and debt repayments.

Source: Ministry of Finance However, given the continuous slump in oil prices since mid-2014, the value of transfers to EDL registered an annual drop of 52% from $315.47M in Q1 2015 to $152.32M in Q1 2016.

As for the debt service, it grew by an annual 13% from $924M in Q1 2015 to $1.04B in Q1 2016.

Lebanon’s Commercial Banks’ Assets Ticked up by 1%

(Y-t-D) by April 2016

Total Commercial Banks’ Assets By April The consolidated balance sheet of Lebanon’s commercial banks revealed a 1.04% year-to-date increase (y-t-d) and a 4.75% year-on- 200,000 167,710 187,917 9% 179,397 year (y-o-y) advance in total assets to $187.92B. 8.12% 180,000 155,108 8% 160,000 Claims on the resident private sector increased by 1.4% since year- 7.19% 7% 140,000 start to $48.72B with claims denominated in Lebanese Pound 6% 120,000 6.97% advancing at a rate of 2.6% y-t-d to $14.01B and with claims in 5% foreign currencies advancing at a 0.9% y-t-d rate to $34.72B. 100,000 4.75% 4% 80,000 Claims on the non-resident private sector advanced by 4.8% y-t-d to 3% 60,000 $6.48B while claims on the non-resident financial sector regressed 40,000 2% by 8.1% y-t-d to $10.62B. 20,000 1% - 0% Claims on the public sector advanced by 1.2% since year-start to 2013 2014 2015 2016 $38.25B with the banks’ subscription to treasury bills in LBP falling by 3.6% to $19.33B and with the banks’ subscription to Eurobonds Total Assets, In $M Y-O-Y Growth Rate growing by 6.7% y-t-d to $18.82B.

Source: BDL In terms of liabilities, resident private sector deposits inched up by

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1.23% to $121.20B with deposits in LBP edging up by 1.31% to $49.45B and with deposits in foreign currencies edging up by 1.18% to $71.75B.

Non-resident private sector deposits fell by 0.42% since year-start to $31.72B with LBP deposits rising by 1.22% since year-start to $4.49B and with foreign currency deposits slipping by 0.69% y-t-d to $27.24B.

The dollarization of private sector deposits dropped from 64.88% in December 2015 to 64.73% in April 2016.

The Number of Airport Passengers Reached a 5 Year High by May

Total Number of Passengers by May The Rafic Hariri International Airport (RHIA) activity improved during

the fifth month of this year, as the total number of passengers 2,804,109 increased by a yearly 11.3% to 2.80M. In details, the number of 2,518,313 arrivals to Lebanon went up by 10.23% year-on-year (Y-o-Y) from 2,403,026 2,311,785 1.23M by May 2015 to 1.36M in the same period of 2016. Also, this 2,209,209 period witnessed an 11.96% yearly increase in departures, which reached 1.44M by May 2016, compared to 1.28M by May 2015.

As for the number of transit passengers, it grew from 4,700 passengers by the fifth month of 2015 to 11,109 passengers by May 2016. The high transit activity can be the result of the RHIA becoming an alternative or pit-stop-route for many Arab nationals fleeing tumults in their home countries.

2012 2013 2014 2015 2016

Source: Rafic Hariri International Airport

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CORPORATE DEVELOPMENTS

BLC Bank Announces 2015’s Dividends Key Dates for BLC’s Dividend Distribution The ordinary General Assembly of BLC Bank, which convened on the third of June 2016 at the bank’s headquarters, agreed on the 9 June 2016 Dividend Record Date bank’s financial records for the year ending 31/12/2015 and decided 7 June 2016 Ex-Dividend Date to distribute dividends to holders of BLC’s preferred A, B and C shares. 10 June 2016 Dividend Payment Date The dividend per share for holders of BLC’s preferred A or/and B Source: BLC, Beirut Stock Exchange shares is $7 or $6.65 after the deduction of the 5% tax.

The dividend per share for holders of BLC’s preferred C shares is $6.75 or $6.4125 after the deduction of the 5% tax.

BEMO Bank Announces Distribution of 2015’s Dividends

Number of Listed Bank of Beirut’s Shares The distribution of 2015’s dividends worth a total of 7,376 million

LBP or $4.89M was agreed upon during the Ordinary General Net Dividend per Dividend Yield Assembly of Bank BEMO, held on the 7th of June 2016 at the Share bank’s headquarters. BEMO Common $0.378 cents 22% Shares • Holders of common shares shall receive 60 LBP per share BEMO Preferred $6.65 7% ($0.04) or 57 LBP ($0.038) per share after the deduction of the 5% 2013 Shares tax

Source: BSE • Holders of BEMO’s 2013 preferred shares shall receive $7 per share or $6.65 after the deduction of the 5% tax

The dividends will be disbursed to common and preferred shareholders starting the 21st of June 2016 after the deduction of

the 5% tax.

The shareholders that will benefit from these dividends are the ones that are listed in Midclear’s records as of the 14th of June

2016, the record date.

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FOCUS IN BRIEF Middle East Airlines: Resilient As Its Cedar Emblem

Middle East Airlines (MEA) is Lebanon’s prime airlines. Established in 1945, it initiated its first flights to countries in close proximity such as Syria, Cyprus, Egypt, and other destinations in the Gulf, enjoying its heyday as a tourist carrier and global aviation hub. In 1963, MEA merged with Air Liban and added new destinations like , Middle East, and West Africa. The central bank of Lebanon owns 99% of the Middle East Airlines, which operates on a commercial basis.

During the , between 1975 and 1990, Beirut International Airport closed for a while. However, MEA managed to survive by leasing aircrafts, transferring staff to international companies, and operating charter flights from different bases such as Cyprus. By 1975, MEA had 23 planes. However, during the war 12 planes of MEA were destroyed, 7 of them in the 1982 Israeli invasion. With the return to normality in 1990, MEA succeeded in reestablishing services to all its previous destinations, strengthening and improving its network to Europe, Middle East and the Gulf. Due to its ability to keep functioning through such difficult situations, MEA earned its title “the world’s most resilient airline” by the Times of London.

In addition to MEA, Trans Mediterranean Airways (TMA cargo) was established in 1953, as an all-cargo operator. The company grew rapidly to become one of the world's major cargo airlines with one of the largest international all cargo networks linking major cities in the five continents. It was the only Lebanese specialized all-cargo airline. Trans Mediterranean Airways (TMA) was the first all-cargo carrier to establish round the world services in both directions. However the Lebanese war adversely affected TMA’s growth and operation, resulting in huge losses. Hence, it shut down in September 2014, after it incurred $230M losses.

MEA’s worldwide network includes all Middle East countries, Europe and 3 stations in Africa. Major destinations consist of France, with 3 flights/day in winter and 4 flights/day during summer, 2 flights/day to Dubai, in winter, and 3 flights/day in summer, and London and Istanbul, each with 2 flights/day during the whole year.

According to Bechara Saadeh, sales representative and Irbil’s station manager, MEA cut services on unprofitable routes, such as destinations to Sao Paolo, Sydney and Madrid. Demand to travel to these cities was insufficient to break even, leading the company to incur losses. Its trips to these destinations were only once per week, while it needs a minimum of 3 flights per week to cover the costs.

To provide its services, MEA retains 20 airbus planes: 13 airbus 320, 2 airbus 321, and 5 airbus 330. The main difference between the various types of aircrafts owned is their capacity. For instance, airbus 320 accommodates 126 passengers, airbus 321 seats 149 passengers, and the airbus 330 has room for 244 passengers. 65% of MEA’s planes are airbus 320, since its capacity is most demanded and its fuel consumption is more efficient compared to other aircrafts.

Moreover, these planes are utilized for different destinations. Airbus 330 is commonly used for long-distance flights such as London, Paris, and Abidjan, while airbus 320 and 321 are utilized for short- to medium-distance flights such as Athens, Larnaca, and Irbil.

MEA’s Net Profits ($M)

90.20

63.27 61.50 63.46

2011 2012 2013 2014

Source: MEA Website

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Looking at the company’s profits, MEA’s net profits were increasing since 2012. In 2014, MEA recorded net profits of $90.20 million, surging by 42.13%. Profits are forecasted to remain on an increasing trend due to higher demand and low costs. According to Mr Saadeh, demand for flights has been increasing in the past years, mainly for 2 reasons. First, the war in neighboring Syria transformed Beirut International Airport into a transit station for Syrians to travel from. Moreover, the decrease in fuel prices pushed down with it the prices of tickets, allowing middle-income people to travel more to Middle Eastern and European countries.

MEA is the only Lebanese airline to exclusively offer its services to passengers. This contract, which was signed in 2012, extends until 2024. However, it faces high competition from foreign airlines and chartered flights, mostly due to their competitive rates. For instance, MEA would charge $400 for an economy ticket for a trip from Beirut to Irbil; whereas Fly Baghdad would only charge $300-$350 for the same ticket.

Despite its high rates, MEA has competitive advantages allowing it to earn client loyalty. First, there is a wide distance between the seats of its airplanes, of around 1 meter, compared to a 50 centimeter distance in the planes of other airlines.

Another advantage is that, 99% of the time, the arrivals and departures are punctual. In the unlikely scenario when a plane is late to depart, MEA offers its clients snacks, allows clients to make free international calls, and permits its clients to change their fare, free of extra charge.

In addition, MEA has maintained a reputation for technical excellence and high customer service standards. Flight attendants are required to know 3 languages: Arabic, English, and French. Hence, MEA has appealed to customer loyalty through high standards rather than reduced rates.

MEA succeeded in keeping its status as one of the safest airlines in the world. Since its establishment, only one accident occurred in Turkey, and was attributed to the Turkish military crew straying into Ankara Airport’s approach while on instrument training.

Among different airlines operating at the Lebanese airport, MEA ranks the first in its aircraft movement, passengers on board and cargo. Up to May 2016, 38.05% of aircraft landing in/departing from the Lebanese airport were those of MEA, followed by 5.43% to Qatar Airways and 4.33% to Egypt Air.

Of the Rafic Hariri International Airport’s (RHIA) passengers, 14.44% used MEA, 2.63% used Emirates, while 1.99% used Turkish Airlines.

As for cargo, 27.88% were delivered by MEA, 18.20% by Emirates and 12.15% by Qatar Airways.

Worth noting that MEA has joint ventures with Air France, Alitalia, Qatari Airlines and the Jordanian Airlines, allowing for more efficient operations and benefitting both consumers and airlines. This type of partnership allows airlines to align service offerings and share costs, revenues, profit and risks. Nevertheless, a setback to such agreements is to reduce competition and keep prices high.

Besides MEA’s exclusivity to be the only Lebanese airlines to service passengers, there are many barriers to enter this market. First a very high capital is needed to start an airline. In addition, the airline should hire highly qualified personnel, and establish contracts with fuel suppliers and hotels.

As for the private jet industry, MEA established a new subsidiary in early 2016, Cedar Executive, which is dedicated to VIP Private Jet travel. There were 3 private jet companies already operating out of the Lebanese International Airport: Imperial Jet, Open Skies Aviation, and Executive Sky. The three companies have a combined fleet of eight jets.

Tourism has long been a cornerstone of the Lebanese economy. Likewise Middle East Airlines, through its ups and downs, has mirrored the sector’s resilience. By prioritizing its good reputation, safety standards, and client relationship, MEA has truly lived up to its emblem and the sturdiness it implies: the Lebanese Cedar.

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Research Department: Lana Saadeh [email protected] S A L Riwa Daou [email protected] Myrna Chami [email protected] Your Investment Reference Maya Mantach [email protected] Marwan Mikhael [email protected]