In the United Arab Emirates it is competition, and not necessity, that is the mother of invention. The country’s seven emirates are often cast as a close clan of brothers which, while keen to support the family, compete to differentiate themselves as unique destinations.
“The emirates work together, but very separately,” says Alan Peaford, editor-in-chief of aerospace magazine Arabian Aerospace. “It is like a family of rival brothers running their own shops. They are close, but there is genuine competition between them.” The complex ties between Abu Dhabi, the UAE’s capital city, and Dubai exemplify this.
UAE's star performers
Even though Abu Dhabi holds 95% of the UAE’s proven oil reserves, Dubai has achieved more global recognition largely due to the success of the Emirates Group, the parent company of Emirates Airlines. The Emirates Group represents nearly one-quarter of Dubai’s GDP and economic forecasting consultancy Oxford Economics predicts that Dubai’s aviation industry could be worth $44bn by 2020.
Yet when Abu Dhabi’s sovereign wealth fund, Mubadala, entered a joint partnership with the Netherlands-based aeronautic and defence company EADS to develop its aerospace components sector in 2009, the deal revealed a determination by Abu Dhabi to match Dubai’s aviation prowess. As recently as September 2012, EADS invested $28m to establish a new office in the UAE's capital, according to greenfield investment monitor fDi Markets, showing that Abu Dhabi can win big-ticket investments from the industry’s recognised players.
Although the emirates that make up the UAE have to compete to market their respective locations, the decision to collectively invest across the country’s aviation industry shows they have also recognised the need to globally compete as a unit.
“Over the next 10 years, the UAE will invest in its aviation infrastructure in order to improve its connectivity and cement its reputation as a key driver in global aviation,” says Sultan Al Mansouri, the UAE minister of economy. In addition, the move to invest Dh500bn ($136.1bn) into the country’s aerospace industry also highlights a desire to reduce its reliance on the oil sector. “There has been a move away from the traditional oil and gas sectors, into other sectors,” says Mr Peaford. “Aerospace is one of those key areas that [the country is] looking at, and it is doing remarkably well.”
Dubai's big plans
Dubai’s success in becoming the UAE’s major aviation hub has led the other emirates to attempt to emulate its strategy. The government-led development of Dubai’s aviation sector has focused on feeding the growth of Dubai International Airport and Emirates Airlines into its other sectors. As Emirates Airlines has tripled its capacity over the past six years, according to the Boston Consulting Group, this targeted strategy has led the Dubai government to earmark Dh29.8bn to expand Dubai International Airport by 2015, in a effort to facilitate increasing passenger traffic.
With Dubai International Airport expected to overtake Heathrow in London and Charles de Gaulle in Paris en route to becoming one of the world’s busiest airports, Raphael Haddad, vice-president of sales for the Middle East and Africa at Canada-based Bombardier Aerospace, maintains that this growth strategy is in line with the Dubai government’s move to support growth in other sectors. “Dubai had a good vision on how to integrate [its aviation industry] with a larger strategic plan for the city’s different sectors,” he says.
Although investments have been dominated by the Dubai government, Mr Haddad maintains that this has served to encourage international aircraft companies such as Bombardier to invest in the emirate to tap into the growth of the aviation industry, as well as access the UAE’s fast-growing neighbouring countries. As the UAE’s second largest greenfield investor, according to fDi Markets, the decision by Bombardier to establish an office in Dubai Airport Freezone (Dafza) in 2011 highlights this point. “We have a large office in Dafza and we plan to expand it,” says Mr Haddad. “We have a spare depot at the Jebel Ali Freezone for transhipment throughout Africa and the Middle East. The market is very dynamic and there are [several] expansions taking place.”
Growth on growth
In addition to the expansion of Dubai International Airport, the development of the Al Maktoum International Airport in Dubai is expected to make it the largest airport in the world upon completion in 2020, showing just what a significant role Dubai will play in the UAE’s strategic vision. Currently located at the heart of Dubai World Central airport, with a direct link to the Jebel Ali Seaport, the Dubai government has invested Dh4bn in Al Maktoum International's development, and local authorities estimate it will have a handling capacity of 160 million passengers a year upon completion.
“While the UK has been discussing whether Heathrow should or should not have a third runway, Dubai has gone on to build the world’s largest airport,” says Mr Peaford. “Around the airport is the Jebel Ali Freezone and there will be a secure link between the two, meaning that Jebel Ali will also become a global centre in the logistics industry.”
Yet the rapid growth of Abu Dhabi's Etihad Airways also reveals that Dubai's rival-in-chief is increasingly staking a larger claim in the UAE's aviation industry. Initially established with the Abu Dhabi government’s petrodollar revenues, Etihad Airways has experienced success in carving out a niche as a luxury airline. Although the airline currently represents 2.1% of Abu Dhabi’s GDP, the emirate's government has already attracted global investors, including the US-based aerospace companies General Dynamics, Rockwell Collins and Jet Aviation, to support its growth. Although fDi Markets shows that between 2003 and 2012, Dubai received 70% of all greenfield investments in the UAE's aerospace sector, investments into Abu Dhabi have been increasing and it currently hosts eight greenfield projects worth $301.9m.
Beyond the big two
As the global economic slowdown has resulted in increased belt-tightening among consumers in Europe and North America, the growing trend of travellers looking for cheaper flights has been a boon for low-cost carries such as Sharjah's Air Arabia. Despite lacking the deep pockets of its larger neighbours, the rise of Air Arabia, which had an annual turnover of $653.3m in 2011, Sharjah is hoping to compete for low-cost flights and back-office aerospace operations.
“Sharjah has been aggressive and Air Arabia is one of the leading airlines in the world in terms of low-cost carrier profitability,” says Mr Haddad. “Sharjah is now exporting its model to other subsidiaries in Africa and the Middle East.” The decision by Russia-based aerospace company Volga-Dnepr to construct a new $17.7m hangar facility at Sharjah International Airport demonstrates that the emirate is increasingly showing on international investors' radars, albeit at a slower pace than Dubai and Abu Dhabi.
Although Abu Dhabi and Dubai will continue to capture the lion’s share of FDI in the UAE as international air hubs, the smaller emirates will be important regional hubs for investors looking to establish cheaper operations in less congested destinations. While Sharjah ranked third among the emirates in attracting $47.9bn-worth of greenfield investments between 2003 and 2012, fDi Markets data shows that Ras Al-Khaimah (RAK), which ranked fourth, attracted just $25.5bn. Yet for John Brayford, the CEO of RAK Airways, the focus of the emirate's government has been largely limited to encouraging the organic expansion of the city’s tourism sector and developing the airline to match this growth.
“In 2010, the government began investing in RAK International Airport; however it is not just about building an airport and flying an aircraft – it has to be linked to a strategic plan,” says Mr Brayford. “From a RAK perspective, there has been a focus on tourism, and offering high-quality products [through our services], with beautiful resorts at affordable prices.”
Although each emirate will continue to compete with its neighbours, the UAE’s government will also work to collectively support its aviation industry through strategically investing across its emirates. With its sights set on competing with the world’s major air hubs, analysts maintain that this balance between collaboration and competition will enable the UAE to become one of the world’s main aviation centres. “The world centre for civil aviation has moved from the big airports in Europe – the Frankfurts, the Heathrows, and the Schiphols – to a number of the regional airports in the UAE,” says Mr Brayford. “The major terminals here will accommodate millions in passenger capacity and they will be major game changers in civil aviation.”