Aerospace Industry in UAE

A Hot Tip about Aerospace in the United Arab Emirates

Last updated: 10 Dec 2011

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Summary

The United Arab Emirates (UAE) is arguably the most politically stable country in the Arab world. Its military and its major commercial airlines are currently in the process of expanding their aircraft fleets overthe next several years. There is no question that the UAE’s aviation sector has played a significant role in thecountry’s economic success. Transport has rapidly become a strategic priority. The UAE’s objective is tomake the country a major transport hub between Europe and South-East Asia. Accordingly, each Emirate isinvesting billions of dollars in developing its aviation infrastructure and airlines.

Due to close political, trade, and military ties, the UAE’s aerospace industry (both civil and military), hasbeen heavily oriented towards U.S. and Western European technology and products.Thus, the UAE presents ever-increasing business opportunities in the aircraft and ensuing aircraft engines,parts, components, accessories, repair, and maintenance services.

This report offers an overview of the UAE aviation industry and hopes to provide US firms with a briefunderstanding of the UAE aviation market. We also recommend reading two separate reports released inJanuary 2008 on the Dubai Airshow 2007 and airport construction projects in the UAE.

 

Market Overview

Military Aviation

The UAE’s defense authorities continue to launch new programs and push for modernizing the capabilities ofthe land, air, and naval forces. Defense expenditures of the Gulf States are among the highest in the worldrelative to population.

The UAE’s recently completed 10-year defense modernization program has helped create a military with thepotential to challenge Iran and Saudi Arabia for regional dominance. It seems the UAE has little to worryabout for the time being – a stable political system, a strong economy, limited security threats, and a militarywith technology that can, in some aspects, rival the best in the world. However, the UAE’s inauspicious geostrategiclocation dictates a permanent state of insecurity. Minor territorial disputes with Iran continue to put alow-level security pressure on the Emirates, while instability in nearby Iraq and political uncertainties in thewider region provide reason for caution.

The UAE engages in a brisk arms trade with a variety of international suppliers. Regional security imperativesmean that the UAE is consistently looking to maintain its credible deterrent force by importing the latesttechnologies. To dilute the potential political effect of heavy reliance of foreign arms producers, the UAEconsciously aims to diversify its suppliers among the four main global suppliers of arms: the US, France, theUK and Russia.U.S. firms have been major players in the UAE’s efforts to maintain and upgrade its air defense capabilities.Lockheed Martin Corporation (LMC) and Raytheon Company, for example, have worked closely with the UAE Government to provide solutions to its air defense needs.

LMC has supplied the UAE Air Force(UAEAF) with 80 Block 60 F-16 Desert Falcon fighter planes, complete with computer codes, whileRaytheon has had a presence in the UAE for decades and has been a key provider of UAE air defense systemssince 1980.According to a senior UAEAF commander, by 2010, the UAEAF would be equipped with 80 F-16s; 63Russian Mirage 2000-9 jets; at least 36 light attack aircraft and trainers; tankers; early warning airborneplatforms; UAVs; a sizable number of transport aircraft; and utility, medium and heavy helicopters.DynCorp holds contracts with the UAE Defense Ministry to provide maintenance services for the UAE’s fleetof 30 AH-64 Apache helicopters, as well as maintenance and facilities management services for the UAEarmed forces’ fleet of 17,000 ground vehicles.According to aerospace industry reports, the UAEAF is also soon expected to announce a $1 billion deal forthe purchase of some 40-50 next-generation trainer jets. The two remaining contenders in the race for thedeal are Italy’s Alenia Aermacchi M-346, and South Korea’s Korea Aerospace Industries (KAI) T-50 GoldenEagle Supersonic trainer jet. The Korean jet was developed in partnership with Lockheed Martin and beganmass production in 2005. Industry analysts had expected a decision before the end of the Dubai Airshow inNovember 2007 but no announcement has been made.At the IDEX 2007 Defense Exhibition in Abu Dhabi, the UAE Armed Forces GHQ signed an MOU withEADS CASA for the procurement of the A330 MRTT as the new air-to-air refueling aircraft for its Air Force& Air Defense. The expected order will be for three A330 MRTT aircraft, equipped with under-wing podsand an Advanced Refueling Boom System, and will be due for delivery beginning 2011.The UAEAF is also soon expected to make a decision regarding its key Airborne Early Warning and Controlaircraft (AEW&C), and according to military and industry sources, the three competitors are NorthropGrumman’s E-2D Hawkeye, Boeing’s 737, and Saab with the Erieye system presentation.

Meanwhile in November 2007, Raytheon Company won a major contract to provide its AutoTrac III airtraffic management system to the UAE General Civil Aviation Authority, and Northrop Grumman’s Europebasedsubsidiary, Park Air Systems, won another contract to provide a range of integrated air traffic systemsto the Dubai Department of Civil Aviation.The UAEAF has over 100 helicopters of different types in its fleet. Boeing is currently upgrading the 30 AH-64H Apache helicopters to the AH-64D longbow model. Sikorsky Aircraft Corp, a subsidiary of UnitedTechnologies Corp., also signed a direct commercial sale contract with the UAE for 10 S-70A BLACKHAWK utility helicopters at the Dubai Airshow 2007. The UAE will use the S-70s for military transport andtraining.

The UAEAF currently uses Pumas and Bell 212/214/412s in the transport role.The UAEAF has outsourced the repair, maintenance, and overhaul (MRO) of its aircraft, including trainers,transporters, and helicopters to Abu Dhabi Aircraft Technologies (ADAT).The UAEAF is independently responsible for conducting technical evaluation of the desired equipment andservices and making final recommendations to the Chief of Staff. Normally, for every sizeable procurement,a technical committee is formed to assist the head of the agency. The head of the agency makes his finalrecommendations to the Chief of Staff who in turn consults with the Deputy Supreme Commander of theUAE Armed Forces and Crown Prince of Abu Dhabi, the final decision-maker in UAE's large militaryprocurements.

Civil Aviation

Air transport is booming amongst the GCC States as surging oil revenues spur an economic boom across theregion. According to a recent report by the Arab Air Carriers Organization (AACO), passenger traffic withinthe six GCC member countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and UAE) rose 12.8 percent tomore than 109 million passengers in 2006, well above the international average of 4.9 percent. Middle Eastbasedairlines currently account for eight per cent of the global air transport industry. These same airlines arecollectively growing at 10 per cent annually, double the global five per cent average.Experts in the industry are quick to observe that the Middle East is home to the youngest fleet in the world,with a total of more than 600 aircraft, and has the greatest number of aircraft on order anywhere in the world.From the Gulf to the Levant, the sector is also experiencing unprecedented demand, with load factorsaveraging nearly 80 per cent. The region is currently experiencing enormous economic growth and there is astrong correlation between such growth and increased passenger traffic. Consider the demographics of theregion, where 100 million people are under the age of 24 and millions more are expatriates, and it becomesclear that air travel will increasingly be seen as a necessity rather than a luxury. Indeed, between now and2020, the Middle East is forecast to lead world passenger traffic growth, with current travel demand up 18 percent. Experts forecast that the region will need 869 aircraft, valued at $115 billion for the next 20 years, ofwhich 85 per cent will be between 100 and 400 seats.The UAE’s successful development as a global air transport hub is due in large measure to the success of twoairlines; Emirates, based in Dubai, and Etihad, based in Abu Dhabi. Both carriers continue to endeavor toopen more international passenger and cargo routes. To meet future growth demands and to strengthen theircompetitiveness Emirates and Etihad are expanding their fleets at the rate of 1-2 new aircraft per month forthe next five years. Other significant UAE-based air carriers are Air Arabia of Sharjah and RAK Airways ofRas-Al- Khaimah.By 2010, Emirates Airlines is expected to have over 150 aircraft in its fleet flying to over 100 destinations,and transporting over 125 million passengers annually. Etihad, meanwhile, plans to fly 50 aircraft to over 70destinations by 2010. Etihad now operates 29 wide-bodied aircraft.

Sharjah-based Air Arabia, now in its fourth year, recently reported a net profit increase of 222% to $27.5million for 2006. The airline carried 1.76 million passengers. Statistics released by the Sharjah InternationalAirport's authority showed that passenger movement through the airport which is undergoing a US$ 62million refurbishment and construction of a 20,000sqm extension including a new arrival and departure area,increased by 36.9% to reach 3.64 million compared to 2.237 million in 2005. At the 10th Dubai Airshow inNovember 2007, Air Arabia placed an order for 49 Airbus A320 aircraft valued at $3.5 billion. The dealtriples Air Arabia’s fleet and reflects its plans to develop a fleet of more than 50 aircraft by 2015.In Ras-al-Khaimah (RAK), the COO of the recently launched RAK Airways announced earlier this monththat the airline expects to carry approximately one million passengers a year and the annual projected growthover the next two to three years is 20 per cent. The official said that RAK Airways started operations withone Boeing-757 and would add two more aircraft, either Boeing 737-800 or Airbus A320, by the end of 2007.RAK Airways is planning to expand its fleet to 10 aircraft by 2010, covering about 20 destinations within theGulf, South Asia, Middle East and East Africa. The airline plans to undertake trans-continental flights overthe next two to three years.

Additionally, government-owned investment institutions such as Abu Dhabi’s Mubadala Investment Co.continue to invest heavily locally and abroad including in the aviation sector. Mubadala recently acquired35% of the equity of Italian aircraft-manufacturer Piaggio Aero. Mubadala is also boosting its aviation plansthrough the freshly revitalized Abu Dhabi Aircraft Technologies (ADAT) (formerly known as Gulf AirMaintenance Co. - GAMCO) in the maintenance, repair, and overhaul (MRO) business. Senior Mubadalaofficials have said that ADAT was formed to expand GAMCO’s existing MRO business to become a totalcare provider for commercial and military airframe, engines and components. According to the senior official,ADAT would be made a cornerstone for Mubadala’s aerospace strategy furthering the development of theaviation sector in Abu Dhabi. ADAT is positioned to become the foremost independent MRO provider in theMiddle East and a major player in India and Europe. In November 2007, ADAT signed its first contractworth $500 million since its launch with Etihad Airways for MRO services.

Mubadala is also engaged in talks with global aviation majors EADS, Boeing, and Finmeccanica, tomanufacture composite materials used in modern commercial aircraft, run maintenance of military aircraft inthe region, and to open an assembly plant for trainer jets, respectively.

In Dubai the government has set up the Dubai City of Aviation, comprising the Dubai Airports, Dubai WorldCentral, and Dubai Air Traffic Navigation. Dubai Airports will be the holding company to operate andmanage the Dubai International Airport and the new $8.1 billion Al Maktoum International Airport in JebelAli (AMIA).

"Created with the intention to further drive Dubai's aviation sector, the Dubai City of Aviation will ensure theimplementation of world-class operating standards within its entities and units, while ensuring streamlinedmanagement," said a government statement. The move comes roughly 19 months after the governmentlaunched the $15 billion Dubai Aerospace Enterprises (DAE) - an investment vehicle to bring in technologyknow-how to Dubai in order to reinforce the emirate's position as the region's aviation hub.

Corporate Aviation

The market for small and medium-sized business jets in the Middle East continues to expand at a rapid pace,emerging as a key growth area in the region's aviation sector.

A number of structural factors in the Gulf - including the rising demand for greater security in aviation, anewly wealthy entrepreneurial class, and growing awareness of the productivity benefits of deployingexecutive jets - have driven market growth by as much as 22% in recent months.

In addition, major events like annual meetings of the World Bank and IMF in Dubai, the Dubai Airshow,IDEX, and other important trade shows and events, are creating 'spikes' in demand across the region forconvenient, confidential air travel options. Organizations hosting VIPs from outside the Middle East formeetings in multiple locations, and companies that regularly conduct business at a number of sites are amongthe main groups currently investigating options for chartering or purchasing business jets.

Another reason for the increased demand is an emerging new Russian clientele. A managing director of aleading private jet firm in Abu Dhabi said, "Russian consumers have embarked on an unprecedented spendingspree, on all things luxury. This conspicuous consumerism has also led to more discriminating preferences intransportation and travel. Russian business people in particular are increasingly embracing executive jets asindispensable business tools.

”One reaction to this rising demand has been the emergence of a number of new charter executive jetsuppliers, including the launch of several new charter services in Abu Dhabi and Dubai. Industryexperts have noted that this expansion of the market - accompanied by the growth of associatedsupport and services - suggests that the Middle East's executive aviation market is maturing at arapid rate.

 

by Jamal Bafagih

 

Read the full market research report

 


Posted: 09 December 2009, last updated 10 December 2011

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