Dubai Aerospace Enterprise surprised the industry last year with its part-acquisition of European maintenance specialist SR Technics. But the Middle East's ambitious aerospace venture has the more controversial target of North American military maintenance in its sights after expressing interest in Landmark Aviation and Standard Aero.
DAE is holding formal talks with US-based private equity investor Carlyle Group, which owns the two maintenance companies. "At the moment no definitive deal has been concluded. Together they could both form an interesting part of our maintenance business moving forward," says DAE.
But even at this early stage questions are being raised over the security implications of its plan to buy US assets. DAE's compatriot Dubai Ports World came up against a brick wall in the form of US Congress rejection of its plan to take over five US ports last year. Will DAE face similarly insurmountable hurdles as it attempts to expand its maintenance, repair and overhaul footprint?
Business aviation specialist Landmark Aviation is based in Arizona and works on airframes, avionics and engines for privately owned jets. It also performs interior completion and modification for commercial-sized private aircraft.
Canadian Standard Aero specialises in turboprops in the commercial sector, although around 40% of its business is made up of military component work. Could this throw a spanner in the works of regulatory approval?
The maintenance part of each business is what DAE is interested in: the Dubai-based company has said it would sell Landmark Aviation's fixed-base operations business as soon as possible. That segment, the focus of security sensitivities, will have to be handled through a trust. Richard Aboulafia, vice-president, analysis of US-based Teal Group, says: "I would hope it would be completely different from the Dubai Ports incident. That wasn't concrete policy - it was politicians grandstanding, so fairly arbitrary and capricious."
He concedes the DAE could come up against a similar reaction, but argues the move should be seen as "a good example of globalisation - the security issue should be about alliance-building". He adds: "You're not going to get a more Westernised Arab state. The UAE probably has more in common with the state of Florida than Saudi Arabia."
Michael Richter, co-president and head of the aerospace and defence investment banking group at Jefferies Quarterdeck, agrees: "It is more reasonable to assume this deal will pass, given the nature of the services on offer, compared with the Ports deal. However, portions of the company that are more military-oriented may face a fair amount of scrutiny," he says, adding that regulatory approval may be contingent on divestments of some parts of the businesses.
As for the targets themselves, Aboulafia says DAE is on to a winner: "Nothing is more readily digestible than aftermarket revenue." The two businesses will provide a foot on the US aerospace ladder, without the risky investment that is involved in buying a manufacturer or design specialist.
"DAE has had an interest in expanding in the services and aftermarket sectors. These companies are very complementary to DAE's existing assets," Richter adds.
But why, when focusing attention on the fast-growing Far Eastern markets might have been easier politically, is DAE so keen to aim for a potentially more troublesome target? The reason is simple, Richter says: "It is very critical to obtain a presence in the commercial and military markets in the USA because of the size and importance of the fleet in the international market."
DAE is thought to be looking at other US businesses too - Heroux-Devtek and Signature Flight are just two of the names being mentioned - so it will have to tread carefully with US authorities.
Source: Flight International
