For the nearly 70 executives from the US aerospace and defence industry visiting Abu Dhabi this week, most - but not all - are here for the normal reasons: sales.
After all, it is no secret that the UAE is one of the world's largest arms importers. Over the next five years the Armed Forces are expected to spend US$25 billion (Dh91.83bn) on aircraft and missiles, and another $10bn for its naval and land divisions, according to a recent study.
But amid the week-long schedule of shaking hands and meeting officials from the military and government agencies, there will also be a focus on industrial partnerships, and the prospect of US companies locating manufacturing and engineering facilities in the UAE. This is a far cry from the relationship between aerospace and defence companies and the region a decade ago. Then, it was primarily transactional. Foreign companies could fly in to the oil-rich GCC states, execute big-ticket arms and aircraft sales and fly out again.
It was a decidedly one-dimensional relationship and GCC states were left struggling if and when they required any follow-up interaction from these suppliers. But as the GCC, and the UAE in particular, sought to extract the maximum benefit from these huge outlays of their petrodollars, partnerships became the main theme. Straight transactions evaporated. Not only was a defence company expecting to sell equipment, but it also needed to commit staff long-term on the ground here to train, maintain and even construct the equipment, ensuring the purchasing country received some transfer of technology and economic benefit from the deal.
One example is Alenia Aermacchi, the Italian firm that hopes to sell the UAE $1bn worth of fighter trainers. As part of its proposal, the Italians said they were willing to assemble part of the jets in Abu Dhabi and would also provide technical guidance to Mubadala Aerospace in the set-up of its composites manufacturing facility, called Strata Manufacturing. Now, however, there is a new focus on joint engineering and manufacturing. This focuses on marrying the industrial expertise of western companies with the commitment and resources of the UAE, which wants to create its own aerospace industry. The sector has been identified as an economic driver to help diversify away from the volatile swings of crude oil prices, and Abu Dhabi has high hopes of attracting world-class companies to locate manufacturing, engineering and research and development units.
An early example of this is a joint venture between Raytheon, the US defence giant, and Emirates Advanced Investments (EAI), a private development company. In 2008 the two agreed to jointly develop laser-guidance systems for certain types of rockets. Raytheon said at the time the alliance would lead to the infusion of millions of dollars into research and development and create a product with international appeal.
While this EAI-Raytheon project has been under development in the US, many new projects are envisaged for the UAE, incorporating further emphasis on the creation of high-value jobs locally, and the resulting contribution to GDP. Not surprisingly, many of the activities of the trade delegation involve visits to Abu Dhabi companies driving these projects. One of the stops is in Al Ain, where an aerospace cluster is under construction. At the site, Mubadala's Strata Manufacturing plant is said to be already producing its first test articles of composite aero-structures. The plant has already garnered more than $2bn worth of work orders from Airbus and other European aerospace companies, and is also widely expected to land Boeing contracts.
Strata is just one of several projects in Al Ain being developed by Mubadala Development, a strategic investment company owned by the Abu Dhabi Government. Another is an $800 million military jet maintenance centre it is building there with Sikorsky. Over the course of the coming years and decades, it is hoped the Al Ain cluster will grow to such a size that it generates thousands of jobs, contributes billions of dirhams a year to the emirate's GDP, and attracts scores of companies for aerospace manufacturing, maintenance, engineering and training.
The logic behind the project is that foreign companies will be persuaded to relocate or expand operations to the UAE because of the provision of affordable infrastructure and labour, subsidised energy prices and business-friendly regulatory policies. Lt Gen Lawrence Farrell, the president and chief executive of the National Defense Industrial Association (NDIA), which is one of the organisations behind this week's trade mission, says his fellow delegates see potential in Abu Dhabi. "We do know there are some companies that have technology here that are quite interesting," he says. Through such partnerships "we can get technology that we can never afford on our own".
The visiting delegation, which represents about 50 companies including Textron, Rockwell Collins, Aerojet and Oshkosh, is also scheduled to visit Tawazun Holding, another firm with huge ambitions. Tawazun, also state-backed, is forming alliances and joint ventures with aerospace and defence firms and has been planning a huge industrial park focused on the defence industry. The firm is a subsidiary of the Offsets Program Bureau (OPB), a state agency that oversees offsets or investments by foreign companies in return for major defence contracts.
The delegation will also visit the Offsets agency, as well as EAI, which has grown in size considerably since its 2008 announcement with Raytheon, when it was still a relatively unknown company. Along the way, a budding relationship between foreign aerospace firms and Abu Dhabi's development companies will encounter at least a few challenges. One of them is intellectual property. Firms need to be sure that any products they develop in the UAE, either on their own or with local partners, will be protected.
IP protection is "never easy," says Lt Gen Farrell. "Even in the US, it's a very difficult proposition," he says. However, he does not believe the issue is prohibitively complex, given the emphasis by both the US and UAE on protecting the innovations of its industry. "It is always a concern but I don't see it as a show stopper," he says. US firms should be eager to land deals in the UAE, given the fact that defence spending is likely to plateau or even decline in Europe and the US.
Many of the companies in the delegation are among the so-called second and third tier firms, smaller companies that do not have permanent offices in Abu Dhabi, unlike the big US "primes". Despite their smaller size they will receive a leg-up because of the strong ties the UAE has with the US, whose government-to-government relations include joint military training in the US and UAE. The latest efforts include creating an "Air and Missile Defence Centre of Excellence" facility in the emirate designed for GCC forces to conduct training and simulation exercises, and cultivate leadership.
