Oil giant, 10 of the subsidiary could be sold off. Plans to pay shareholders 400 million in 2018 and 2019. Tracy alloway spoke exclusively to the ceo and asked for more details about the plan. The announcement said at least 10 . We might go a little higher, that will depend on how the market is over the next few weeks. Tracy is there particular valuation you are targeting . Not really. A firstto demonstrate of its kind ipo in the region. What we are trying to achieve is a way to ensure an unprecedented [indiscernible] market and domestic and local investors to work alongside. Tracy there are of course rumors you might look to float other businesses. What else might be in the pipeline . Were looking for ways to maximize value to shareholders while keeping it wholly owned. Having said that, we are looking at exploring the whole value chain with the main focus being on service systems. Tracy you keep rolling out a listing at the Holding Company level, you did it earlier today during your speech. Why is that . You have a neighbor across the border that is listing at the Holding Company level. Simply because we have had some incidents in the past where people have thought that we were insinuating we would not be in the market, which is incorrect. What we are exploring is subsidiaries that are whollyowned. Tracy could you get some Strategic Investors in cornerstones for the listing of the Distribution System . Absolutely, we always look for Strategic Partners that would bring value. They would help us grow. Tracy the other thing i want to ask about is the partnership process. How are the discussions with potential partners going, and who would be your ideal partner . The criteria is simple, we have a very sound track record. Here, we applied the same methodology, we look for partners that share the same values and same vision who are looking at the market in a positive manner. That would bring value and access to technology and the markets and help us grow in a smarter way as well as provide a platform to upscale our company. Tracy you mentioned financing. You did just sell your first bond. That is a huge departure for adnoc, is that a tough sell . Do they understand why you are tapping the bond market . It is a signal that had a positive Ripple Effect on the domestic market. [indiscernible] to what extent we are willing to go as far as transformation is concerned. It had a positive impact. Yousef still to come, a boost for boeing. The u. S. Playmaker seized an order from airbus. We hear from tim clark next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. There was some skyhigh drama at the dubai air show this week. The french playmaker airbus had been expecting to sign a deal with emirates, but at the last minute, the carrier went with boeing instead, ordering 15 billion worth of its 787 dreamliners. I spoke with tim clark about the move. Its an aircraft fairly late in its development. We always asked for something along those lines. In our view, over the shorter range it has perhaps better economics. Airbus may argue the opposite of that. It will be an airplane that appears in our fleet in 2022. We are retiring some of our planes. We will also be receiving 7779s and 7778s. It becomes a complementary fit to the fleet. 787380 at the up and in the at the lower end. Yousef looking at new with the new planes, could you be looking at new destinations, looking at perhaps hiring more aggressively to service what you can see as new pockets of demand . This aircraft will be an enormous asset to us on existing routes, it allows us to open routes perhaps were a little bit compromised with the size of aircraft we have today. We can then institute far more city fares. You are right, we see this as a gross vehicle as well as a vehicle that better suits the demand as it would be today and the way we forecasted. Yousef you recently celebrated an aircraft. What will happen to the older ones . Will you take them back, hand them out . Talk us through your thinking. We had 100, it was part of an order for 142. Aircraft is so flexible is successful for emirates. It carries our brand. We have done a great things and we will continue to innovate those. It remains a constant for us. In my view, as we go forward, the airline has capacity to take more of those on. Yousef another model is a contentious one, we have seen a lot of airlines, especially in china and india, ordering smaller aircraft for pointtopoint. Is there a shift in the industry . It is interesting. When we started the airline and we started what we call the beginnings of a megahub, we were picking off what we would call second and third and fourth level cities. They said they would never work and we must concentrate on the hub and bring things on smaller jets. What people are now doing, i am not boasting they are now realizing there is a lot of demand going direct between third and fourth level cities. That is not to say the hub or super hubs day is over, its more a question about distribution of traffic flows served by a better type of aircraft, that is true. Look at what the Airline Community was using in the 1980s and 1990s. It also presupposes that if the hub doesnt work its because it is not going to grow. We have had our difficulties, geopolitical, economic, whatever, but in the end, things will come back. Already cargo is in double digits and passenger demand is picking up quite rapidly. Yousef still with the air show, the ceo of the brazilian aircraft maker said he is bullish on the middle east and hiring more staff globally on an expected boost in orders. Here is my interview with john slattery. It is a very big region for us. We expect roughly 350 aircraft in this region over the next 20 years. We are very focused. We have a big delegation here, not only from commercial aviation, but defense, we have aircraft and mockups, we are delighted to be here. Yousef the company has described the upcoming year as a transition year. Quite a few challenges you are dealing with. What kind of cost savings are you looking at to help boost the margins a little bit . Lets stay with the transition first. Next year is the end of service of e2. We are on time, on schedule and on budget for the e2. That is the first point. It is typical for any oem to have a transition when you enter into service anywhere. We get guidance in the market on the impact that will have. There is a slight dip the next year. Forward, we are focused on what we call the passion for excellence. We have a focus across the board on improving efficiency. Thats not just costcutting, but in every facet of the organization to improve efficiency and get margins back in the nearterm to mediumterm to high single digit, low double digits, high single digits. Yousef weve seen an interesting move from airbus in terms of getting involved with the cseries. How do you respond to that . A couple of things. This is another move by the company to exit the ownership of the cseries. The move by airbus is an engagement. It is not a marriage it. It will have to go through antitrust immunity. They will go through that process over the next 612 months, however long it takes. It puts a spotlight on the 100, 150seat segment. I think we will be a beneficiary of that as more and more parents get the concept of operating dual fleets. Airbus cannot get involved, now that the antitrust process has started, they cannot get involved until immunity is granted and the joint venture is approved probably later next year. Until then, we continue to raise the profile of the concept ourselves. Yousef it does make the market for the e2 more challenging. Is it worth a thought to team up with boeing . I think it makes the market for the e2 better. Why i say that is we now have the Marketing Team of airbus raising the profile of a concept of dual fleets with their Customer Base around the world. As we sit here today, we enjoyed the Customer Base of 100 jet operators in many countries around the world. When airbus start to marketing next year, they will raise the concept of operating dual fleets to the Customer Base. To that end i am hiring more , sales people, more marketing people around the world right now because we expect more activity in our space over the next few months. Yousef you put in a complaint for cseries subsidies. Where is that at the moment, and are you going to continue pushing for that . We are absolutely focused and committed to supporting the brazilian government in their mission at the wto, and the panels that have been opened. We are focused on that and the move by bombardier to upload more of the Equity Ownership to airbus and to potentially produce aircraft in north america. That does not take away from the fact that subsidies were taken by the canadian government to keep the program alive. The brazilian government is very focused on fleshing that out. Yousef up next, long live the bromance. The global head of Commodities Research at citigroup says the Oil Output Cut by saudi arabia and russia must continue. We discuss that next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Oil prices will collapse if producers fail to extend supply cuts, that is according to the global head of Commodities Research at citigroup. He characterized the relationship between saudi arabia and russia as a bromance and said that anything other than a decisive step forward could trigger a collapse. Research howead of much of a Production Cut extension he thinks is needed. A ninemonth extension, anything shorter could be [indiscernible] oil prices on the 13th of november. I think taking a step back and putting it in the context, some of the Oil Market Fundamentals have been driving all markets in prices sharply in the last few weeks. Adding onto that the geopolitical factors and increasing optimism that an opec deal will take place in some form or fashion. Yousef we just got an note from the iea, they said the longterm forecast for crude oil has been slashed by 18 . They are saying that there will be a boom in the u. S. Sale u. S. Shale story. Would you agree with this kind of bullish outlook . We are very bullish on the shale story. Engineers will continue to find pioneering ways to extract shale at Lower Oil Prices over time. If you cant beat them, you have to learn to live with them. I think the shale story is one that will be over time. David this is david in hong kong. Is the oil price priced for perfection . I think, from our view, anything in between 40 to 65, in the sense that a soft ceiling of 65 and the levels were the markets are at the moment, shale producers will become more efficient and we could to have oversupply again and will bring the price back down to levels of around, anything around 50 or potentially below. We have looked at our models in terms of corridors between 40 and 65 at the current juncture. Yousef the bullishness we have also seen from hedge funds at record levels is also coming from the geopolitics and the nervousness in this part of the world, especially around the Iransaudi Arabia rivalry. We put on a chart what has been happening with credit defaults. Take a look at this. 5114. This was crafted hours ago. You are looking at abu dhabi credit default swaps. We added the saudi, as well. Key points, beginning of the month, november, major spike for both of these credit default swaps, almost the levels we saw what the gulf standoff in the summer. How worried are you that this will go to a level where we could be looking at military options . I think military options are very slim, in our opinion. I think it will still be played out in proxy wars in yemen and so on. Investors are building in risk premium, as you suggested in your chart. Given the large level of uncertainty about next steps, of course from saudi arabia, what will be the next steps . We heard from the attorney general this is stage one of the operation. We can expect more guidance and predictability about next steps. Maybe investors will take more comfort in terms of their level of risk premium they build into the markets. Yousef staying with the energy scene, the Egyptian Oil Minister told us his country will stop importing liquefied natural gas in 2018 and may eventually be exporting natural gas after it starts producing from giant fields off of the countrys mediterranean coast. Tracy alloway spoke to a guest in abu dhabi. It means a lot of things. First of all, it means good gas filling the gap between consumption and production. Number two, and it is also important that this is a big discovery, and this means that we are now getting through new horizons and new potential discoveries. So potentially, we might find some other resource. Number three, is showing to all multinationals and iocs that we can do extremely well when we giant discoveries, big projects to be developed and come into the stream to be competitive in a short period of time. Tracy what interest are you seeing from International Oil companies . It feels like some countries are cutting back a little bit at a time of low prices, including for gas. No, actually, what we have seen lately, and i would have to take again the example, when we stopped the development of the feed it was only eni. We were joined by bp and others. This meant interest. And potential newcomers. Coming for the first time in the oil and gas industry in egypt. This shows international desire, and appetite to come. We have already our main and important strategic players in egypt. However, newcomers are also a success for egyptian oil and gas. It demonstrates the trust and confidence they have seen in the system. Tracy any potential newcomers we dont know about yet . Who are you talking to . No, actually, for the time being, no, but we are not stopping from trying to attract more newcomers and new iocs. We want to have our plate full of big and important players. As i was saying, we consider a game changer. We have a lot of dynamics happening around us our , investment not only offshore egypt but in the eastern mediterranean. This will qualify the area and egypt to have potential newcomers and iocs. Yousef up next, regional tensions shifted up again this week as bahrain accused iran of sabotaging an oil pipeline. We have more details and analysis next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. The week began with bahrain blaming iran of sabotaging an oil pipeline. And i could position that will likely increase tensions in the middle east and comes after riyadh accused iran of being involved in missile launches by yemeni rebels. I got more on this from our guests. There has been a real buildup, sort of another piece that is coming in, you know you have initially the resignation of the lebanese prime minister, the rockets coming in from yemen. The escalation of rhetoric. You get the sense there is a ramping up of tension of rhetoric that could lead to something, nobody is quite clear exactly what it is leading to. In lebanon, there is a lot of nervousness, a lot of questioning what exactly is going on. Yousef jean paul, lets get you into the conversation. What is the next level of escalation . We havent really seen direct confrontation between iran and saudi arabia. Could we see more proxy intensification of those conflicts in place of like lebanon . You are right. Weve not seen a direct confrontation and i dont think the chances of one is likely in the near term. Tensions have escalated. There is confrontation around the region. There is confrontation going on syria, andraq, possibly lebanon, as well. I think the broader story from all of this is that Political Risk is on the rise across the gcc and the middle east, and while investors in the middle east are used to some level of Political Risk, theyre not necessarily used to the risk emanating from the gcc. Tracy i want to pick up on that point. Traditionally when we see Political Risks rising, you see investors back away from those markets, but in the case of saudi arabia, this anticorruption crackdown is sort of being pitched as an indication that reform is coming, it will make it easier for reform to happen. That is the positive story that has been spun for some investors. If you look at the chart behind me, you can see Foreign Ownership of saudi stocks has been trending down recently. On a netnet basis, is this good or bad for Foreign Investment in the market . Great question. In the longterm, definitely a positive. If everything that happens from here on out goes in the right direction. Clamping down on corruption is a positive for any emerging market, but clamping down on corruption is not just about arresting people, it is about the rule of law, due process. As far as we know 200 individuals have been arrested, we dont know the names of the individuals or the specific crimes, what they are alleged to have committed. If you also look at the industries involved, government, aviation, media, construction. It is wideranging. It shows it is not an isolated case but highlights a structural deficiency within the institutions. Tracy i want to bring you back in on the notion of Foreign Investors potentially leaving saudi. What are we expecting in terms of outflows from the market and do we expect to see any reaction from the Saudi Authority . Maybe even capital controls, if necessary. Theres a lot of nervousness in the saudi wealthy right now. They are nervous about being seen to try and shift money out of saudi arabia. They might be tempted, but they are probably saying, i dont want to come into the crosshairs of this. What we are hearing is that a lot of them are looking at their investments, the more liquid assets they have overseas and in the gulf in particular and trying to shift out of the gulf countries, fearing there will be request from the saudi central bank, from the saudis to the uae, to the other countries to free some of those assets. Youre seeing a lot of calls to Fund Managers saying, help me out here, how can i get the money out . Yousef what is the next step in terms of Saudi Foreign policy in and the situation as it stands in lebanon . We dont quite understand where the lebanese prime minister, who resigned . Isnt that true . As far as we know he is there and meeting people. He met the russian ambassador, he has also traveled to the uae, meeting the crown prince of the uae. He seems to be out and about in the sense of saudi arabia and allies, but he is not in not returning to lebanon. The big question is, he resigned in saudi arabia, why arent you coming back . It is leading to accusations from some lebanese parties that he is being held against his will. The issue is that the uncertainty, which is what investors usually hate, the uncertainty is that nobody really understands what the next step is, what is going to happen, or what the demands are. Saudi arabia is basically trying to draw a line in the sand against iranian influence, but what other steps will it take to concretely achieve that . Yousef coming up, the need for speed. We speak to the ceo of a company hoping to bring supersonic Passenger Air travel back. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Lets get back to the dubai airshow where i spoke to the ceo of boom technology. They are working on bringing supersonic air travel back. I ask how his company was making progress towards that goal. There has been a lot of great news since we spoke in april. At the paris air show, we announced we are up to 76 preorders, that is great traction ahead of plan. Yousef what about this time around . Are you going to be making any announcements . We have some announcements and program updates. We will be talking about formally launching the process the Site Selection process for the airliner and key hires, also interfacing with Public Policy globally. Yousef have you been able to tie anything down with Major Airlines . I am thinking emirates and etihad. I dont have anything i can announce quite today. Yousef but you started the discussions . We are talking with over 20 airlines globally, there is tremendous interest in the gulf. Geographically, we are ideally positioned to build eight build a supersonic hub here. Yousef when you talk to these airlines, what is the main concern at this stage . That the technology is not refined, or the cost, or the shift from the traditional fleet . I will tell you what it is not, it is not interest. Passengers want to get there faster and airplanes are flying airplanes that look about the same. There is tremendous interest in Something Different and compelling, that will increase the rate of travel because you make the world more accessible. Yousef what about issues from a regulatory perspective . Surely airlines are concerned about that, issues like noise. That is sensitive in some markets like the u. K. People are concerned about aircraft noise, that one of the but one of the things about supersonic, it got a bad rap 50 years ago. Our aircraft is quite enough to land in london at night. Yousef what about funding and making sure you continue to test according to plan, any current strategy to raise additional funds . We are funded through first flight, through our test program, which is exciting. One of the things were doing in the middle east is talk about opportunities for next steps. The next step in production is capitally intensive. Yousef how would that work . Private placement, some sort of bond issuance . There are a lot of different kinds of capital to come together to find something this to fund something this complex. Yousef how much would you like to have in your war chest . Theres no such thing as too much money. Yousef another 100 million . I would take that. Yousef half 1 billion . How much are you really any for . How much are you really aiming for . In the shortterm we are fully funded. Were trying to get to the point to build 100, 200 airliners per year. Yousef what about some of the issues with the faa . Have those been ironed out . We are getting nominal we are getting phenomenal support from the faa and european regulators. We just hired a former head of Environmental Energy from the faa, she is joining our advisory board. We are getting fantastic support in d. C. There is a bill in congress to repeal the speed limit in the u. S. It would open further opportunities for supersonic. Yousef when we look at the recent introductions of new ideas and new product from the likes of airbus and others, boeing included, the testing and refinement phase is very painful and difficult. To iron everything out. What are you seeing in what you are testing at the moment and what convinces you that you are not going to face bugs that will take time and money to fix . This is hard, it is not something you done because it is easy. This is something you do because it is important for the world, to make the planet more accessible. The reason it is possible to do this as a new company is all of the Key Technology for the airplane, the materials, the engines, these are all flying today on other aircraft. We are not inventing anything fundamentally new, no scientific breakthrough needed, just hard engineering. Yousef i want to take you back to the region in terms of, what is your priority market . The uae . If you had pick one. I think there is interest everywhere here, i dont think it is just one country or hub. We might pick one to the first we might choose one to go but first, there is interest everywhere. Yousef i also sat down with the ceo of the uaes only listed airline and regions first lowcost carrier. It has big plans to open new destinations with six new orders for airbus 321 neos. I spoke about the airlines strategy. We have a couple of announcements to make. We have signed for longhaul airplanes. The other one is a ceremony we will be doing. Yousef those additions help you cap new destinations . Tap new you cap new destinations . Absolutely. In our business, you tend to always want to fly a little more, a little longer. Airplanes with a few more seats. That will have to be a continuous process. Such a do, particularly the airbus 821, whipple, the service in 2019, itll give us the opportunity to reach places that at the moment the 320 is not reach. From here in the uae, particularly to hubs in a morocco and egypt, it will take us to those places. Yousef i want to take you to the issue of the geopolitics of the region, rhetoric very sharp in the last few months. How worried are you that this will be disruptive to your growth ambitions . There are two sides of such things when they happen. In a way, we are fortunate that despite all of the geopolitical issues that have been taking place for the last five or six years in the region altogether, the business has been growing. Both in terms of percentage of passenger numbers, aircraft and profitability. We have done well. I read into it, i see now that places like egypt, for example, we are putting more resources into egypt this year, particularly in 2018, because we see the currency has been stable for 12 months or more, we see tourists are getting back and more egyptians are traveling out. That is encouraging. Here, we continue, we are adding more airplanes into our base. We are getting six airplanes, they will fly a little longer. Yousef we have seen a rally in oil prices, at what price level would you start becoming worried even the fact that you are a lowcost carrier . I think oil price generally, whenever it is too low, airlines dont do well. I think at the moment it has gone up reasonably around the world, which will help the economy. That makes me feel more optimistic for 2018 and 2019. We always say oil prices between 60 and 80 are fine. When it goes beyond those numbers, it becomes a concern for anybody in the transportation business. Yousef youre coming off strong thirdquarter numbers, coming off higher revenues, as you look to 2018, what will be the defining theme for you . What will be the next catalyst . I think we have done extremely well this particular year, it has been a record nine months. That is because air arabia in uae has done well. Our hubs, we have worked for a worked very hard particularly , the moroccan one has contributed to our profitability, and all of our subsidiaries. I see no reason 2018 should be any different. Yousef up next, the middle east is trying to move away from oil reliance yard so is ford. We speak about electrification plans. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Gas guzzling vehicles have been a common sight in the middle east, now forward is taking a cue from tesla and declaring electricrification plans for the region. Four hybrid ford models are coming out in the next four years. I spoke to the ford group vp. It has been a little bit slow, we have seen our share grow well. Weve been happy with the region generally. It is a tough time for the industry. Yousef how can this new strategy help you . Perhaps you can give us numbers as well, perhaps there is a market share for vehicle sales, give us an idea of where you would like to go. We dont break out the shares by market in the region because we dont have the data, but across the whole region, we have a share of about 6. 5 . A reasonably sized part of the business. This region is an important part of fords global business. We are happy to be here. Launching new products at the show this week, you mentioned our four hybrids over the next four years. We enter electrification. We see a shift in consumer demand and move away from some of the gas guzzling vehicles. David this might be a fairly simplistic question. What is the appeal for the electric car in a region where fuel is cheap . We think hybrid vehicles you have to remember ford is the second largest producer of hybrid vehicles in north america. We have a lot of experience providing great products to customers who want a little bit more performance and utility from their vehicles. We see a great space for hybrid technology here in this region, as we do across the world at the moment. David and to the saudi story, just a month back, they are allowing women drivers. Now we have given that time to simmer, what is the incremental growth you are seeing from the lifting of the ban . Probably a little early to put numbers around what the growth is, but we are really excited we have a whole new group of customers we can focus on in saudi next year. Were working with distributors, dealers and customers to work to welcome into the brand to make sure we have the products and services they are looking for. Including rolling out some of our driving skills for Life Training programs, so they are well equipped to drive the new fords. Yousef you have a wide geographical reach. I want to get insight of where you are seeing the most impressive pockets of demand. Perhaps it perhaps even by individual countries the markets , you are really excited about going into 2018. We just talked about saudi, a big opportunity for us, our biggest market by size and sales in this region. And the opportunity with the announcement being made gives us a whole new set of customers. Dubai is a big market, were looking forward in getting traction with the new exhibition we are showing. I think across the region with the a lot of opportunity and , its one of the growth highlights at the moment. Yousef thats it for the best of Bloomberg Markets middle east. A busy week ahead in the region and we will be right here at the start of the trading week in the gulf sunday morning on bloomberg television. Im yousef gamal eldin. Do join me then. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Jonathan from new york city, i am jonathan ferro. With 30 minutes dedicated to fixed income. This is bloomberg real yield. Jonathan coming up, republicans inch towards tax cuts. Pay plan to stimulate growth fails to fuel the reflation trade. The Treasury Curve is even flatter. The difference between short and longterm yields is the narrowest in a decade. And it is a resurgent and for the week for credit. A long correction, at least for now. We begin with the big issue, a is there a signal in the treasury market . The fed operating on the short end of the curve, Global Markets operating onon