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Play it, SAMI

Posted 10 December 2018 · Add Comment

A huge new player has emerged in the aerospace defence world. Alan Warnes finds out more.

Saudi Arabian Military Industries (SAMI) is set to control the way in which the kingdom spends its defence dollars.
It is all part of Crown Prince Mohammed bin Salman’s announcement, in April 2016, of an ambitious ‘Vision 2030’ blueprint.
The crown prince is Saudi Arabia’s minister of defence and chairman of the public investment fund (PIF).
The aim of Vision 2030 is to boost jobs and revenue, as well as preparing for a future with lower oil income. The crown prince sees defence business investment as a way to increase defence capability in country, with SAMI in charge of full industrial participation of Saudi’s international programmes.
The target is to employ a workforce of around 40,000 people in aerospace and defence by 2030.
SAMI’s overriding objective is to localise at least 50% of Saudi’s military spending by 2030. Saudi Arabia’s defence budget of around $150 billion a year is only smaller than that of the US and China, and a lot more than Russia. As a result, SAMI, a 100% government-owned entity, is aiming to become one of the world’s top 25 defence companies by 2030.
It has huge financial support from Saudi’s PIF, which already controls oil giant Aramco, the biggest company in Saudi Arabia and worth around $5 trillion.
A powerful board of directors is headed up by HE Ahmed bin Aqeel Al-Khateeb, who is the chairman, as well as being a board member of the PIF and the general secretariat of the Saudi Arabia Council of Ministers. He is also special advisor to the crown prince.
The vice chairman is Dr Ghassan Abdulrahman Al Shibl, the chairman of Saudi Arabian Airlines (Saudia) and ex CEO of Advanced Electronics Company (AEC).
The seven board members include HH Prince Faisal Bin Farhan Al Saud, who is a senior advisor to the Saudi ambassador in the US. He has more than 15 years of experience in business and military industries, and with much of SAMI’s revenue expected to come from big US companies, he will be busy.
HE Khalid Bin Abdulaziz Al-Falih is Minister of Energy, Industry and Mineral Resources and is chairman of Aramco. He is an ex-CEO of the massive company.
There are three foreigners on the board: Michael Consentino, president Airbus, Defence and Space; Philip Yeo, chairman of Economic Development Innovations Singapore (EDIS); and Giuseppe Giordo, president and CEO of Czech aerospace company, Aero Vodochody, and ex CEO of Alenia Aermacchi (now Leonardo).
The CEO is Dr Andreas Schwer, the ex-chairman and president of Germany’s Rheinmetall Industries. He has more than 20 years’ experience in the military industries sector and reports to the board.
The company’s website shows it is split between four divisions – defence electronics, weapons and missiles, land systems, and aeronautics.
Many challenges lie ahead for the board and the CEO. The consolidation of all the Saudi defence industries under SAMI’s ownership will be the one.
With so many foreign companies, like Boeing, Lockheed Martin, Raytheon, and BAE Systems installed and operating in Saudi, it won’t be easy. Some may even baulk at the thought of their shares being taken over by SAMI. But, at the end of the day, money talks and SAMI has plenty of that.
A second need is to invest into newer technologies that may complement the businesses already in Saudi. The government has always made it clear the transfer of technologies is important, if it is to wean itself off its reliance on oil. So don’t be surprised to see SAMI acquiring some major cutting-edge companies.
A third consideration, which the Riyadh-based conglomerate has already started to create, are industrial agreements with the sellers of equipment to the kingdom.
This won’t be an easy task, particularly when management structures also have to be set up. SAMI will undoubtedly be scouring the world for the best to run all the divisions and departments.
Ten months after being launched, SAMI signed a memorandum of agreement with what could be its biggest partner, Boeing, on March 30, 2018.
The new joint venture (JV) is aiming at localising more than 55% of the maintenance, repair and overhaul (MRO) services for fixed and rotary-wing military aircraft in Saudi Arabia. The agreement will also transfer technology to install weaponry on these aircraft, as well as localise the supply chain for spare parts in the kingdom.
The agreement was signed by Al-Khateeb and Boeing president and chairman, Dennis Muilenburg, at Boeing’s commercial manufacturing facility in Everett, Washington. Al-Khateeb, said: “Boeing has a long-standing commitment to Saudi Arabia and is extremely keen on expanding its footprint in the country. On the other hand, SAMI is exploring all collaborative opportunities to build a strong autonomous military industries eco system in the kingdom.”
The JV will provide sustainment services for Saudi’s military fixed- and rotary-wing aircraft. It will be the sole provider of these services for all military aviation platforms, strengthening the kingdom’s defence capabilities and enhancing its deterrent potential.
The military operates an extensive fleet of Boeing aircraft. It has 737S, 747s, 757s, E-3A Sentrys, KE-3/RE-3s, F-15C/Ds, and F-15S/SA Eagles – more than 200 aircraft – operating with the Royal Saudi Air Force (RSAF), plus AH-64s and AH-6i helicopters working with other services.
According to a Boeing statement, the new agreement is expected to reach revenues of $22 billion by 2030 and create 6,000 jobs and training opportunities for the Saudi youth. Around $450 million will be invested in facilities and equipment across Saudi Arabia.
In March, the UK and Saudi governments signed a memorandum of intent to finalise discussions for the purchase of 48 Typhoons.
Progress to an agreement for these, as well as support and transfer of technology and capability, is on-going, according to BAE’s half-yearly set of accounts. The company added: “This will enable BAE Systems to continue with the industrialisation of defence capabilities in Saudi Arabia in support of the Saudi Arabian Government’s national transformation plan and Vision 2030.”
Final assembly of the Typhoon would follow on from the Hawk programme.
The first of 22 in-kingdom final-assembled Hawk aircraft is expected to be delivered to the RSAF in 2019. This sees the ‘cigar tube’ of the front, centre and rear of each Hawk airfreighted to Saudi Arabia, where they will be assembled. This is likely to be a lot easier than following the same process with the Typhoon, which is built all over Europe.
SAMI has signed only one JV contract so far, a $2.2 billion framework deal in April with Spain’s Navanti.
The agreement covers the purchase of five Avante 2200 Corvettes from Spain’s state-owned shipbuilder, which will also include the supply of all five combat systems. The JV covers the installation, integration and test of the complete combat systems for the last vessel.
Work will also include logistics support, training programmes and simulators for the ships’ maintenance, as well as the ground-testing bases.
Work was expected to begin as Arabian Aerospace was going to press, with the last delivery in 2022.
Around 6,000 jobs will be created both directly and indirectly.
With money not being an issue, SAMI will be a massive game-changer, not just in Saudi Arabia but right across the globe.

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