The Abu Dhabi-based investment companies Mubadala, Tawazun Holding and Emirates Advanced Investments today came one step closer to merging their defence services businesses, after signing an agreement to explore the advantages of a new partnership.
The three companies signed a memorandum of understanding at the International Exhibition for Security and National Resilience in Abu Dhabi.
“There is a clear opportunity to combine our related assets to the benefit of the UAE’s wider defence sector, as well as our local and international customers,” said Homaid Al Shemmari, the chief executive of Aerospace and Engineering services at Mubadala Development Company.
A new company would be likely to provide “services and support, as well as logistical supply to UAE Armed Forces and potentially international military forces operating in the UAE and the region”, said Charles Forrester, a defence industry analyst at IHS. “Repairing and servicing equipment like helicopters would probably be the main output, so the company would not produce an actual ‘thing’ like a tank or aircraft.
“Having Middle East firms provide services such as maintenance, repair and overhaul means that a degree of the procurement cost and [upkeep] cost of [equipment] is reduced, while also helping to upskill the local workforce,” said Mr Forrester.
The three companies own a number of defence sector businesses that could be spun off to form a new venture.
Mubadala Aerospace and Engineering owns the Advanced Military Maintenance, Repair and Overhaul Centre, which provides logistics support for military vehicles, and last year signed a Dh1.9 billion contract with the Union Armed Forces (UAF). It also owns Damballa, a company offering cybercrime protection solutions, and the Horizon Flight Academy, which trains military and commercial pilots.
Although Mubadala did not provide an estimated value for its Aerospace and Engineering division, the company’s most recent financial statement, which covered the first half of last year, claimed Dh2.8billion in revenue from sales of aircraft maintenance and repair services, and Dh525 million from sales of satellite capacity services.
Emirates Advanced Investments (EAI) lists Emiraje Systems, which sells command-and-control services in the Middle East and North Africa, as a wholly-owned subsidiary. EAI also owns a stake in Thales Advanced Solutions, a joint venture between C4 Advanced Solutions and the French conglomerate Thales that manufactures communications and radar systems.
In 2007 Tawazun launched a joint venture with the South African defence manufacturer Denel Dynamics, which sells precision-guided munitions. It also owns Burkan Munitions Systems, which opened the first arms factory in the UAE, and sells to the UAF and clients in the Arabian Gulf region. The company owns two producers of small arms – Caracal, which states on its website that it produces “a wide range of modern firearms from pistols up to sniper rifles”, and Merkel, a rifle and shotgun manufacturer.
Each of these companies will look to benefit over the next few years as the UAE steps up its military spending. The overall budget is set to expand to Dh 27.4bn in 2018 from Dh 25.1bn this year. Of this, spending on services and maintenance – which the new venture will be providing – is set to grow to Dh6.3bn in 2018 from Dh 5.1bn this year.
Mr Forrester also said that for the three firms to “establish a unified company will potentially help companies selling defence equipment to the UAE”, as it will simplify the task of finding a partner able to provide “offset services” – in which aspects of a contract awarded to a foreign defence firm such as maintenance and repair are subcontracted to local firms.
“Benefits that could be realised from the creation of an integrated platform include economies of scale, supply-chain rationalisation and a single point of contact for customers,” the companies said.
“The creation of an integrated platform would also help to accelerate the development of technological capabilities and drive additional employment opportunities for UAE citizens.”
Mubadala, Tawazun, and EAI all declined to comment further.
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