UAE airline merger would be negative for Dubai construction

23 September 2018
A dual hub for Emirates and Etihad would diminish the urgency for developing Al-Maktoum International airport

It was reported on 20 September that Dubai-based airline Emirates is in preliminary talks to takeover Abu Dhabi’s Etihad Airways.

Both airline companies denied that any talks are taking place, but the idea of the UAE’s two main airlines joining forces raises major questions about what impact that could have on the broader economy, including the construction sector and future of new airport projects in both emirates.

In Abu Dhabi, construction work is now reaching the final stages for the Midfield Terminal Complex at Abu Dhabi International airport. The estimated AED10.85bn ($3bn) contract to build the main component of the scheme, the Midfield Terminal Building, was awarded to a joint venture of Turkey’s TAV, Lebanon’s Consolidated Contractors Company (CCC) and the local Arabtec Construction in 2012. Since then, it has suffered extensive time and cost overruns. Last year, Abu Dhabi Airports Company said the terminal building will finally open in 2019.

In Dubai, there are still plans to build the world’s largest airport. The intention for Al-Maktoum International airport is to build a sprawling complex large enough to take over all of Emirates flights when it opens.

These plans have not proceeded as quickly as initially expected, although there has been progress this year with the awarding of a contract covering the enabling and piling work for concourse 1 and the west terminal buildings. Pre-qualification has also started for the buildings’ substructures, which is estimated to be worth about AED10bn.

While the delivery of Al-Maktoum has slipped in recent years, Dubai has focused on increasing the capacity of Dubai International airport. This has been done in two main ways. First, through the construction of new concourses, and second via the upgrade of existing buildings to enhance the capacity of the existing infrastructure. This is part of a programme to expand the airport's capacity to 118 million airline passengers by 2023 through the adoption of new technologies.

Dubai Airports says it expects the demand for air travel through Dubai will be 142.8 million by 2025, and if Dubai International is expanded to 118 million passengers a year, together with the existing 26 million capacity at Al-Maktoum International airport, the emirate will be capable of handling 144 million passengers a year.

If Emirates and Etihad were to operate using a dual hub and some of the Dubai airline traffic transfers to Abu Dhabi International - which will have the capacity to handle 45 million passengers a year once the Midfield Terminal Building opens - then the urgency to invest $33bn in the world’s largest airport at Al-Maktoum International will diminish.

While saving $33bn in capital expenditure would be welcome, the problem with this option is that it could undermine much of the development that Dubai plans for the Dubai South area around the airport. Formerly known as Dubai World Central, the strategic project comprises the Expo 2020 site, Al-Maktoum International airport and an aviation hub, as well as residential, commercial and logistics areas. Altogether, the development covers 145 square kilometres.

The master developer is Dubai Aviation City Corporation, and in recent years it has signed agreements with developers such as Emaar and Mag Group to develop real estate in the area, along with various other deals with companies for warehousing and logistics centres.

Without the world’s largest airport, the rationale of these projects will have to be reconsidered. This would be a major challenge for Dubai’s construction sector at a time when it is already looking to what the future holds after Expo 2020.

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