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Gulf special: Building a vision
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http://www.flightglobal.com/Articles/2006/09/19/209017/Gulf+special+Building+a+vision.html
Gulf special: Building a vision
By Murdo Morrison


With the backing of Dubai's businesslike rulers and an acquisition warchest, Dubai Aerospace Enterprise is set to shift the global industry's centre of gravity.

Dubai's Sheikh Zayed Road - one of the Gulf city's main arteries - resembles a design from a virtual city computer game. Shimmering office buildings and luxury apartments form a 2km (1.2 mile) canyon that a decade ago was little more than a flat desert highway. Cranes are everywhere and vast construction crews - most from the Indian subcontinent - toil through the August heat and exhaust fumes, as 40-storey towers rise from the dust in a matter of months.






 


In one of these office blocks - halfway between the old city centre and what is destined to be Dubai's new commercial hub and Dubai Aerospace Enterprise's eventual home, Jebel Ali airport - DAE's 20 or so staff are laying their own foundations for what is intended to become a $15 billion global aerospace manufacturing and services operation. DAE, launched at February's Asian Aerospace in Singapore after consultancy AT Kearney spent a year working on the blueprint, plans to become a world player in six sectors: aircraft leasing airport design and management aviation training education and training maintenance, repair and overhaul (MRO) manufacturing and consultancy services.


For the moment, DAE may be little more than a knot of executives in temporary offices with a big plan. But anyone who doubts DAE's ability to deliver needs only look at the form book. The company's chairman is Sheikh Ahmed bin Saeed Al Maktoum, one of Dubai's ruling family and chairman of Emirates, the city state's other great success story in the aviation and aerospace sector. The Maktoums - probably the world's most commercially astute royals - have, with relatively little oil money, in a quarter century turned Dubai from modest trading port into one of the world's foremost tourism and commercial centres. DAE, which is being funded by some of the region's leading investment houses, is Dubai's attempt to make its mark in what it sees as an aerospace sector that shows little sign of peaking.







 
DAE



DAE's bold plan to build a global operation from scratch befits Dubai's status as a modern commercial centre


Emerging markets


Two weeks ago, a consortium comprising DAE, Abu Dhabi government-owned Mubadala Development and investment house Istithmar - one of DAE's backers - announced that it was acquiring SR Technics, the Zurich-based independent MRO specialist, from venture capital owners 3i and Star Capital (Flight International, 12-18 September). SR Technics is expected to become effectively the MRO arm of DAE, retaining its independence and management team, but using its new Gulf connection as a springboard to build the SR Technics brand in the Middle East and Asia Pacific.


DAE's geographical position, on the doorstep of the emerging markets of India and the Middle East and relatively close to China and South-East Asia, its relationships with the region's entrepreneurs and governments, and the synergies it can squeeze from its complementary businesses are key to its strategy, says Bob Johnson, the former Honeywell Aerospace boss lured out of retirement in June to become its chief executive. Although blessed with a great start in life, DAE will be no indulged offspring, he insists. The business will have to start delivering returns to its investors almost from the start, with Johnson expecting the first lease contract to be signed "by the end of the year", and DAE University - as it will be known - taking on its first students next month. "We're a business that needs to profit," he says.


Johnson's first task has been to recruit a management team and he says his "email is full of people from all over the world who want to be a part of this. We can't interview people fast enough." This month, he hopes to name a "thin layer" of head office personnel, including a chief finance officer, chief administrative officer and chief development officer. There will also be leaders for all the business divisions the first, George Ebbs, who will head the so-called DAE University, came on board last month (see P50). These chief executives will recruit their own teams. "It's very much a top-down approach," says Johnson, who ran Honeywell's $11 billion aerospace business for six years. "There's a fine line between having the people we need before we have the work, and having the people we need to do the work when it comes."


Johnson - who admits he had only "passed through" Dubai before his appointment and had never been to the biannual air show - needed little convincing to take the job after being approached by Rashid Al Malik, the former Emirates pilot who came up with the DAE concept just over a year ago and convinced Dubai's rulers and several of its key financial institutions to back it (see box below). "I was retired," he says. "But Rashid [now newly appointed as Johnson's deputy chief executive] came to tell me the story I came to meet the investors and government officials and it was a very easy decision."








DAE



 
DAE



Bob Johnson (top) was approached by Rashid Al Malik (bottom) to take the post of chief executive


The chance to run a start-up was a big attraction. "I had a lot of experience fixing existing things. Now it's about setting up better things from new," he says. "It's easier and its actually more fun. It gives me a great opportunity to leave a great legacy. Rashid was the dreamer. I have to help put in place what he imagined." After living in Dubai for more than a month, he finds it "easier than I imagined - friendly, safe and culturally diverse".


Although DAE's divisions make it appear more diversified than other aerospace companies, there is a neat synergy connecting them all, says Al Malik. The booming aviation markets of Asia and the Middle East need new aircraft, and they need to have them maintained and serviced they need equipment for these aircraft they need new airports and, most of all, they need pilots and other personnel to run their growing aviation sectors. "There are a 170 aircraft in India but they will require 1,600 in the next 15 years. They will need nine times the number of airports they have now, and they will welcome foreign investment," he says. "Before, airlines used to be proud to run their own fleets and MRO. Now they want to outsource to compete with the low-costers."


A global market


With SR Technics already an established business - in Europe at least - DAE's leasing business, along with the university, will be the next to start trading. "We would think we will have an active business this year," says Johnson. Although he will give away little at this stage, it is likely DAE Capital, as the division will be known, will have an initial small fleet of widebodies on sale and leaseback deals, although he does not rule out acquiring narrowbodies or new aircraft. "We don't have to have 50 to 70 aircraft on day one, but that would be around the right size in three to four years," he says. He has no qualms about going up against established global players. "A lot of airplanes are going to be added to fleets in this region," he says. "We have a good credit rating. And nobody in the widebody market has the relationships we have."


Although its business plan projects eventual employment levels of 30,000, most of DAE's initial operations will be operated fairly leanly. Its airports division, for instance, will comprise a small, mostly-remote team of experts who will draw on experience with the design of Dubai's new Jebel Ali airport (see box P43) to offer services to other airport owners. DAE will project manage rather than actually build developments. "I'm not going to have a construction company," says Johnson. "We will design, customise and put together a consortia of builders."


It also seems unlikely that the SR Technics move will see a large influx of jobs to the Gulf region, at least not initially. "We think there's enough hangars already," Johnson says in response to suggestions that DAE may simply create new capacity in the market, using the cheaper labour available in the Gulf region. It appears likely instead that DAE will use its pulling power to help SR Technics - which two years ago bought its competitor Dublin-based FLS Aerospace and employs a total of around 5,000 staff - extend its customer base eastwards. "We are next to, and in amongst, all the aircraft growth. So it's a regional focus, but a global market," says Johnson. "Legacy carriers are outsourcing and there are low-cost start-ups everywhere. We think it's an underserved market."







 
IndiGo 



DAE's proximity to emerging markets such as India is a key part of its strategy


Manufacturing


The bulk of DAE's eventual workforce will be in its manufacturing division, although Johnson again provides little detail about what areas the company is targeting. However, he says that "just about everyone that makes airplanes and engines and tier one and two suppliers has had meetings or calls with us, or is going to, because they want a way to partner with us and establish some sort of local presence or activity". Recent visitors to DAE's offices have included Smiths Aerospace and a delegation of small and medium-size enterprises (SMEs) from the UK's Farnborough Aerospace Consortium. In some cases, DAE will form partnerships in others, it will acquire companies, says Johnson. But he insists that any manufacturing ventures will not be about "displacing jobs" from other countries. "It's about expansion and DAE becoming a long-term participant in the aerospace business."


Already it seems certain that several conversations have reached the level of lawyers and financiers. Johnson and Al Malik are understandably cagey about specifics, but further acquistions or joint ventures seem almost certain before the year is out. DAE may be just about to shift the centre of gravity in the global aerospace industry. ■







"There are 170 aircraft in India but they will need 1,600 in the next 15 years, and nine times the number of airports they have now"


Rashid Al Malik, DAE 


 

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