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Thinking globally but acting locally

Posted 14 April 2021 · Add Comment

SAMI CEO, Walid Abukhaled, has major aspirations for both his company and his country, as Alan Warnes found out when the pair discussed strategy and future possibilities.

Picture: SAMI

Saudi Arabian Military industries (SAMI) is set to harness the requirements of both the Saudi Government and its military.

Created in May 2017, to serve the goals of ‘Saudi vision 2030’, SAMI will localise at least 50% of the defence business, employing around 40,000 people by 2030.

That’s a considerable increase on the current 3-5% of locals being employed.

The Saudi Government knows that its oil will not last forever and is preparing for that eventuality by increasing its domestic industries, including defence. It means Walid Abukhaled, SAMI’s CEO, has a huge task ahead of him. However, his background suggests there probably isn’t a better man in the desert kingdom to take on the challenge.

Having served in senior management, with international companies like Northrop Grumman, General Electric, and BAE Systems, he knows the ropes.

“My strategy is simple; to establish a national defence champion in the kingdom that has never existed before,” Walid explained.

“In the UK there is BAE Systems; in the US, because of its huge size and budget, there are four or five; Singapore has ST Engineering, and so the list goes on. However, there has never been a defence champion in Saudi – even though we were, until recently, the third biggest purchaser in military equipment. Now, we have SAMI.”

SAMI caters for all sectors of defence – naval, land, aeronautics, weapons and missiles, and emerging technologies. It is owned 100% by Saudi’s Public Investment Fund (PIF). Aramco, a public petroleum and natural gas company, is part of its business portfolio, and just happens to be the sixth largest revenue earner in the world.

Walid continued: “Although we are 100% owned by the government, we behave like any commercial company. We want profit and, if it doesn’t make commercial sense, we will not pursue the business.”

The Saudi market is undoubtedly an attractive proposition for any defence original equipment manufacturer (OEM) and, with one of the largest defence budgets in the world, it’s easy to see why.

“So my strategy is to establish strategic partnerships with the best-in-class globally; the likes of Lockheed Martin, Boeing, Northrop Grumman, Raytheon, BAE Systems, and so on.

“We have already established strategic joint ventures with some global players that we will announce at IDEX [the International Defence Exhibition to be held in Abu Dhabi from February 21-25]. These will provide us with the global outreach needed for Saudi capabilities and demonstrate where SAMI will deliver its commitment to ‘vision 2030’, by localising 50% of the military spend.”

Most international defence companies are aware of the transformation now taking place in the desert kingdom. They understand how SAMI will be a key strategic player if they want a part of the huge defence business there.

Walid explained that the management team has a 10-year strategic plan in place, up to 2030, that covers the requirements from each partner to deliver the key needs. He revealed that most joint ventures and acquisitions would be in place by the end of 2023.

On March 30, 2018, SAMI signed a memorandum of agreement with Boeing, which could be one of its biggest partners. A proposed joint venture, aimed at localising more than 55% of the maintenance, repair and overhaul (MRO) services for fixed and rotary-wing military aircraft in Saudi Arabia, has not yet been completed, according to the SAMI CEO, although discussions are still on-going.

On BAE Systems, Walid said: “They have been here for around 60 years and discussions with them over collaborations are ongoing. There’s interest from both parties to find the right opportunity to take our relationship to a new strategic level.”

Could Saudi Arabia join BAE Systems and become part of the UK-led Tempest Future Combat Air System (FCAS)? “Well, that has to be a government-to-government decision, and is not up to me – I will always look to our leadership for direction, but anything like that would make good sense to SAMI. We would definitely consider it,” he said.

It’s obvious that many of the strategic partnerships will come from the needs and acquisitions of the Saudi military. “Once we have established what we are going to buy, then we will work with the companies to see how we can transfer the right capability to the kingdom, start putting it into our facilities, and feed our subsidiaries.”

Acquiring and then strengthening Saudi’s local capabilities is a top priority if the country wants to attract the best technologies. SAMI has already started on this journey with the purchase of Advanced Electronics Company (AEC) in late-December, considered to be the ‘crown jewel’ of Saudi’s military industries.

“Acquiring AEC is a prime example of how this will work. It has 2,200 employees, seven factories and seven production lines, and is undoubtedly the best defence electronics company in the region.”

Walid is excited about AEC and how it will build SAMI’s future, but what can his organisation do for AEC?

“Our plan is to move it from being a great company to an even greater company with the help of our strategic partners, by transferring knowledge and know-how into AEC,” he explained. “By feeding them projects and business that SAMI and its partners win, AEC will not only deliver capability to the kingdom’s military, but become a global company within our strategic partners supply chain.”

For example, AEC has been providing a system to a US-built platform that the CEO wouldn’t disclose. The Saudi Government doesn’t use it and the US does [and exports it]. “It means they are supplying parts and, with SAMI being the national defence champion, with global strategic partners, AEC will become a bigger part of the global supply chain.”

Being focused on its core strategy of merger and acquisition, more Saudi companies are coming under the SAMI spotlight.

Negotiations to acquire Alsalam, the company set up by Boeing as an offset, with its MRO facilities, have been ongoing for a while now. “We are going through the due diligence and, as soon as we complete this, we will make a decision to proceed or not,” said Walid.

“MRO is a definite requirement of our customer and it is keen to have such a capability.”

With so many helicopters being operated by all the militaries and civilian companies in Saudi, there is an urgent need for helicopter MROs. “It’s a requirement and its part of the SAMI strategy to bring that capability to the kingdom. So it’s progressing and we will make it happen soon. Alsalam owns the Saudi Rotorcraft Support Company, so if we do go ahead and acquire Alsalam, we would own the SRSC.

Another company is Taqnia, also now owned by the PIF, which had huge aspirations to build UH-60s in the future. “It’s a sister company and, my understanding is that they are spinning off their defence business to focus on investments. So we are in discussions to secure the capabilities they built in the defence sector.

“You won’t be surprised to learn that we also want to build our own helicopters here to cater for the needs of the land forces, air force, national guard etc, which have huge requirements. We are in discussions with several companies – Airbus, Boeing, Lockheed Martin and Leonardo – to set up production facilities in country. We need to be realistic, the best place to start is MROs, then we will move towards getting into helicopter design and then into production.”

UAVs is another area that Walid believes SAMI can move into. “We know it’s the future and, with new generation fighters likely to be unmanned, we need to be there,” he said.

And, talking of the future, I asked him about exporting all the new products he is hoping to launch.

“My focus is delivering to our key customer, which is the Saudi armed forces. When they are satisfied and we have delivered what’s required, we will then look at the export markets. But that could be some way ahead.”

The SAMI CEO concluded: “These are very exciting times and, with a new generation of Saudi youngsters, both male and female, who want to be a part of advanced technologies, we will have an outlet for their skills.”


 

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