Abu Dhabi now home to critical projects in both aviation and defence

The ongoing transformation into a regional hub for aerospace and aviation has included a strong push to move from maintenance, repair and overhaul (MRO) services to production for global original equipment manufacturers (OEMs). Led by national carrier Etihad Airways, Mubadala Development Company’s (an Abu Dhabi-based investment and development company) Aerospace and Engineering Services platform, and the Emirates Defence Industries Company (EDIC), the push to see Abu Dhabi move into manufacturing of complex aircraft parts has already entailed substantial investment, much of it centred within the Nibras Al Ain Aerospace Park (Nibras), with significant new inflows expected as Mubadala Development Company intensifies its focus on MRO and manufacturing for a growing number of major international partners.

Aviation

A critical pillar of the emirate’s ongoing push to diversify its economy and develop knowledge-based industry, the aviation sector has undergone rapid transformation over the past 15 years, commencing with the launch of three crucial government entities – the Mubadala Development Company and Etihad Airways, in 2002 and 2003, respectively, and Abu Dhabi Airports in 2006. Mubadala Development Company has been active in aviation development since establishing a dedicated aerospace division in 2006 and today holds a number of subsidiaries active in MRO and manufacturing for global OEMs. Etihad has risen to become one of the largest and most competitive airlines regionally, committing billions to fleet upgrades and capital expenditure in recent years, with the company’s work packages underpinning Mubadala Development Company’s MRO and manufacturing expansion through a complex network of local and international partnerships.

New Opportunities

In November 2013 Etihad announced it will undergo its largest fleet expansion in history, after signing a $67bn fleet order for 87 Airbus and 56 Boeing aircraft, which will be powered by engines from GE Aviation, Rolls-Royce and CFM International. Etihad is also working to deliver an increasing number of aviation services in-house through Abu Dhabi Aircraft Technologies (ADAT), previously a Mubadala Development Company subsidiary. In May 2014 ADAT’s engineering operations, maintenance teams, hangars, paint facilities and component workshops were acquired by Etihad, with Mubadala Development Company retaining what is now called Turbine Services & Solutions Aerospace, a business unit of Turbine Services & Solutions (TS&S). Etihad’s fleet upgrades extend beyond simple purchase orders as Mubadala Development Company, which is mandated to develop a fully integrated aviation sector offering both MRO and manufacturing, has been further expanding its activities for Boeing, Rolls Royce, GE and Airbus in recent years, with locally manufactured parts increasingly used in Etihad’s new fleet.

MRO

Although Mubadala Development Company subsidiary Strata has been leading the push for OEM development, the company retains a strong focus on MRO activities, through subsidiaries including TS&S and Zurich-based SR Technics.

TS&S is currently active in working on state-of-the-art medium- and high-thrust turbofan engines for customers from over 10 countries at a special process engine repair shop, which offers laser welding repairs, non-destructive testing, chemical and mechanical cleaning, high-speed grinding and micro structure testing of turbine blades.

The company’s long-standing partners, GE and Rolls-Royce, both announced at the Dubai Air Show in November 2013 that they will plan to invest $500m to develop new technical support centres for the Rolls-Royce Trent XWB and GE GE nx engines in Al Ain, with the GE nx MRO project expected to become the world’s first quick-turn facility for the engines, which are essential components in Boeing’s new 787 Dreamliner aircraft.

SR Technics, which provides MRO services for Boeing and Airbus, signed a five-year agreement in February 2015 with private charter company Royal Jet to provide MRO services for its fleet of private planes, and was a key part in Mubadala Development Company’s agreement with Etihad at the Dubai Airshow 2015 for $1bn of additional new contracts over 10 years, where SR Technics will be appointed as the preferred MRO service provider.

Nibras

Abu Dhabi has already established itself as a leading hub for MRO activities, and the emirate’s long-term economic strategy envisions an ongoing transformation into high-value, sophisticated manufacturing activities. The transition to manufacturing-focused aviation activities is further supported by a period of expansion at Nibras, which is slated to become a global aviation hub over the medium term, and is already home to a number of government-owned and multinational aviation companies at a sprawling 25-sq-km project under joint development by Mubadala Development Company and Abu Dhabi Airports.

With 5 sq km of space dedicated solely to aerospace companies, Nibras is home to a host of the major players in the aerospace and defence industries, including Strata, Horizon Flight Academy, Abu Dhabi Polytechnic’s Al Ain International Aviation Academy and the Advanced Military Maintenance, Repair, and Overhaul Centre (AMMROC) – a Mubadala Development Company subsidiary until it was acquired by EDIC in February 2015.

Defence MRO

AMMROC is owned jointly by EDIC, Lockheed Martin and Sikorsky Aerospace Services, offering military MRO services and logistics support for military vehicles. In February 2013 the company signed a Dh1.9bn ($517.2m) contract with the UAE armed forces for aircraft MRO services, and today AMMROC and Strata act as anchor tenants in Nibras, with the first phase of the park’s development expected to be complete in 2016.

In November 2014 AMMROC announced it had awarded a design contract for construction of its planned military MRO facility in Nibras, which will be the world’s largest when construction is completed, to US-based AAR. As of October 2015, Mubadala Development Company reported that the first phase of Nibras was 75% complete, with 60% of plots spread over a 2.5-sq-km area already leased. Phase two, which will finalise in the mid-2020s, will see Mubadala Development Company and Abu Dhabi Airports work to attract new companies and foreign investment, including satellite tenants working in partnership with Strata and AMMROC.

“The infrastructure provided as well as the clustering model around anchor tenants, such as AMMROC and Strata, at Nibras will have a positive impact in terms of attracting investors to support the establishment of a sustainable aerospace hub,” Fahed Al Shamesi, CEO of AMMROC, told OBG.

Strata

Spearheading the development of aviation manufacturing in Abu Dhabi, Strata was established in 2009 as a fully owned Mubadala Development Company subsidiary, and is slated to become a major OEM supplier in the coming years, having already witnessed a number of notable successes in this segment. Having established a 21,000-sq-metre facility in Al Ain in 2010, Strata has risen to become a tier 1 supplier for both Airbus and Boeing. For Airbus, the company is an active manufacturer of composite parts including ailerons, flap track fairings and spoilers for the wide-body A330 family, including wing tips for the A330/340, in addition to flap track fairings for the A380. Strata reached its first major milestone in February 2013 when its fully assembled aileron for an Etihad A330 aircraft was unveiled, the first time the part had ever been manufactured in the UAE by Emiratis. Later, at the 2013 Dubai Air Show, Strata announced it had signed a $2.5bn deal with Airbus for the manufacture of pre-preg composite fibre materials, as well as metallic aircraft structure manufacturing, a significant step forward for manufacturing in the emirate.

Activities have ramped up in the years since, and in June 2014 Strata announced that the total value of parts manufactured for Airbus would reach $80m in 2015, with Airbus CEO Fabrice Brégier telling the media he expects Strata will soon move into manufacturing parts for the A350 and A320. Days later, Strata announced it had been awarded a contract to manufacture Airbus A350-1000 flap support fairings from Swedish company Saab Aerostructures, the first time Strata has worked with the company, with the deal expected to extend until 2023. Strata aims to triple its sales to Dh1bn ($272.2m) by 2020, and is considering the benefits of an expansion into North Africa. “In the next five years, we at Strata are working to deepen our understanding of the manufacturing process and deciding where to locate assembly operations, in order to be more competitive,” Badr Al Olama, CEO of Strata, told OBG. “We are looking to locate an assembly plant in somewhere like North Africa, to have access to southern Europe.” Strata generated revenue of Dh346m ($94.2m) in 2014 and is expected to break even in 2017. The company’s other major goal in the coming years is to develop its skilled Emirati workforce. The Strata labour force has grown from 50 in 2009 to around 700 in 2015, of which 45% are Emirati nationals.

Boeing

Strata is also moving to expand its partnership with Boeing, after signing a $2.5bn deal with the company in 2013, entailing supply of composite and metallic aviation structures, and part of a broader 10-year agreement between the two firms reached in 2012. In 2014 Strata began delivering 77 empennage ribs to Boeing, and in the same year, the first 777-300ER aircraft with UAE-made composites was delivered to Dubai’s Emirates Airlines, with the first 787 Dreamliner containing advanced composite parts made by Strata delivered in June 2015. On October 27, 2015, Strata announced it plans to invest between $100m and $500m on a new manufacturing facility located in Nibras, which is expected to boost existing capacity and allow for manufacture of larger and more complex parts.

Next Phase

Mubadala Development Company has signed a series of deals unveiled at the November 2015 Dubai Air Show, worth a potential $1bn. Meanwhile, Etihad signed a memorandum of understanding with the company; the 10-year agreement covers a range of new contracts and would see Etihad appoint Mubadala Development Company’s SR Technics as its preferred service provider. Mubadala Development Company’s executive director of aerospace and defence, Grant Skinner, told OBG that the next phase of Strata’s expansion will entail manufacturing of composite parts for the Boeing 777X and Airbus A330neo aircraft, which will require investment in new robotics technology.

“The next phase of our expansion will be highly automated, complex manufacturing,” Skinner told OBG. “Strata has already expanded its facilities from 21,000 sq metres to 30,000 sq metres during its first phase of development, and given our previous work and successful partnerships with both Airbus and Boeing, we expect to see our relationships with them expand significantly in line with our focus, which is to become the aerospace supplier of the future,” he added.

Deals like these are also expected to bring Strata into profitability. Although the company’s total OEM contract book stood at an estimated $7.5bn in 2014, with revenues rising from Dh220m ($59.9m) in 2013 to Dh340m ($92.5) in 2014, and projected to rise by 15% to Dh400m ($108.9m) in 2015, the company is not expected to break even until 2017.