Mubadala's aerospace unit seeks opportunities in health technology

Exclusive: Strata in talks for up to eight projects as demand for aircraft parts slips by 40% due to Covid-19, chief executive says

AL AIN, ABU DHABI, UNITED ARAB EMIRATES - June 24, 2020: Strata Manufacturing PJSC employees, at Al Ain International airport.

( Abdullah Al Junaibi for the Ministry of Presidential Affairs )
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Strata, Mubadala Investment Company’s aerospace manufacturing unit, is looking to diversify into the health technology sector, as the Covid-19 pandemic fuels demand for medical equipment.

The company is holding talks with potential partners on seven to eight projects to produce personal protective equipment and medical consumables, chief executive Ismail Abdulla told The National.

It seeks to bring more high-tech manufacturing capabilities to the UAE and a decision on new health technology investment could be reached within three to six months, he said.

“The pandemic is an opportunity only. We are looking at projects for the long term,” Mr Abdulla said.

“We don’t want to do short-term business to address the pandemic. We want to make sure we have the right capabilities in the country [and] we are consulting with entities in the UAE to ensure we bring in what is required by the country and to do it competitively.

“The pandemic is not the main driver. If the pandemic [subsides], will we shut down? No, we are looking at long-term opportunities.”

Strata is the region’s biggest producer of advanced composite aircraft parts and one of the anchors of Abu Dhabi’s economic diversification efforts.

Set up by Mubadala in Al Ain a decade ago to position the UAE in the global aerospace supply chain, the company has billion-dollar contracts with Boeing, Airbus, Italy’s Leonardo and Switzerland’s Pilatus Aircraft.

However, the pandemic has devastated the global aviation industry, forced airlines to ground planes and sent ripples through the global supply chain as travel demand declined. As a result, Mr Abdulla said Strata registered a 40 per cent decline in its order book for aircraft parts.

To generate new revenue streams, the manufacturer is looking to expand into new sectors beyond the aerospace sector. It expects to start production of PPE as demand for medical equipment increases due to the spread of the virus.

“We are pivoting into a new area and believe we can generate some exciting opportunities to bridge that 40 per cent reduction in demand,” Mr Abdulla said.

Strata began producing N95 masks in partnership with Honeywell in May and secured enough orders within the country to keep it busy until year-end.

“We are ramping up N95 production for local needs and exports,” he said. “Once local demand is satisfied, we will go international. We will depend on the local market for 10 to 20 per cent of our orders.”

Strata’s pivot to health technology is “in line with the government directive and push to bring some of these capabilities to the UAE”, he said.

“We are knocking on all doors to explore these opportunities.”

Honeywell will have the “lion’s share” of Strata’s health technology projects, Mr Abdulla said, declining to name other potential partners as discussions are still ongoing.

Strata took several other measures to protect its business amid the health crisis.

Mr Abdulla said the aerospace company is in talks with local banks to restructure its debt. However, he declined to discuss the size or tenor of loans as talks are still ongoing.

It also set up a cash-preservation task force to ensure it holds enough resources to navigate the difficult period. This includes delaying capital expenditure on non-essential projects and reducing its operational expenses by renegotiating contracts such as maintenance or logistics.

“It is not about starving the business, it is about aligning expectations,” he said. “Now that the industry is growing at a different pace, we need to revisit capex.”

Strata did not cut any jobs since the outbreak began and has no plans to do so as part of its cash-preservation push, Mr Abdulla said.

Instead, it equipped staff with the skills required to manufacture PPE, with support from Honeywell.

More than half of Strata’s workforce are Emiratis, of which 86 per cent are women. It currently operates below 30 per cent of capacity during each shift to maintain social distancing.

Mr Abdulla noted that plane manufacturers are reviewing business with their global suppliers due to the pandemic but said he is bullish about air travel demand.

He expects air travel demand to recover within three to five years to pre-coronavirus levels but said that will depend on how quickly the world comes up with a vaccine.

“The industry has strong fundamentals over the long term,” he said.

For now, Strata is seeking a “balanced portfolio” between its aerospace and health tech pursuits, Mr Abdulla said.

“We need to be agile,” he said. “Diversification is very important.”