How Abu Dhabi is supporting growth of local aerospace industry

In recent years Abu Dhabi and the wider UAE have passed several important milestones in terms of security, aerospace and defence strategy. In 2019 Hazzaa Al Mansoori, an astronaut born in Al Wathba, roughly 45 km outside Abu Dhabi City, became the first Emirati to visit the International Space Station. The mission helped to raise the profile and popularity of the UAE’s National Space Programme, under which the country aims to reach Mars by 2021, among other objectives. In July 2020 the country plans to launch its Hope probe, which is scheduled to reach Martian orbit by 2021, marking the 50th anniversary of the UAE.

At the same time, 2019 saw the development of new long-term strategies for aerospace and cybersecurity, alongside a major merger of defence sector entities. Meanwhile, the UAE armed forces continued to play a crucial role in ensuring regional stability. As the sector is a key pillar of the Abu Dhabi Economic Vision 2030 and the emirate’s efforts to diversify away from the hydrocarbons sector, it is likely that spending will remain relatively high. Moving forward, the challenge will be encouraging the growth of local talent and attracting foreign investment. The sector’s development will also be affected by the global outbreak of Covid-19 and declining oil prices in early 2020. Like the rest of the world, the UAE imposed travel restrictions and reduced the number of flights, resulting in a drastic fall in revenue for the aviation industry. However, the UAE was quick to implement a financial stimulus package designed to mitigate the worst effects of the pandemic.

Structure & Oversight

The UAE’s military operates as a single structure across the seven emirates. Therefore, much of Abu Dhabi’s defence policy is set by the federal government. The supreme commander of the UAE armed forces is Sheikh Khalifa bin Zayed Al Nahyan, president of the UAE and ruler of Abu Dhabi. Sheikh Mohamed bin Zayed Al Nahyan, the crown prince of Abu Dhabi, is the deputy supreme commander. The UAE Armed Forces General Headquarters, located in Abu Dhabi City, is responsible for overseeing all land, air and naval forces, as well as the presidential guard.

According to the International Institute for Strategic Studies, there were roughly 63,000 personnel across the UAE armed forces as of 2018. In 2014 Federal Law No. 6 was passed, which mandated 12-month compulsory military service for all Emirati men between the ages of 18 and 30. In 2018 this period was extended to 16 months for those who have a high school diploma or equivalent qualification, while those who do not are required to serve for two years. Military service remains voluntary for women in the same age group.

The UAE army has more than 400 Leclerc main battle tanks, with a range of armoured and mechanised missile and artillery units. The majority of these units were sourced from the US or France. The country’s air force, meanwhile, has around 79 F-16 E multi-role combat aircraft and 43 Mirage 2000 aircraft, alongside a fleet of 573 fixed-wing and rotary aircraft. The navy is equipped with 72 vessels, including surface ships and submarines. The presidential guard contains the force’s elite units, including the UAE marines and special operations command. Additionally, the joint aviation command includes both rotary and fixed-wing aircraft supporting the equivalent of an aviation brigade.

Key Agencies

On the federal level, there are several government bodies responsible for setting sector policy. The UAE Ministry of Defence is charged with enhancing the country’s defence capabilities, and developing strategies to ensure that the seven emirates are adequately protected and able to meet future needs. The Ministry of Interior, meanwhile, manages various aspects of the UAE’s domestic security including police, prisons, traffic and civil defence.

In 2012 the government established the Signals Intelligence Agency (SIA), which is responsible for addressing cybersecurity threats. In response to the growing prevalence of cybercrime, the UAE Telecommunications Regulatory Authority (TRA) launched the National Cybersecurity Strategy in June 2019. At the emirate level, the Critical Infrastructure and Coastal Protection Authority (CICPA), a government organisation responsible for safeguarding land and sea infrastructure in Abu Dhabi, carries out vessel inspections and search-and-rescue operations, and monitors electronic networks. CICPA also conducts security clearance for individuals and companies working with critical infrastructure. Additionally, law enforcement in the emirate is undertaken by the Abu Dhabi Police, which has been in place since 1957.

Changing Requirements

Since the formation of the UAE in 1971 and the subsequent unification of the individual emirates’ armed forces in 1976, the country’s military has been engaged in a number of overseas missions. These include the 1990-91 Gulf War, peacekeeping in Kosovo in 1999, mine clearance in Lebanon in 2007 and special forces operations in Afghanistan since 2003. In 2014 UAE aircraft took part in missions against the so-called Islamic State in Syria and Iraq, and since 2015 the armed forces have been engaged in conflict in Yemen, although a partial drawdown of this deployment took place in mid-2019.

As a result, the UAE’s military expenditure has risen substantially in recent years as the armed forces have responded to a range of challenges. In 2019 the federal budget allocated Dh8.6bn ($2.3bn) to defence, up 41% from Dh6.1bn ($1.7bn) the previous year. The federal government did not disclose the amount earmarked for defence spending in the 2020 budget. However, according to international defence and aerospace consultant IHS Jane’s, the UAE’s defence spending totalled $19.8bn in 2017, the second highest in the MENA region after Saudi Arabia. The firm calculated that military spending is rising at a compound annual growth rate of 6.5%, and expects that the country will spend $140.8bn on defence between 2019 and 2021, $53.1bn of which will be used for asset acquisition. While public expenditure may be affected by the economic impact of the Covid-19 pandemic and falling oil prices in the first half of 2020, this trend suggests that defence will remain an important part of the UAE’s budget in the long term.

Local Industry

High defence spending has helped to give the UAE a well-equipped, highly mechanised military, making it one of the strongest in the MENA region. At the same time, federal and emirate-level efforts to promote economic diversification have created a significant military industry, with around 170 Emirati companies operating in the field as of 2019. In recent years the UAE has taken steps to further support local players in the defence industry. Abu Dhabi-based companies already play a key role in the UAE armed forces; five out of six Baynunah-class corvettes operated by the navy were built by Abu Dhabi Ship Building (ADSB), while the air force’s Al Tariq precision-guided glide bombs were built by local firm Tawazun Holding and South African government-owned Denel Dynamics. At the International Defence Exhibition and Conference held in Dubai in February 2019 the UAE signed 18 deals with Emirati companies, worth a total of $300m, which included a number of agreements with Abu Dhabi-based manufacturers. The federal government purchased 24 B-250 light attack aircraft from aviation company Calidus, made a $15m order for an unspecified number of naval vessels from Al Fattan Ship Industry and announced a $2.1m agreement with armoured vehicle manufacturer NIMR Automotive. These agreements form part of a major drive by the Abu Dhabi government to develop the local defence equipment manufacturing industry. This forms a key pillar of the emirate’s long-term development plan, the Abu Dhabi Economic Vision 2030, which seeks to help Abu Dhabi diversify away from oil and gas and towards a more knowledge-based economy. The deals also support the UAE’s strategic shift away from a reliance on international manufacturers to satisfy defence requirements. Traditionally, the country’s needs have largely been met through government contracts with foreign defence contractors alongside an offset deal, under which the contractor contributes to economic development in the UAE. In July 2019 new offset guidelines were announced by Tawazun Economic Council, the Abu Dhabi body leading the development of the emirate’s defence industry. Tawazun operates the Tawazun Economic Programme (TEP), the UAE’s industrial participation strategy, which awards offset credits to foreign investors operating in sectors such as aerospace and defence. Under the new guidelines, the TEP has been expanded to include investors operating in sectors other than defence, with a particular emphasis on technology. The parameters governing the ways that offset credit can be created were also widened. These changes were implemented with the aim of encouraging investment in the UAE’s domestic industry, while also expanding the possibilities for contractors to be involved in the local market.

The growth of the domestic industry also triggered two major reforms to Abu Dhabi’s defence sector in the past decade. In 2014 Emirates Defence Industries Company (EDIC) was created following the partial merger of the defence portfolios of Tawazun, Emirates Advanced Investments Group (now known as Yas Holding) and Mubadala Investment Company, Abu Dhabi’s sovereign investment corporation for strategic development. Initially EDIC comprised 11 companies, with another five added in the following two years. In 2019 EDIC was brought under the wider umbrella of EDGE Group, creating one of the region’s largest defence conglomerates. This was created by the merger of 25 companies and subsidiaries, including EDIC; electronic warfare firms under the portfolio of Emirates Advanced Investments Group; and Tawazun Holding, the strategic defence manufacturing arm of Tawazun (see analysis). Mubadala is not a shareholder in EDGE Group, having transferred all EDIC assets to the new entity.

Sector players are confident that the merger will bring benefits to the local defence industry. “EDGE Group is a structure that enables strategic development of the sector,” Andy Crisp, UAE country director at BAE Systems, told OBG. “This should make it more efficient and increase collaborative opportunities for the UAE with its international partners,” he added.

Efforts to develop domestic capacity align with Abu Dhabi’s move away from investment-based activity and towards local manufacturing industries. This is illustrated by the major role played by Mubadala, one of the main investors in EDIC. Mubadala was founded in 2002 and is active in 15 sectors, among them aerospace. The company took on many of the strategic assets held by Tawazun and operated in support of the UAE’s main ally, Saudi Arabia, in its localisation drive. In February 2019 Mubadala entered a strategic partnership with Saudi Arabian Military Industries. This was the first advanced manufacturing deal between the UAE and Saudi Arabia, and will involve collaboration in manufacturing, maintenance, repair and overhaul (MRO), research and engineering, among other areas.

“Local defence capabilities are growing and the UAE is streamlining much of its industry, through moves such as the establishment of EDGE Group,” Robert S Harward, chief executive at Lockheed Martin in the Middle East told OBG. “Additionally, the Tawazun Strategic Development Fund is adding more options for the domestic industry to grow, while also striking a healthy balance between local and foreign suppliers.”

Aerospace

Mubadala is also a major player in the civil aviation segment, with subsidiaries including Strata Manufacturing, a developer of airframe parts, and Sanad Aerotech, a provider of aircraft MRO services. Additionally, as a joint initiative with Abu Dhabi Airports Company (ADAC), Mubadala is in the process of developing the Nibras Al Ain Aerospace Park. The multi-phase project is being designed as a platform to support the establishment of a sustainable aerospace industry in Abu Dhabi. The project will leverage Mubadala’s existing aerospace assets as well as forging partnerships with other international companies. Development of the 25-sq-km park began in 2012, and the first phase, which saw the construction of infrastructure such as access roads and utilities, was completed in 2016. The second and third phases, which will involve attracting original equipment manufacturers, suppliers, and small and medium-sized enterprises to serve the industry, is scheduled to be completed in 2030.

Mubadala has a number of international partnerships in the aerospace industry. It was the sole owner of SR Technics, an MRO services company based at Zurich Airport in Switzerland, until 2016, when it sold 80% of its stake to China’s HNA Aviation, keeping the remaining 20%. Mubadala also has strategic partnerships with multinational companies such as commercial aircraft manufacturer Airbus, aerospace giant Boeing and global conglomerate GE.

Additionally, since 2010 Abu Dhabi-based Aabar Investments, which is owned by Mubadala, has held a 31.8% stake in Virgin Galactic, the first publicly traded space tourism venture. In a promising sign for future international collaboration, in June 2019 Sanad Aerotech became an authorised MRO centre for Airbus A330 Trent 700 engines. As an authorised centre, Sanad Aerotech can undertake maintenance work on Trent 700 engines from around the world, with annual throughput expected to triple.

Airlines

Until 2015 Mubadala was also the sole owner of Abu Dhabi Aircraft Technologies, an MRO services firm, which it sold to UAE national carrier Etihad Airways. The airline rebranded the MRO firm as Etihad Airways Engineering, highlighting the UAE’s major role as a global aviation hub. As of March 2020 Etihad had a fleet of 28 Airbus A320s, 10 Airbus A380s, 34 Boeing 787s, 19 Boeing 777s and six Boeing 777 freighters.

Even before the dramatic disruption to air traffic caused by the global spread of Covid-19 in early 2020, which saw Etihad suspend all flights to, from and via Abu Dhabi apart from a small number of repatriation services, the airline had been experiencing the effects of sluggish growth across the global aviation sector. In September 2019 the carrier postponed its expected fleet expansion programme as it sought to address three consecutive years of financial losses. As of April 2020 the airline had yet to announce if or when the five Airbus A350-1000 jets will enter into service. The emirate’s first low-cost airlines are scheduled to commence operations in 2020: Air Arabia Abu Dhabi and Wizz Air Abu Dhabi. The former is a joint venture between Etihad Aviation Group and Sharjah-based Air Arabia, and will operate affordable travel options to complement Etihad’s existing routes from Abu Dhabi. In April 2020 Air Arabia denied reports that the carrier’s scheduled launch in 2020 would be delayed, and added that preparatory work for the launch was still going ahead despite global disruption to air travel. Hungarian carrier Wizz Air launched a new airline in March 2020 as part of a joint venture with the government-owned Abu Dhabi Developmental Holding Company. On April 14, 2020 the Financial Times reported that Wizz Air plans to launch the new carrier in the second half of the year.

If and when these plans go ahead, the new airlines will bring a major boost to the local aviation sector in terms of both MRO services and passenger traffic at Abu Dhabi International Airport (AUH), which will be crucial given the financial losses the emirate’s air travel industry is likely to incur in 2020. According to Statistics Centre - Abu Dhabi, the airport handled 21.3m passengers in 2018, with capacity set to expand with the completion of the new $3bn Midfield Terminal, which was originally scheduled to open in 2017 and reported to be around 97% complete in November 2019. In March 2020 Gulf Business reported that ADAC would soon be preparing to open the new terminal. Once open, it will raise the airport’s capacity to roughly 45m passengers per year, with 49 gates and 154 check-in counters. Al Ain Airport (AAN) is also set to for further expansion. The airport is currently served by three carriers – Etihad, Egypt’s Nile Air and Air India Express – and it saw 92,555 passengers in 2018. It has a 4-km runway and 4-km taxiway, making it capable of handling the largest aircraft.

Space Travel

AAN may also be able to support space flights in future: in March 2019 a memorandum of understanding was signed by the UAE Space Agency and Abu Dhabi Airports to assess the possibility of developing a spaceport at AAN. As of April 2020 economic assessments were under way to evaluate whether AAN could be used by operators such as space tourism company Virgin Galactic and Virgin Orbit, which specialises in satellites. These plans are supported by the UAE Space Law, which came into effect in December 2019 and enables local and international space companies to operate in the UAE with a permit. Al Ain is already home to the UAE University’s National Space Science and Technology Centre (NSSTC), which operates in partnership with the UAE Space Agency and the TRA ICT Fund. A number of other institutions in Abu Dhabi are involved in the development of space travel, including five research and development centres and three universities offering space-related degrees: the UAE University, Khalifa University and New York University Abu Dhabi Centre for Space Science. Education is a vital part of the segment due to its multidisciplinary nature, as Khaled Al Hashmi, director of the NSSTC, told OBG. “Many different disciplines are needed for one space mission, from medicine to telecoms,” he said.

Cybersecurity

As in many jurisdictions around the world, there is a growing awareness in Abu Dhabi of the challenges posed by cybercrime, particularly as the emirate transitions to a knowledge-based economy. The emirate has invested heavily in cybersecurity systems in recent years, supported by the UAE’s adoption of the integrated National Cybersecurity Strategy in June 2019. The framework was launched by the TRA, the federal ICT sector regulator, and is based on five pillars: cybersecurity laws and regulations; the creation of a cybersecurity ecosystem; a national cyber-incident response plan; a critical information infrastructure protection plan; and partnerships with the private and public sectors, academia and international consortia. The strategy also outlines plans for the establishment of two entities to support the country’s ability to respond to cyber-incidents. The National Incident Response Committee and the Cyber Intelligence Unit will work closely alongside nine key government bodies, including the Ministry of Finance, the Ministry of Energy and the emergency services, to prevent security breaches. According to the document released upon the launch of the strategy, the UAE’s cybersecurity market is worth roughly Dh1.8bn ($490m), while that of the MENA region is worth some Dh18bn ($4.9bn). Establishing and marketing systems to protect against cyberthreats therefore has major potential benefits for the economy as well as security.

Outlook

The year 2020 marks an important milestone for the space segment with the scheduled launch of the Hope Mars probe and the continuing expansion of the National Space Programme. Meanwhile, with two new low-cost airlines in the pipeline and AUH’s Midfield Terminal set to open soon, the emirate’s airline industry should be set to grow when global routes reopen following the suspension of travel amid the Covid-19 crisis, although the outlook and time scale were unclear at the time of writing. When the tourism sector and visitor numbers recover, this should partly offset Etihad’s recent financial losses. In terms of defence, high levels of state spending should provide a boost for local manufacturers and help to fund ongoing research.