Sanad, the support with a big part to play

The Mubadala Aerospace MRO portfolio of SR Technics, Abu Dhabi Aircraft Technologies (ADAT) and Sanad Aero Solutions were among the stars at November’s Dubai Airshow with all announcing contracts – both individually and as a combined MRO network.

The international contracts and recognition through partnerships has reinforced the confidence the Abu Dhabi sovereign wealth fund had in its decision to focus on MRO work as the major string to the UAE’s bow in pursuing its aerospace ambitions.

The three companies give Mubadala the scale it needs in the marketplace to achieve success, said Sanad CEO Troy Lambeth.

Sanad (the name comes from the Arabic ‘to support’) was set up as a component and engine financing entity to help airlines’ liquidity positions by buying and leasing back spares that would otherwise tie up funds by sitting on warehouse shelves as inventory.

“We took a hard look at the spares market,” said Lambeth, “whether engines or rotable components that either break or reach pre-determined life limits. The industry has always had to support parts that were just lying around. We concluded there was a huge amount of spare parts and engines that the industry was holding that we could add value to.”

Another option is if an airline is about to take on a new type – such as Boeing’s 787, now entering service – but has not already set up a stock of spares. Sanad can take on the necessary provisioning for the carrier.

The market in which Sanad operates has been estimated to be as high as $35 billion and, with forecasts of a further 12,000 new aircraft entering service in the foreseeable future, airlines would have to find a future $18 billion to support their new fleets.

Sanad believes it can help ease that burden, said Lambeth.

Having been launched with the task of investing in spares for long-term lease, it struck its first deals at the end of 2009, with a mandate for $1 billion of business in its first five years. To date, around $250 million of asset transactions in engines and rotables have been written, with associated long-term MRO contracts valued in excess of US$ 1.6 billion.

“From a business plan perspective we’re ahead of schedule,” said Lambeth. “Going back to that $1 billion, five-year target we’re a quarter into that period and expect to be halfway through that [figure] as we go into 2012. I’m happy with progress so far.”

He added that in 2010 the commercial MRO industry globally was a $43 billion sector, with that figure set to rise to $47 billion this year and to $60 billion by the end of this decade.

“This industry never has any shortage of challenges,” said Lambeth. “There was a lack of liquidity in 2008/9 and there are questions on liquidity today.”

This potentially makes the lease-back of major maintenance items, such as engines and undercarriage systems, more attractive to airlines.

“We’re looking forward to expanding our position in the Middle East,” added Lambeth, who noted that the region is forecast to be one of the three fastest-growing regions for civil aviation over the next decade.

One of Mubadala’s other MRO units, SR Technics, has a footprint in Europe, while Sanad and ADAT have a growing presence in the Middle East. Additionally, Sanad made an initial foray into the Asia-Pacific market last September 28 with a contract from Virgin Australia for a comprehensive financing and access agreement for spares for the carrier’s Boeing 737NG and Embraer E-Jet fleets.

It followed on from the agreement signed in August between Virgin Australia, Sanad and SR Technics. That deal leveraged the full scope of Mubadala Aerospace’s MRO capabilities and included major component maintenance and technical training agreements supporting the carrier’s Airbus A330 fleet. It was complemented by a broad scope component financing solution from Sanad.

The September contract was the largest single transaction to be struck by Sanad. Together, the deals would create additional liquidity and fiscal flexibility for Virgin Australia, said Lambeth.

Other major deals have been struck by Sanad with Germany ’s Airberlin, and in Mubadala’s backyard with Etihad Airlines. Sanad also recently finalised an agreement to provide financing of rotable components for Hamilton Sundstrand products on the Boeing 787 Dreamliner, as part of a wider arrangement with ADAT and SR Technics.