Saudi budget airline Sama delays aircraft orders over credit crunch

Saudi Arabian low cost airline Sama says it will have to delay buying new aircraft, because of the liquidity crunch in the global debt market. Airline officials said the asset price bubble across the world meant that it had to tread cautiously.

Established in December 2005 with $50 million in equity, Sama operates five aircraft, with 30 daily flights between six main cities in Saudi Arabia. It competes with NAS Air for a share of Saudi's low cost domestic carrier market.

Low cost carriers presently have just a 2 per cent penetration level in the region, much lower levels than the UK and the US. Sama sees Saudi Arabia and the wider West Asia market as one of the most attractive aviation markets in the world.

The low-cost airline will take delivery of a sixth aircraft in October to support new routes in the kingdom, and a further four aircraft in the next six to eight months. It has
plans to expand its fleet to 35 by 2010, but now says it will take the new aircraft on an operating lease basis, as the new aircraft market is very overblown and aircraft are very expensive. The leased aircraft will be financed from existing cash flows.

Earlier this year, the airline raised $30 million more from its founding investors, rather than go to the debt market. Sama has said, however, that it may take advantage of order cancellations resulting from the international credit crunch. Airline officials denied media reports that it plans to launch an initial public offering (IPO) in 2008.