SERVICE FOR THE SKIES

Saudi Arabia 2014 | TRANSPORT | INTERVIEW

TBY talks to Nader Ahmed Khalawi, CEO of Saudia Aerospace Engineering Industries (SAEI), on the MRO market, growth in the aviation sector, and the prospects of expansion.

Nader Ahmed Khalawi
BIOGRAPHY
Nader Ahmed Khalawi studied Mechanical Engineering at King Fahd University of Petroleum & Minerals. He has been with Saudia Aerospace Engineering Industries for over 30 years, beginning his career as an Aircraft Engineer. He soon began to move up through the ranks at Saudia going from Section Manager to Shift Manager before becoming the Manager of the Technical Support Center in 1990. Khalawi continued his rise up through the company taking position including General Manager of Major Base Maintenance and Vice-President of Aircraft Maintenance, before becoming CEO.

How is Saudia Aerospace Engineering Industries (SAEI) positioned in the Gulf aviation maintenance, repair, and operations (MRO) market?

We have over 5,300 people working with us, and we are the largest maintenance organization in the Middle East. Approximately 92% of our employees are Saudis, from technicians all the way up to managing directors. During our time in this industry, we have gained a significant amount of experience. As an example of this, the average experience of a Saudi technician at SAEI is 18 years. We maintain the aircraft, and we also maintain the components. As well as an aircraft maintenance and a components maintenance division, we also have an engine division that conducts overhaul programs. We have been overhauling aircraft since 1982, while we started overhauling engines in 1984, which is much longer than any other MRO provider in the region. Since the early 1980s, the most significant organizational change has been privatization, which we are currently finalizing. The initial push for the privatization of SAEI came from the government, with the objective of adding the discipline of private ownership to a state-owned enterprise (SOE), thereby leveraging the experience gained with an increased commercial structure to improve efficiency, support the airline, and acquire good returns on investment. Our plan for 2020 is to continue our current growth path. Right now, Saudi Airlines (Saudia) has 125 aircraft with another 30 on order, as well as more after that. Our income from maintaining Saudia's fleet will represent 60% of our business; however, we are required to source 40% of our income from third-party customers. To do that, we have started building a new maintenance facility, which represents an investment of $1 billion. It is the largest in the region, and even one of the largest in the world. It will include aircraft hangars, workshops for maintaining components, and a brand new, state-of-the-art engine shop, which will be spread out over 1 million sqm with over 7,000 employees. Therefore, considering our ambitious expansion plans, we expect to train and hire another 4,400 people, which is a challenging task.

There has been unprecedented growth in the aviation sector in the region with the emergence of new carriers and expanding fleets. How are you adapting to this rapidly changing landscape?

Let me add another factor to what you have said: the defense. The defense sector is expanding rapidly, both in the Kingdom and in the GCC region as a whole. We expect that the growth represented by military aircraft will boost our expertise to a significantly higher level. We have upgraded our shops so as to double our current capacity. In addition, we are hiring young Saudi technicians at an increasingly high rate, either from our own school or from the existing technical schools. In Saudi Arabia, we are living in an ideal environment for growth. There is huge government expenditure, a massive emphasis on education, a large abundance of engineers, 22 excellent technical schools, and some 150,000 Saudis working outside the Kingdom. In addition to this, technical schools are being established at a rate of one a month. We are concentrating on hiring new Saudis to mix in with the experienced Saudis who already work with us, meaning we wont face a skills gap. This is important, and we are blessed with the ability to easily transfer knowledge thanks to our high degree of Saudization. A Saudi teaching a Saudi is more effective than bringing in expatriate trainers, because there is no language or culture barrier. That is how we aim to expand our staff to 7,000 people. We see a significant amount of demand for maintaining military equipment presently. We are the number one partner of Boeing's military division in the Kingdom, and we also have a partnership with Lockheed Martin, taking care of the C130 fleet. This is a major contract, because Saudi Arabia has the largest C130 fleet in the world apart from the US, with 75 planes. Our engine shop also signed an agreement with GE to overhaul all the military engines in the Kingdom for the F-15, S-92, Blackhawk, and Apache, for example. Beyond that, we are also in discussions with SaudiGulf Airlines and Al-Maha Airways to handle their fleets that will operate within the Kingdom. We offer a total solution whereby they bring in their A320s, and we take complete care of them, including building a hangar and offering full support for those aircraft. We have the experience and know-how in this field since we already manage 50 A320s for Saudia. The airplanes won't even have to leave Saudi Arabia in order for them to receive full MRO services.

What other prospects do you have for expansion?

Unlike other airlines in the region, we also have a significant domestic presence. We operate out of 27 airports in Saudi Arabia, and have branches in all of these. We support not only Saudia's fleet, but also other carriers from the Gulf and MENA region. Although our four main maintenance centers are located in Jeddah, Riyadh, Dammam, and Medina, we have branches in all airports around the Kingdom. SAEI also has branches overseas in Dubai, Cairo, Damascus, Paris, Beirut, London, Jakarta, Karachi, JFK New York, and Washington DC, and we conduct our own maintenance facilities in all of those airports. Therefore, we are already expansionary in scope, but we want to take that even further by offering total solutions to other carriers and countries.

You have an upcoming IPO in 2015. What are you hoping to gain from listing on the Tadawul?

We have already sold 30% of our business to private investors. SAEI is now 70% owned by Saudi Arabian Airlines Holding, and 30% by Tarabut Aircraft Maintenance Company (TAMC). The Holding Company has already offered an IPO for Saudi Airlines Catering, and the next will be for Saudi Ground Services, then Saudia Cargo, and finally SAEI. Hence, this will take two to three years. When we sold 30%, Saudia utilized the funds to initiate growth and expansion. SAEI has a service-level agreement that guarantees us the maintenance of the Saudia fleet until 2025; such an agreement will assist us in securing funds to build our facility. The revenue from expanded capacity and capability will be used to pay off our loans.

A regulatory change is expected that will ease foreign investments in the country, which may coincide with your IPO. What opportunities exist for potential foreign investors in the MRO industry?

The opportunities available in the Kingdom are massive, especially on the military side. There are huge and lucrative contracts with little competition; therefore, we are concentrating in that area, which is growing all the time. We are participating in many industry events, inviting in key industry executives to demonstrate our capabilities. However, the big jump will be when our new facility opens up. It will provide us with the opportunity to attract high-profile customers and investors from outside of Saudi Arabia. The new facility will help us deal with two-years' worth of backlog maintenance work for Saudia, including 73 “D-checks," which are heavy maintenance and overhauls.