Aerospace in Asia

Economic News

22 Jul 2010
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Dubai’s decision to invest billions in foreign aviation markets has come as a strong indicator that the emirate is refusing to back away from overseas ventures – despite the formidable difficulties DP World and others have recently been facing.



On February 19, Dubai launched the Dubai Aerospace Enterprise (DAE), a holding company for six subsidiaries which aim to pour $15bn into the estimated $100bn overseas market for airport development, airline leasing and aviation education.



“In the medium term, DAE will create and operate one of the largest MRO [maintenance, repair and overhaul] facilities and establish itself as a significant civil aircraft research, development and manufacturing cluster,” said Mohammed al-Zarouni, managing director of DAE, at the company launch.



This will expand alongside another division, which will build and manage foreign airports, along with creating an aerospace university and research and development facilities at the future Jebel Ali Airport.



The company is made up of strategic stakes held by powerful Dubai companies: Dubai International Capital (DIC), Emaar Properties, Amlak Finance, the Dubai International Financial Centre, Istithmar and Dubai Airport Freezone Authority, all of which carry the solid backing of the Dubai government.



Sheikh Ahmad bin Saeed Al Maktoum, the chairman of the airline Emirates, and president of Dubai Department of Civil Aviation, will be the chairman of DAE.



With this formidable set of mainly government-owned investors, DAE has the clout to make its presence felt. Indeed, the founders predict that the organisation will become one of Dubai’s most lucrative sources of income and expect it to have a serious international impact.



“Within 10 years, DAE will become an integral part of the global aerospace industry,” DAE Chairman Sheikh Ahmad said during the launch event for DAE.



Already the company is getting its aircraft leasing business off the ground. Local papers reported on March 8 that negotiations are already underway with General Electric, Boeing and Airbus to be partners in DAE’s leasing operations, which plan to make 50 aircraft available to the Gulf region. DAE indicated that this part of the business could be operational within two years, depending on interest from clients.



“If we can sign contracts with Emirates, Etihad and other regional airlines, we may purchase all 50 planes within one to two years,” Sameer al-Ansari, executive director of DIC, the government’s investment arm and one of the key stakeholders in DAE was quoted as saying in Gulf News.



With DIC as the dealmaker, the pace should be quite rapid as the well-endowed investment company has succeeded in closing a number of huge contracts including stakes in DaimlerChrysler and purchases of the Tussauds and Doncaster Groups.



One of the biggest growth markets in aviation is in India and China, where reports say 145 airports will need to be built in the next 10 years. With tourism on the rise in both countries, the airlines will also be looking for readily available aircraft and high-quality repair facilities.



Dubai plans to use its success at building a profitable, efficient aviation industry from scratch to help other countries do the same.



The emirate has grown from a tiny depot, which jockeyed for position on refuelling routes between the Far East and Europe in the 1960s, to a major hub that serviced almost 25m passengers in 2005. Dubai International Airport (DIA) saw its traffic grow routinely by 10% per year in the 1990s, as it solidified its position as the premier stopover point between Asia and Europe. For passengers, it developed a reputation for providing some of the cheapest duty-free shopping around, on the back of the runaway success of Dubai Duty Free.



For logistics, DIA has grown from handling 49,000 tonnes of cargo in 1980 to 1.33m tonnes in 2005. The adjacent Dubai Airport Free Zone (DAFZ), inaugurated in 1998, helped business by expanding rapidly from two buildings and 14 light industrial units in its infancy to seven buildings and 78 units in 2005, with 28 more under construction by the end of 2006.



“In 2008, all these buildings will be completely full and in the next 10 years we will lease the area completely,” Zarouni, who is also the director general of Dubai Airport Free Zone Authority, told OBG in October.



DAE’s global vision follows a number of UAE-based companies that have tried to take their expertise abroad.



DP World’s bid to takeover the third-largest port operator, P&O, could be Dubai’s highest profile deal to date, but other ports in China, South Korea, India, Yemen, Turkey, Romania and Venezuela have been acquired by DP World in the past 12 months.



Etisalat, the government telecommunications company, has entered the Saudi and Pakistani markets and was rumoured to be in negotiations for Danish telecoms giant TDC, while property developers Emaar and Dubai Properties are brokering real estate deals in Turkey, Morocco, Egypt and Saudi Arabia.



But many of these companies have faced strong opposition to their international moves. DP World’s current run-in with US lawmakers over American ports is well-documented, while Etisalat has seen its 2005 entrance into the Pakistani market met with protests. Dubai International Properties also witnessed strong opposition from Turkish politicians, architects and the general public over proposed skyscrapers and other developments in the Istanbul area.



If DAE has considered these future hazards, it has not voiced them, preferring to set high goals and let some deep pockets do the talking. With its cadre of some of Dubai’s most successful companies as stakeholders, the new company will not have any shortage of local support.



Once outside the borders of the UAE, however, DAE should assume that its ambitions could be met with resistance, as aviation is often near to a country’s national consciousness, tangled up with protectionism, bureaucracy and concerns – real or imagined – over sovereignty and security.

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