The US avionics maker Rockwell Collins is targeting regional growth in high single digits in the next five years as the Middle East aviation and defence industries buck the slowdown caused by low oil prices.
Rockwell, which counts the aircraft makers Boeing and Airbus as major customers, is bullish about the region because governments are continuing with their defence programmes and the aviation sector continues to grow, said Kelly Ortberg, the chief executive.
Total sales in the region averaged US$150 million in the company’s previous fiscal year, which ended September 2015.
“It’s [the low oil price] to watch for us, but we are not seeing really any impact to our business,” said Mr Ortberg. “Most of what we do is highly tied to the security in the region, to defence, and we see these programmes continuing to be funded. Low oil prices are obviously good news for the airlines industry. We have not seen any impact there.”
In the Mena region, the UAE and Saudi Arabia are leading in terms of military spending and they are major customers for Rockwell.
In this year’s budget, Saudi Arabia has allocated 213.4 billion riyals (Dh208.9bn) for military and security spending, a quarter of its budget and its single biggest purchase.
“Defence products that are growing particularly in the region are targeting systems for precision strike platforms, upgrades of Saudi Arabia’s F15 [fleet], upgrades of C130 aircraft,” said Mr Ortberg.
The US aircraft maker Boeing is building 84 F-15 fighter jets for the kingdom in a $30 billion deal. The US defence company Lockheed Martin has also sold C130 transport planes to Saudi Arabia.
“In the UAE, we are working with Ammroc to provide military avionics capabilities in the region and that will drive growth for us in the foreseeable future,” said Mr Ortberg.
Abu Dhabi-based Ammroc, a joint venture between the Abu Dhabi investment firm Mubadala, Lockheed Martin and the helicopter maker Sikorsky, is building a material replacement, repair and overhaul centre in Al Ain.
Rockwell, which reported a 5 per cent decline in fiscal first quarter sales to $1.17bn, is forecasting $5.3bn to $5.4bn in sales for its current fiscal year, which started in October 2015 and ends in September this year, as both the defence and commercial aviation business grows. The company recorded sales of $5.2bn in fiscal year 2015.
About 42 per cent of the company’s business is defence-related and the remainder is commercial.
The company’s international market is 43 per cent and the remainder is from the US.
“The US defence market is improving because the US is spending more,” said Mr Ortberg. “They have gone through a pretty major downturn and think we have bottomed out, now we have seen budgets approved at higher levels. Even while the US was going through a dip, we have seen growth in international markets.”
The US is proposing a $583bn defence budget for 2017, which is higher than this year’s budget.
The slowdown in China, however, is adversely affecting the sale of business jets, which is weakening globally.
“Softness in China is impacting the high-end business aviation,” said Mr Ortberg. “Air transport continues to be very good and there continues to be a growing middle class which travels more, so the demand for aircraft continues and they got their own indigenous aircraft development programmes going on as well.”
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