Lebanon's national carrier, Middle East Airlines (MEA), is bucking the international trend and looking to record a sixth straight year of profits, while embarking on an expansion programme aimed at restoring the airline to its glory days.

On September 22, MEA Chairman Mohammad Hout told local media the airline had been operating at full capacity over the key summer months, a reflection of the country's recent respite from political conflict.

"During the months of July and August 2008, all seats on the company's planes were reserved," Hout said. "That's why we always focus on stability in Lebanon, which serves everyone."

Founded in 1945 as one of the region's first independent airlines, MEA has experienced both highs and lows. Having developed a world-wide network by 1975, it then halted almost all operations during the civil war, leasing its aircraft and seconding staff to other international carriers as the conflict periodically closed Beirut airport. Between 1980 and 2000, the airline racked up losses of $400m.

Since that time, MEA has undergone a major restructuring, cutting loss-making routes, reducing staff and shutting a number of overseas offices. The slimming down process has seen the airline fly back into the black, with MEA posting profits of $36m in 2006 and $60m last year.

These results are especially laudable given Israel's military incursion in the summer of 2006, which effectively killed off tourism during the peak season that year, and the political instability and outbreaks of violence and civil unrest that marked 2007, along with soaring international fuel prices.

MEA's success has continued into 2008, with projected profits of $70m, despite still higher fuel prices and an economy that was suffering from political instability up until May, when an agreement was struck to elect a president and form a consensus government.

Nevertheless, it is not all good news for MEA, as Hout announced on September 22 that the airline had for the moment decided to shelve plans to list 25% of the company's shares on the Beirut Stock Exchange (BSE).

The company is currently owned by the Central Bank of Lebanon, which took control in 1996 as MEA's losses mounted. While there have been multiple proposals to privatise the carrier, in the past was felt best to put the airline on a sound footing before a sell off. Now, with the global economy in decline, Hout said the initial public offering, scheduled for early 2009, had been postponed due to poor market conditions.

Funds generated from the IPO would have come in handy, as MEA has just embarked on a modernisation programme that will see nine new Airbus A330-200 planes added by 2010. While necessary to upgrade the airline's aging fleet, the acquisitions will also increase MEA's debt burden. According to Hout, on top of previous loans of $180m, the expansion programme will add a further $450m of debt, along with $65m borrowed from the Lebanese Canadian Bank in mid-August to fund the purchase of a tenth Airbus.

Though MEA's achievements are impressive, the airline industry is indeed experiencing troubled times, with at least 20 carriers grounded this year, according to the International Air Transport Association (IATA). Along with fuel tariffs, which now account for 40% of airline costs, up from 13% seven years ago, the IATA also warned at the beginning of September that the global economic downturn would result in a drop in airline profits and reduced passenger growth rates.

Closer to home, MEA has to contend with strong competition for passengers. Though a proposal earlier this year from the government of Prime Minister Fouad Siniora to launch a second commercial carrier was dropped amidst vocal opposition by MEA's staff, more than 40 other carriers currently fly into Beirut, due to the government having adopted an open skies policy.

The airline also has to contend with the spectre of renewed political unrest and international conflict. Threats from Israel of further military strikes against Hizbullah, now a part of the national unity government, or recent reports of Syrian troops massing on the border could easily undermine tourist confidence in Lebanon as a destination.

With the IATA warning that Middle Eastern airlines face a one third drop in profits this year, and little better in 2009 with weaker passenger and capacity growth predicted, MEA may struggle to meet its profit goals. This in turn may make its debt servicing more difficult, though it has the advantage that most of its loans are with local banks, which have high levels of liquidity and a history of supporting the airline.

That said, MEA has charted a path for recovery and so far not strayed off course. Having survived invasions, civil war, political instability and losses that would have shot down lesser airlines, MEA is still reaching for the skies.