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Major UAE Merger Likely in 6 Months

Jul. 14, 2014 - 03:45AM   |  
By AWAD MUSTAFA   |   Comments
Mubadala Development, Tawazun and Emirates Advanced Investments are considering a merger within the next six months, sources said.
Mubadala Development, Tawazun and Emirates Advanced Investments are considering a merger within the next six months, sources said. (Tawazun)
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ABU DHABI — A merger between United Arab Emirates defense giants Mubadala Development, Tawazun and Emirates Advanced Investments could be completed within the next six months, according to sources close to discussions.

The three defense companies are likely to announce the creation of a new entity before the International Defence Exhibition in Abu Dhabi next year.

In April, a memorandum of understanding expressing their intent to explore “the synergy opportunities that could be created by the unification of their defense services businesses” was signed at the International Exhibition for Security and National Resilience in Abu Dhabi.

According to a statement released then, the discussions were focused on the creation of a single integrated Abu Dhabi-based defense services platform.

Sources added that Mubadala’s chief executive of Aerospace and Engineering Services, Humaid al-Shemmari, will most likely lead the new firm.

“Tawazun, Mubadala and Emirates Advanced Investments currently manage a range of complementary defense services businesses,” al-Shemmari said in the April statement. “There is a clear opportunity to combine our related assets to the benefit of the UAE’s wider defense sector as well as our local and international customers.”

The UAE has the highest number of defense companies covering shipbuilding, unmanned systems, aviation and land systems in the region. More than 80 registered companies are based in Abu Dhabi, Dubai and Ras al-Khaimah, with at least 15 being state-owned firms.

By merging, the companies would develop an economy of scale to tackle export markets, said Ahmed al-Attar, assistant director for defense and security at the Delma Institute in Abu Dhabi.

“There are many capital expenditures in the UAE defense industry, and costs for setting up facilities, recruiting and developing scientists and engineers are high,” he said. “They are trying to cut down on these expenditures and also bring down operational costs.”

This approach is part of the UAE government’s drive to bring down cost and is a push to be more lean and efficient, al-Attar said.

“A lot of nascent arms export nations are under threat to lose large amounts of money in set up costs, and this is part of making the industry more globally competitive,” he added

The amalgamation of the UAE defense companies will strengthen the sector because it will eradicate internal competition, said Matthew Hedges, with the Institute for Near East and Gulf Military Analysis.

“Through the eradication of internal competition and institutionalization of the new company, in a similar way to Russia and Rosoboronexport, the ‘new’ entity will compete on the international market with the world’s leading companies,” he said.

“This new entity will work alongside the strategic leadership of the UAE Ministry of Defence, Ministry of Education and Armed Forces to prepare and build capacity within the Emirati population so the defense and technology sector that has been highlighted as a leading facet of the future UAE economy will be able to lead emiratization efforts,” hedges said.

The three companies said in their statement that the merger could help to “accelerate the development of technological capabilities and drive additional employment opportunities for UAE citizens.”

One possible advantage of the merger is that the new entity would be able to provide services and support, as well as logistical supply, not only to the UAE armed forces, as the smaller subsidiaries do, but also to international military forces operating in the UAE and the region.

“These companies are state-owned and with all of them coming under one umbrella, the money will be coming from state, there will be questions of how the money is being spent,” al-Attar said.

Mubadala owns the Advanced Military Maintenance, Repair and Overhaul Centre, which provides logistics support for the UAE military and handles all its fixed-wing aircraft maintenance overhaul and repair work.

In the first half of 2013, the company registered a 2.8 billion dirham (US $762 million) revenue from sales of aircraft maintenance and repair services, and 525 million dirhams from sales of satellite capacity services.

Emirates Advanced Investments lists Emiraje Systems, which sells command-and-control services in the Middle East and North Africa, as a wholly-owned subsidiary. Emirates Advanced Investments 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.

Tawazun, the largest defense manufacturer, launched a joint venture with the South African defense manufacturer Denel Dynamics to develop precision-guided munitions.

It also owns a number of subsidiaries including Burkan Munitions Systems, which opened the first arms factory in the UAE, and sells to the UAE and clients in the Arabian Gulf region, as well as Nimr automotive, which exports to Lebanon, Libya, Jordan and Algeria.

With the UAE stepping up its military spending to 27.4 billion dirhams in 2018, the need to streamline services and cut back on overlapping companies is high.

“It is inevitable that similar institutions within these firms will combine, not only streamlining an efficient business model, but enabling the diffusion of knowledge to the next generation of Emiratis,” Hedges said. ■

Email: amustafa@defensenews.com.

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