Middle East: Gold in the Ashes

MIDDLE EAST

When Israeli commandos raided Bei rut’s International Airport last month, eight of Middle East Airlines’ 13 planes went up in flames. Despite this destruction, MEA did not really lose much during the raid — and in some ways is better off than before. Though a brand-new Boeing 707 jet was destroyed, the line also got rid of some aging Comets and other planes that it had been trying unsuccessfully to sell.

Keep ‘Em Flying. Most important, MEA had shrewdly insured its fleet with war-risk policies that covered the full “book value” of the aircraft. Since the line valued the planes rather generously on its books, it figures to get $17.9 million from Lloyd’s of London and other insurers — more than enough to replace the lost fleet. The true mar ket value of each of its three six-year-old Comet jets, for example, is about $400,000, but MEA listed each at $1,500,000 and paid appropriate premiums. MEA will also collect $1,500,000 for each of two destroyed Caravelles that were really worth about $900,000 apiece, and more than the market value for one lost Viscount. The new Boeing 707 is expected to bring $8,500,000, roughly what it cost. The eighth gutted plane, a VC-10, was on charter from Ghana Airways, and MEA is not responsible for its loss.

The high insurance coverage did not result from Israeli-Arab tensions, but from the brief Indo-Pakistani war in 1965. “At that time,” says Sheikh Najib Alamuddin, MEA’s president, “our aircraft served both Karachi and Bombay, and we decided to cover our fleet with complete war-risk insurance. Thank goodness we’ve continued to maintain those policies.”

MEA, the largest and most successful Arab airline, managed to maintain its service by doubling up some flights in the first days following the raid. Instead of scheduling separate flights to London and Paris, for example, it serviced both capitals with a single daily plane from Beirut. To back up its remaining five planes, the line has since chartered three Comets from Kuwait Airways, one Boeing 720B from Ethiopian Airlines and another Boeing from Air France. It will also have six months’ free use of a Caravelle owned by Morocco’s King Hassan II. Other offers to help have come in from Pan American, Lufthansa, KLM and Russia’s Aeroflot.

There is no guarantee that MEA’s recovery will last. Chartering planes is expensive and cuts into flight profits. Since the Israeli attack, Lloyd’s has increased MEA’s premiums for war-risk coverage eighteenfold, and has imposed a ceiling on what it will pay henceforth: a maximum of $8,150,000 each for no more than two airplanes. Lloyd’s is imposing similar conditions on Israel’s El Al and all other airlines operating intensively in the Middle East area.

The question now facing MEA is whether the airport raid will affect tourism and shake passenger confidence. That will not be answered until the Lebanese tourist season begins in April. For the first 19 days of 1969, however, MEA’s passenger loads were almost 20% above the same period in 1968.

American Interest. Sheikh Alamuddin does not seem to be in a hurry to buy new planes. He obviously wants to make the best deal, and many manufacturers are eager to dicker with him. The French government, which, through Air France, owns 30% of MEA’s stock, hopes to sell some Caravelles. Boeing has speeded up delivery for two 707s—MEA will get them this autumn—and would like to sell tri-jet 727s for short-and medium-range routes.

As the result of a rather complicated deal, the U.S. Government also has a special interest in MEA. Several years ago, most of MEA’s shares were owned by Beirut’s Intra Bank, which also owed a big debt to the U.S.’s Commodity Credit Corp. for some grain shipments to Lebanon. When Intra folded in 1966, an investment company was formed to take over its remaining assets, including 65% of MEA’s shares. For its unpaid bill, C.C.C. received a 19% interest in the investment company that controls the airline, and an officer of C.C.C. sits on the company’s board.