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)
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.
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 49 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
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 86 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 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 201 7.3.1. GACA and Civil Aviation Regulation 201
7.3.2. Liberalisation and Privatisation Strategy 206 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 270 Appemdix 3: List of Interviewees 271 Bibliography 275