Abu dhabi Aviation becomes a bellwether for oil industry's prospects. Image Credit: Gulf News Archive

The OPEC+ managed to seal a compromise deal agreeing to ease oil output cuts by 500,000 bpd to 7.2 million, starting January. Nevertheless, oil prices have managed to hold their own despite the marginal production increase.

That stability is due to rapid demand recovery in China as well as vaccine-related optimism that mitigated supply concerns. Expectations of a US economic stimulus package also supported risk sentiments.

The OPEC meet gave us exciting insights into the inner workings of the group. From UAE's perspective, it was cutting around one-third of its production capacity of 3.9 million bpd. From January onwards, the UAE is expected to produce 2.62 million bpd.

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Busy first quarter

Moreover, UAE's plan to launch the trading of 'Murban' crude futures in the first quarter of 2021 means it has to ensure a free flow of oil. By 2030, UAE plans to up its production to 5 million bpd.

The UAE's plans augur well for Abu Dhabi Aviation, whose primary customers are located at oil fields and other prominent installations in the UAE and other Arab states. With Abu Dhabi International Airport as its base, Abu Dhabi Aviation is the largest commercial helicopter operator in the Middle East, operating 50 helicopters and four fixed-wing aircraft.

Timing it right

In addition to flight charter, the company also offers an MRO (Maintenance, Repair and Overhaul) facility, flight training and also provides luxury jets through its subsidiary Royal Jet.

Just like other aviation companies, Abu Dhabi Aviation got impacted by restrictions on operations. Nonetheless, Abu Dhabi's long term plans to almost double oil production provide the firm with more business opportunities. It is common sense that more production means an increased need for flying personnel in and out of installations... and which means more business for Abu Dhabi Aviation.

Proxy for oil plays

In fact, this rise in sales will materialize next year itself as UAE eases on its production cuts. In many ways, this company is an excellent way to get exposure to the UAE oil industry without getting impacted by the fluctuations in oil price.

Whatever the price of oil, Abu Dhabi Aviation's services are a must. A recovery in the business of its subsidiary, Royal Jets, will be the icing.

In 2020, despite the many challenges, Abu Dhabi Aviation posted a profit for the first nine months. It had a consolidated profit of Dh113 million in contrast with Dh223 million last year. Well, the worst is behind it. The company with a market capitalization of Dh1.55 billion gives shareholders a dividend yield of 5.71 per cent.

With Abu Dhabi Aviation, the sky could be the limit.

- Vijay Valecha is Chief Investment Officer at Century Financial.