Saudi Arabia

Almost all Gulf Cooperation Council (GCC) countries devote a large share of their Gross Domestic Product (GDP) to military spending. Saudi Arabia is no exception. Saudi Arabia’s spending on defence has increased significantly in the last two decades and as a result this GCC country has developed one of the world’s most advanced military arsenals, with the majority of related equipment being supplied by the US, France and the UK. According to data provided by the Ministry of Finance, in 2016, Saudi Arabia was to allocate the biggest amount of the national budget, on “Military and Security Services”, for a total of 213.4 billion Saudi Arabian Riyal (SR) (approximately 56.9 billion US dollars). Education and training with 191.7 billion SR (approximately 51.1 billion US dollars), and Health & Social Development with 104.9 billion SR (approximately 28 billion US dollars) were to follow.

Defence is one of the ‘key’ industrial and commercial sectors that Saudi Arabia is targeting for development. In order to achieve this, a growing emphasis has been placed on developing the country’s indigenous capabilities, through the formation of strategic synergies and partnerships with foreign firms and research institutions. Offsets (or Industrial Cooperation), is one of the vehicles Saudi authorities are using in order to create such synergies. The progress made so far is demonstrated by the number and size of national defence companies that have been founded through this process. In 2014/2015 it was reported by the responsible authorities that there were 41 companies created through the Saudi offset program, employing 8,000 people and generating a revenue of 300 thousand SR per employee (approximately 80 thousand US dollars), while the total sales of these companies amounted to 50 billion SR (approximately 13.3 billion US dollars).    

Some of the companies created through the Saudi offset program are: the Advanced Electronics Company (AEC), the Aircraft Accessories and Components Company (AACC), the Middle East Propulsion Company (MEPC), the Alsalam Aircraft Company (AAC) and International Systems Engineering (ISE).

Established in 1988, AEC is currently recognized as a leader in the field of electronics manufacturing, system integration and repair and maintenance services. The company’s portfolio mainly serves the Military, Telecom & Industrial business sectors. Another company established through the Saudi offset program is AACC which offers aircraft component maintenance services. AACC, holds among others ISO 9001:2008, ISO 14001:2004, BS OHSAS 18001:2007 and AS9110 certifications.

MEPC was established in order to provide Maintenance, Repair, and Overhaul (MRO) services for the F100-PW-220 engine that powers the F-15 aircraft of the Royal Saudi Air Force (RSAF). Currently, MEPC provides MRO services for several other aircraft engines, including the Rolls-Royce’s RB199 engine that powers the Tornado aircraft of the RSAF. On the other hand, the Alsalam Aircraft Company (AAC) was established in 1987, as a joint venture under the Kingdom’s offset program. The aim of the company’s formation was for the country to become self-sufficient in commercial and military aircraft maintenance, overhaul and modifications, through related technology transfer and the training & development of Saudi nationals. Finally, ISE was established in 1988 under the Peace Shield program. Currently, ISE delivers IT solutions, for the Defence and Aerospace sectors.

Another factor that has aided towards the creation of a ‘viable’ long-term military industrialisation strategy on the part of the country, is the heavy investment by the Saudi government in science and technology, which helps the creation of a more attractive Research and Development (R&D) climate. One such example is the establishment of a decision support centre in Riyadh in December 2010 with the main partners being the King Abdul Aziz City of Science and Technology (KACST) and Boeing. The centre carries out advanced modelling, simulation and analysis work on behalf of aerospace companies in Saudi Arabia.

In February 2013, Lockheed Martin also signed a partnership agreement with KACST. With this partnership the US company highlighted its commitment to enhancing job creation and transferring technology and technological expertise to Saudi Arabia, thus further helping the country in building a viable aerospace industry.

More on that direction, the King Abdullah University of Science & Technology (KAUST), in September 2014 announced the inauguration of a new Boeing Research and Technology office, to be located at the University's research and technology park. The office mainly focuses on conducting research and development in aerospace technologies.    

The Kingdom of Saudi Arabia is expected to sustain high levels of investment in defence and security for years to come, continuing to be an attractive market for international Aerospace & Defence Prime contractors. In parallel, the government seems to be determined to continue supporting the local defence industry in enhancing its position in the international market. This implies that partnerships with Saudi entities (such as companies, R&D institutions, universities) as those described above, will continue to be a common practice.