A decade after making its first forays into the sector, Mubadala – the $8.6 billion-turnover state investment vehicle through which Abu Dhabi is using its oil revenues to diversify its economy – is moving to a new stage in terms of its aerospace portfolio. After almost 10 years of spending big on overseas acquisitions or shareholdings as well as domestic start-ups, the strategy, says Badr Al-Olama, the newly appointed head of Mubadala’s aerospace sector, is now one of steady investment in fast-maturing businesses.
When the government began thinking about creating a domestic aerospace industry in the early years of the century, Abu Dhabi’s economy was still vastly dominated by the energy sector. Mubadala was set up in 2002 and began investing in areas ranging from metals and information technology to utilities and healthcare. Often Mubadala established traction by partnering with global firms but the overall aim was to create new industrial sectors in the UAE’s largest emirate, providing career paths for its young citizens and positioning Abu Dhabi – like Dubai – as a modern, sophisticated city.
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When it came to aerospace, Abu Dhabi’s sole asset in the mid-2000s was Gulf Aircraft Maintenance or Gamco, the former engineering arm of Gulf Air, which had been left in a kind of limbo once Abu Dhabi pulled out of its shareholding in the pan-Arabian operator after forming its own flag-carrier Etihad. As one of its first gambits in aerospace, Mubadala purchased Gamco, which it rebranded Abu Dhabi Aircraft Technologies (ADAT), before acquiring – in a number of steps – Swiss maintenance, repair and overhaul specialist SR Technics. It also bought into the Italian business aircraft maker Piaggio.
In addition, Mubadala signed partnership agreements with General Electric, Airbus and Boeing, among others, and, ambitiously, set up an aerostructures manufacturer called Strata. Far from being a low-cost, outsourcing, build-to-print specialist, Strata was conceived as a tier one or two design company, specialising in composite components. Its product range soon grew to include horizontal stabilisers for the Airbus A320 and flap track fairings for the A330neo, as well as vertical fins for the Boeing 787. This year, Strata announced plans to almost double the size of its factory beside Al Ain airport to 60,000m2.
There have been course adjustments along the way. An attempt to create a “Mubadala Aerospace MRO Network” brand based on ADAT and SR Technics, and add MRO facilities around the world, was dropped and ADAT’s airframe and component maintenance activities were transferred to Etihad in 2014 and rebranded Etihad Engineering. Meanwhile, Mubadala spun off the Abu Dhabi-based engines maintenance business as a new entity, Turbine Services & Solutions, a manufacturer-approved shop for the General Electric GEnx that powers the 787 and the A330’s Rolls-Royce Trent 700.
Outside the UAE, Mubadala last year sold 80% of SR Technics to China’s HNA Aviation, despite saying just months earlier that it remained a “core” business. On the defence side, Advanced Military Maintenance Repair and Overhaul Centre (AMMROC), a business set up in 2010 to provide MRO support mainly to the armed forces, was merged in 2015 into a much larger state defence champion called the Emirates Defence Industries Company (EDIC), in which Mubadala has a 60% stake.
Apart from Strata, TS&S and its minority share in SR Technics, Mubadala’s aerospace interests now comprise: Sanad, which specialises in parts inventory management for airlines; Nibras Al Ain Aerospace Park, a would-be industrial cluster around the Strata factory at Al Ain airport that it markets alongside Abu Dhabi Airports; and XOJet, a jet card operator of Textron Cessna Citation and Bombardier Challenger business aircraft in the USA.
The now wholly Mubadala-owned Piaggio Aerospace sits in Mubadala’s defence services segment, alongside its stake in EDIC. That might seem an odd fit for a company whose plans for a business jet that could eventually be manufactured in the UAE attracted Mubadala’s strategists a decade ago. However, while Piaggio still builds its Avanti Evo twin-pusher business aircraft, its major focus these days is on two new variants of that platform – one for special missions and the other, an unmanned surveillance platform called the P.1HH HammerHead, of which the UAE has ordered eight examples.
There has been a “bit of a shift strategically” for Mubadala, says Al-Olama, who had run Strata for five years until being promoted to his current position in May, and is one of a generation of young Emiratis in senior roles in the group. “After being in development mode from 2007 until 2017 as we created new businesses, we are now entering an investment phase and there is a new discipline of sustainability and competitiveness,” he remarks. "We are no longer in learning mode.”
In services, it has been about focusing on what a maintenance business, based in Abu Dhabi, can do best. “As a traditional MRO, you always face being crowded out, so it’s all about coming up with a new value proposition,” he says. The decision to split and divest part of ADAT was based on “getting out of labour-intensive” airframe maintenance, says Al-Olama. “My proposition is not labour. It’s about complexity. The engine is a much larger opportunity. You can partner closer with OEMs and move far away from the retail end.
Strata, meanwhile, has probably been Mudadala’s most successful venture in aerospace, taking its product line-up from three in 2012 to 10 by the end of 2016, and winning contracts worth more than $5 billion. In 2009, the fledgling business signed a “strategic framework” agreement with Boeing to begin developing composite products for its aircraft. A strategic agreement with Airbus followed, and by 2018 Stata expects to have an orderbook with the European manufacturer worth $100 million a year.
“With Strata we are focusing on high-end manufacturing – high volume and high complexity would be our sweet spot in terms of investment,” says Al-Olama. The business is looking at “more focused R&D initiatives, 3D printing and how the cloud can help us expand our supply chain”. The second factory – dubbed Strata 2.0 – will open by 2020, will be a “factory of the future”, says Mubadala, that will “introduce new technologies on smart building, smart manufacturing and smart workforce”.
One of Strata’s objectives has been to establish a local supply chain, both by enticing overseas companies to set up at the Nibras Al Ain aerospace park, and by providing a new outlet for local start-ups. Some 40-50% of the company’s procurement is locally based. “We are helping with training, and targeting two or three more companies to be aerospace qualified by next year,” says Al-Olama. “We want to do as much value-added in the country as possible.”
Another priority has been “Emiratisation”. While expatriate managers and shopfloor staff were essential to get Strata established, UAE nationals now represent 51% of its 700-strong workforce, including “a strong representation of UAE women across all levels” of the organisation. For Al-Olama, the high level of national representation is a clear advantage. “Aerospace businesses are all about stability,” he says. “You cannot sell as story of stability to the OEM if 80% of your workforce is expat.”
Sceptics comment that Mubadala’s success has been more to do with international aerospace companies keen to sell to the UAE’s thriving airlines having to make a down-payment in terms of local investment. This is something Al-Olama vehemently denies. “We value our partnerships. It is unusual that you can be so strongly tied up with Rolls-Royce and GE, and with Airbus and Boeing,” he says. “But every single decision by an OEM has been made on a competitive basis. They have been very clear with us. We have to demonstrate our competitiveness.”
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Source: Flight Daily News
