x Abu Dhabi, UAEWednesday 26 July 2017

UAE punches above its weight in the skies

A new, profitable model of international aviation is being spearheaded by the airlines of the Emirates, and the rest of the world is beginning to sit up and take notice.

An Airbus A380 takes to the skies at Farnborough International Airshow, the world's largest showcase for the aviation industry.
An Airbus A380 takes to the skies at Farnborough International Airshow, the world's largest showcase for the aviation industry.

As the Farnborough International Airshow prepares to take to the skies over England next week, the aviation world awaits the latest announcements of aircraft orders, launches and alliances. This is the world's largest air show, with Farnborough's hosting of the event alternating year by year with its sister site in Paris. To be present in Airbus's air show chalet for the A380 takeoff is a thrill. Over the past few years, the UAE has increased its presence significantly at these shows in line with the country's growing role in world aviation.

The UAE will rival Japan in aviation assets in 2015, with more than 500 commercial aircraft. But its larger ratio of extra-wide-bodies means the UAE will outpace Japan in seat supply. Japan is either the second or third-largest economy in the world depending on your assessment of China's growth this year. The UAE's air transport successes can be attributed to the country's development of a new business model for aviation beyond a hub - the stopover destination. Its airlines fly people between other countries, not necessarily just to and from here. You can see this when you are on an Etihad Airways or Emirates Airline flight filled with Australians and they are just stopping over for an hour on the way to London.

The innovation comes from the UAE airlines, airports and authorities working to craft the entire experience. Aircraft from the Emirates operate more hours a day than anywhere else. This should not be discounted because the potential for generating revenue from all these passengers is very high. Dubai International Airport now achieves US$50 (Dh183.64) per passenger in duty-free sales, the highest in the world. The total value of duty-free sales at the Dubai airport is twice the combined value of such sales at all of Japan's airports. This is impressive when you consider the UAE has only one third the tourist visits of Japan.

This duty-free business generates more profit than most airlines' seat sales and allows optimisation across the airline and airport system. It also requires being really good at producing the best travel experience at the airport, on the aeroplane and at the shopping outlets, because with one click on the internet, customers can decide to go through Qatar or Abu Dhabi or New Delhi. The growth of the country's airlines generates a number of requirements. These include a first tier of support for such world-class airports: food service, shopping, fuelling and warehousing facilities for the air cargo industry.

What's next? Where it gets even more interesting is in what one might think of as the next level of support for this scale of aviation: maintenance, followed by construction and finally aircraft design. Why shouldn't the UAE have an equal share with much larger countries in the supply of aerospace maintenance and production to match its airline demand? Maintenance is generally performed in the region in which the aircraft are based. On the production side, Canada, Brazil and Mexico all punch above their weight, without the underlying demand for aircraft.

First steps have been taken to reach this goal here in the Emirates with the development of advanced composite airframe production and initial design capabilities. A high-tech, composite aircraft production facility will open this year in Al Ain. Building a plant and purchasing tools and machinery is relatively capital-intensive. In addition, the model of aerospace production practised worldwide today involves "risk-sharing partnership", which just means that suppliers have to make large capital investments up front in the multibillion-dollar cost of developing aircraft. The UAE has an advantage in this.

Brazil would be an interesting comparison, as it is home to a major aircraft manufacturer, Embraer. The company has about 15,000 employees and last year delivered almost 250 jets. When Embraer was launched 40 years ago, Brazil had relatively few skilled aerospace workers, but the country built an education system, copied from the Massachusetts Institute of Technology. At first Embraer sent students abroad, then created a domestic programme. One of the more difficult aspects of building an aerospace company is training knowledgeable people in this most complex of businesses.

Building aircraft is like hosting the Olympics or launching spacecraft - it is an issue of national pride. After all, aircraft are pretty much the most complex things in the world to build, perhaps exceeded only by nuclear-powered submarines. If a country can master the art of aircraft design and construction, there are arguably few things it cannot do. There will be competitors, challengers and, potentially, partners in all this.

Japan's ministry of economy, trade and industry has just proposed a series of large development goals on a technology road map for the coming decade. The major goal is to persuade companies such as Mitsubishi, Fuji and Kawasaki to build larger assemblies for aircraft producers beyond Boeing. The once-sleepy competition is now fully aware of what is happening here in the UAE. Existing producers and operators are no longer standing idly by watching air show announcements and wondering what to make of it all.

Bill Lay is a partner with PRTM, a management consultancy based in Dubai