A recent merger promises to significantly alter the layout of the sector

The local aerospace and defence industry has witnessed significant developments over the last year, including the launch of the Emirates Defence Industries Company (EDIC) in December 2014 by Mubadala Development Company and Tawazun Holding.

Going forward, EDIC is set to become one the region’s primary integrated national defence services and manufacturing platforms, providing a range of facilities, technology and support services.

A Bigger Presence

EDIC will comprise 11 subsidiaries of Mubadala Development Company, Tawazun Holding and Emirates Advanced Investment Group (EAIG) at the conclusion of the first phase, which began in January 2015.

Several portfolio companies have already been identified for integration during the first phase, including Al Taif Technical Services, Bayanat for Mapping and Surveying Services, and Horizon International Flight Academy from Mubadala; Nimr Automotive, Tawazun Dynamics and Tawazun Precision Industries from Tawazun; and C4 Advanced Solutions, Global Aerospace Logistics, Naval Advanced Solutions, Secure Communications and Thales Advanced Solutions from EAIG.

Several more industrial services subsidiaries of Mubadala and Tawazun are also being considered for EDIC integration during a second phase, which will begin early in 2015.

Speaking to why this transformation was being considered, Homaid Al Shemmari, the board chairman of EDIC, told OBG, “This transformation of the sector is a natural step to take after we, as the UAE, have built up a substantial range of defence assets under different holding companies. EDIC will include manufacturing, training, mapping, logistics, technology development and communications, as well as maintenance, repair and overhaul services for air, land and sea platforms. The company will bring together the combined capabilities of the UAE’s defence industries into a single integrated platform to enhance value for our clients, shareholders, partners and other stakeholders.”

A close examination of the three companies’ defence business lines offers clues about what the newly established conglomerate can offer national and regional markets.

Mubadala Aerospace and Engineering, for example, currently owns the Advance Military, Maintenance, Repair and Overhaul Centre (AMMROC), which provides logistics support for military vehicles. Indeed, in February 2013 AMMROC signed a contract worth Dh1.9bn ($517.2m) with the UAE Armed Forces for aircraft maintenance, repair and overhaul services.

According to its financials, Mubadala Development Company’s revenues increased by 8.1% yearon-year in the first half of 2014 to reach Dh16bn ($4.4bn), up from Dh14.8bn ($4bn) one year prior, driven in large part by higher sales in its energy and aerospace and engineering services units. The latter comprised 27%, or some Dh4.32bn ($1.2bn), of the company’s revenue mix.

Meanwhile, Tawazun, a strategic investment company focused on specialised manufacturing and industry, also had a range of defence manufacturers in its portfolio to contribute to EDIC.

Creating Synergy

The new company has the potential to play a much greater role in regional and domestic manufacturing supply chains, developing economies of scale and making moves to supply international military forces operating both within the UAE and the wider region.

“There are many capital expenditures in the UAE defence industry, and costs for setting up facilities, recruiting and developing scientists and engineers are high,” Ahmed Al Attar, assistant director for defence and security at the Delma Institute in Abu Dhabi, an interdisciplinary research house focused on the UAE and the Middle East, told Defense News in June 2014. “They are trying to cut down on these expenditures and also bring down operational costs.”