Babcock sets up shop in capital

The UK defence services company hopes to win its first contracts this year in the growing Middle East defence market.

Babcock International, a major UK defence services company, has opened an office in Abu Dhabi and says it hopes to win its first local contracts this year in the growing Middle East defence market. Babcock describes itself as a heavyweight in the UK engineering support market, earning £1.9 billion (Dh10.08bn) in the year to March mainly through big-ticket contracts such as managing existing and decommissioned nuclear submarines for the ministry of defence.

But it sees an emerging potential in the GCC, and the UAE in particular, where governments and militaries are outsourcing non-core functions such as the management and upkeep of important facilities and infrastructure. "The Middle East in general, and Abu Dhabi and the UAE in particular, has very strong areas for growth and areas where we can actually add value," said Andy Pearson, the regional managing director of Babcock. "The potential opportunity is very, very significant."

The company, which has 17,000 employees globally, decided in the first quarter of last year to bolster its business outside the UK. Babcock's non-UK business, comprising 13 per cent of the company's overall turnover, is led mainly by its South African operations. It also has engineering support contracts in Canada, Australia and the US. Abu Dhabi was an obvious choice for an office, Mr Pearson said, because of the UAE's high defence spending and its value as a gateway to the wider GCC and MENA market.

The UAE and Saudi Arabia are among the top five arms importers in the world. The two countries along with Oman and Kuwait will spend US$123bn (Dh451.76bn) on arms and support deals over the next five years, according to a forecast from Blenheim Capital, a defence-related financial services company. "There is big spending in the Middle East, and while a lot of that headline will be on equipment, that equipment needs support, and that is what we do," Mr Pearson said.

Graham Webster, an analyst at Arden Partners in the UK, said Babcock would become an even larger company in July, when it was expected to complete its £1.3bn purchase of VT Group, another defence services company. "Babcock's move into the Middle East is in part justified by the VT Group acquisition, which traditionally has done quite a bit in the Middle East with offshore patrol vessels," he said.

The expansion is geared towards replicating Babcock's success in the UK in newer markets, Mr Webster said. "They are starting to move outside the UK, not because the UK is not growing - it is. They are expanding because they can replicate what they do in other countries, and the Middle East is a natural choice." The opportunities include managing defence and nuclear facilities as governments and militaries seek to cut costs in the management of critical assets.

Babcock hopes that another contract is awarded by the UAE Armed Forces under its "Project Tatweer" after another company, Interserve, announced it had won an initial contract. "It is a facilities management for the UAE military, and very much in vein with work we do in the UK," Mr Pearson said. [e-mail]