Dubai 2007: The race is on

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The UAE's big two emirates have ambitions to diversify their economies by becoming global aerospace players, but can Abu Dhabi catch up Dubai?

Dubai may have got there first, launching Dubai Aerospace Enterprise (DAE) last year as a holding company for a series of aviation-related investments and business ventures in and beyond the Gulf.

Now Dubai's neighbour Abu Dhabi wants to do the same, using as its vehicle a new aerospace division of government-owned investment house Mubadala.

There is intense sibling rivalry between the two city states. Lacking Abu Dhabi's natural resources, tiny Dubai has famously turned itself into the region's premier trading, finance and tourism hub with its own hugely successful international airline, Emirates, and plans for the world's biggest airport.

Oil-rich and more conservative Abu Dhabi is keen to emulate some of Dubai's success, creating in recent years a slew of prestige hotels, a Formula 1 race track and its own flag carrier, Etihad.

 
 © DAE
Bob Johnson, chief executive Dubai Aerospace Enterprise, says the company's six business divisions - airports, aircraft capital, education, maintenance, manufacturing and services - are already making plays in the market

Mubadala has been keeping its cards close to its chest ahead of the Dubai air show, but its plans are likely to involve Abu Dhabi's maintenance, repair and overhaul organisation Gamco and possibly some more strategic investments overseas, perhaps following DAE into the US maintenance, repair and overhaul market.

Mubadala already has a 35% stake in Italian business aircraft manufacturer Piaggio and owns Horizon Flight Academy. Together with DAE and another Dubai investor, it last year bought European MRO house SR Technics.

And at the Paris air show in June it signed memoranda of understanding with both Boeing and Lockheed Martin to investigate joint ventures in technology development and MRO in the Middle East.

Mubadala's chief operating officer Waleed Al Mokarrab al Muhairi was not giving interviews before Dubai, but at Paris he said that the manufacture of advanced aircraft structures at Gamco was one possibility being looked as part of a strategy to diversify the Abu Dhabi economy away from its dependence on oil revenues

Over at DAE's new offices in Dubai's Sheikh Zayed Road business district, chief executive Bob Johnson says that, 15 months since its first employees arrived, the company's six business divisions - airports, aircraft capital, education, maintenance, manufacturing and services - are already making plays in the market.

Two are fully in motion: the first 21 students began courses in September in the new DAE University (see Training) and the engineering division has bought North American MRO outfits Landmark Aviation and Standard Aero to add to its part-acquisition of SR Technics.

New technologies

A further two divisions are poised for business. Services, which will "find, acquire and develop new technologies that are helpful to airlines or airports" is partnering Arizona State University to market software for managing airport operations. DAE plans to exhibit it at the show.

Meanwhile, DAE Capital is likely to get kick-started at Dubai with a deal to buy aircraft from a major leasing company as well as a sale and lease back arrangement with Emirates. This follows an unsuccessful attempt to buy Singapore Aircraft Leasing (SALE).

The final two divisions are dipping their toes in the aerospace pond. Airports is still waiting for its first overseas contract after failing to buy New Zealand's Auckland airport this year, although it has signed an MoU to work with the operator of Dubai's existing airport and the developers of its new one, Dubai World Central, at Jebel Ali. The manufacturing division is focused on attracting new production facilities to Dubai World Central. Like Mubadala, DAE signed an MoU with Boeing at Paris and Johnson promises to reveal more about the deal next week.

"It means we have moving body parts in four divisions of the business," says Johnson, the former head of Honeywell Aerospace. "Manufacturing and airports are later-cycle businesses. We've made plays in both cases, but I think we'll have to be a bit more patient. We're not in a rush to get something done this year."

Progress in general has been good, says Johnson, who was lured to Dubai from retirement in the USA to be the first boss of DAE. "Since August last year, we've created six businesses and a holding company. Our [Dubai-based] shareholders had never worked together before but we have aligned them and invested in a governance system. I could say we've done incredible things and that we're way ahead of schedule. But, then again, we could have done better," he says.

Different and better

Johnson is adamant that DAE is about more than lavishing its shareholders' cash on acquisitions simply to create scale. "I disagree passionately that we are not adding value and synergies," he says. "We have an opportunity in each of these cases to do something different and better."

In the case of the flying college DAE plans to launch next year, the company will be able to "graduate an equally competent pilot in about half the time" that pilot would need in most other schools. "In a world that needs competent pilots, we can supply more, faster," says Johnson. With Standard Aero and SR Technics, "we are not just accepting businesses, but building them and connecting them to best practices, leveraging them into a global marketplace and bringing them to a region where the growth is".

Similarly, Johnson is convinced DAE can add value to the aircraft financing business, despite competition from global players. "This is about assets, purchased at the right price, leased to the right customers, maintained at the right times and at the right places," he says. "We are in a market where aircraft are in high demand. We are very comfortable about being in the leasing business."

And what about the challenges of starting a company, with potential assets of billions of dollars within two years, completely from scratch? Johnson now has in place six divisional chief executives and a "horizontal" team at headquarters. "One of the first things we had to do was make how do we work together rules. We had no common DNA. It has been up to us to establish that," he says, adding: "We've had to do everything from scratch. There isn't a cookbook."

The company's frantic shopping list of potential acquisitions across a range of markets has caused a "bit of a race" between various divisions as they have competed for shareholder investment, says Johnson. "There are lots of good ideas, but it's all about show me the money - our divisions have operating budgets but we are not setting up six banks."

With both DAE and Mubadala anxious to prove their credentials as global aerospace heavyweights, the stage is set at the Dubai show for several far-reaching announcements.