FOCUS ON SAUDI ARABIA
Saudi Arabia´s Aerospace
Alsalam Aerospace Industries is preparing for take off
As Saudi Arabia and Japan strengthen their defense relations, Alsalam Aerospace Industries is "open to all collaborations."
SAUDI ARABIA SECTOR ANALYSIS - AEROSPACE
Alsalam Aerospace Industries is preparing for take off
Saudi Arabia has recently appointed the first defense attache to its embassy in Tokyo, in a move seen as a symbol of the deepening relations between the two countries. The appointment comes soon after the signing of a memorandum of cooperation by their ministries of defense last year — a signing that was closely followed by a meeting between the ministers: Japan's Tomomi Inada and Saudi Arabia's Crown Prince Mohammed bin Salman.
The countries intend to advance their bilateral defense exchanges at all levels — from high-ranking officials, through to industry, education and research. Collaboration on maritime security issues and defense equipment are also going to be expanded. Both ministers see their commitments to future defense cooperation as important, with Inada saying the signing of the memorandum was a "major step" forward.
The crown prince stated that he hoped the meeting and memorandum would serve as an impetus to further promote defense exchanges between Japan and Saudi Arabia, adding, "I especially hope we can enhance our relations on defense equipment." One Saudi Arabian company that is already focusing on building relationships with Japanese organizations working in defense is Alsalam Aerospace Industries.
Alsalam's core business is the maintenance, overhaul and upgrade of military, commercial and private aircraft, and it also provides technical support for military aircraft. It was set up in 1988 as an economic offset program company, as part of the country's strategy to develop self-sufficiency in the aviation industry.
Planning for investment
Saudi Arabia has long been a major investor in its military equipment, with defense outlays representing a significant portion of its national budget and the country is currently the world's third-largest military spender, just behind the U.S. and China.
While the recent drop in oil prices has had a short-term impact on the government's spending, defense funding continues to grow and multibillion-dollar contracts are still being signed. And it looks like this growth will be maintained, with the government's 2017 budget, unveiled in December, including a 6.6 percent increase in the allocation for defense from $47.8 billion to $50.9 billion.
The countries intend to advance their bilateral defense exchanges at all levels — from high-ranking officials, through to industry, education and research. Collaboration on maritime security issues and defense equipment are also going to be expanded. Both ministers see their commitments to future defense cooperation as important, with Inada saying the signing of the memorandum was a "major step" forward.
The crown prince stated that he hoped the meeting and memorandum would serve as an impetus to further promote defense exchanges between Japan and Saudi Arabia, adding, "I especially hope we can enhance our relations on defense equipment." One Saudi Arabian company that is already focusing on building relationships with Japanese organizations working in defense is Alsalam Aerospace Industries.
Alsalam's core business is the maintenance, overhaul and upgrade of military, commercial and private aircraft, and it also provides technical support for military aircraft. It was set up in 1988 as an economic offset program company, as part of the country's strategy to develop self-sufficiency in the aviation industry.
Planning for investment
Saudi Arabia has long been a major investor in its military equipment, with defense outlays representing a significant portion of its national budget and the country is currently the world's third-largest military spender, just behind the U.S. and China.
While the recent drop in oil prices has had a short-term impact on the government's spending, defense funding continues to grow and multibillion-dollar contracts are still being signed. And it looks like this growth will be maintained, with the government's 2017 budget, unveiled in December, including a 6.6 percent increase in the allocation for defense from $47.8 billion to $50.9 billion.
The rise in government spending on defense is a major part of the country's Saudi Vision 2030 economic development plan, which was announced last year and which aims to reduce Saudi Arabia's dependence on oil. President of Alsalam, Yahya Al-Ghoraibi, says that the new plan will change the country in three core ways, by creating "a vibrant society, a thriving economy and an ambitious nation."
He is "excited and proud that Alsalam is supporting and playing its part in developing these areas" and says the company is already using the three pillars as a platform for its efforts to contribute to achieving the goals of Saudi Vision 2030.
Partnering for localizing
One of the goals of the plan is to localize 50 percent of total military equipment spending by 2030 — in 2015, by comparison, only 2 percent of spending was on equipment produced within Saudi Arabia. At the moment, the country's defense industrial sector is limited to just seven companies and two research centers.
So, the next few years are likely to see large changes taking place, as the kingdom continues its focus on both localizing production and advancing its military industrialization. About $100 billion in new arms procurement deals have been signed in the last few years. These high-value contracts could help achieve the 50 percent target for local production, by providing the country with new economic offset program opportunities, as well as with ongoing contracts for established companies like Alsalam.
As a result of all this planned growth, economic offset program cooperation between Saudi Arabia and partners such as Japan is likely to increase dramatically. There could also be a significant increase in the number of strategic partnerships between Saudi companies and research institutions, and their Japanese counterparts in the near future.
Alsalam adds value
Alsalam is well placed to be at the forefront of both the development of strategic partnerships in Japan and the Saudi government's efforts to expand its defense industry's value chain. An aim of the Saudi Vision 2030 plan is for the country to move from the manufacturing of basic items such as spare parts, to higher value and more complex equipment such as military aircraft.
Alsalam began its own process of creating added value in 2012, when it was awarded a contract by the Boeing Company. With support from the Saudi Ministry of Defense, Alsalam was contracted to manufacture and assemble the new wings, forward fuselages and pylon adaptors for the conversion of the Royal Saudi Air Force's (RSAF's) F-15S — a twin-engine, all-weather tactical fighter aircraft — to the more advanced F-15SA.
He is "excited and proud that Alsalam is supporting and playing its part in developing these areas" and says the company is already using the three pillars as a platform for its efforts to contribute to achieving the goals of Saudi Vision 2030.
Partnering for localizing
One of the goals of the plan is to localize 50 percent of total military equipment spending by 2030 — in 2015, by comparison, only 2 percent of spending was on equipment produced within Saudi Arabia. At the moment, the country's defense industrial sector is limited to just seven companies and two research centers.
So, the next few years are likely to see large changes taking place, as the kingdom continues its focus on both localizing production and advancing its military industrialization. About $100 billion in new arms procurement deals have been signed in the last few years. These high-value contracts could help achieve the 50 percent target for local production, by providing the country with new economic offset program opportunities, as well as with ongoing contracts for established companies like Alsalam.
As a result of all this planned growth, economic offset program cooperation between Saudi Arabia and partners such as Japan is likely to increase dramatically. There could also be a significant increase in the number of strategic partnerships between Saudi companies and research institutions, and their Japanese counterparts in the near future.
Alsalam adds value
Alsalam is well placed to be at the forefront of both the development of strategic partnerships in Japan and the Saudi government's efforts to expand its defense industry's value chain. An aim of the Saudi Vision 2030 plan is for the country to move from the manufacturing of basic items such as spare parts, to higher value and more complex equipment such as military aircraft.
Alsalam began its own process of creating added value in 2012, when it was awarded a contract by the Boeing Company. With support from the Saudi Ministry of Defense, Alsalam was contracted to manufacture and assemble the new wings, forward fuselages and pylon adaptors for the conversion of the Royal Saudi Air Force's (RSAF's) F-15S — a twin-engine, all-weather tactical fighter aircraft — to the more advanced F-15SA.
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"I especially hope we can enhance our relations on defense equipment."
After successfully completing this project, the ministry made the company the sole contractor for converting its entire fleet of F-15Ss to F-15SAs. Again, the new wings, forward fuselages and pylon adaptors will be manufactured and assembled at Alsalam's own facilities.
According to Al-Ghoraibi, this is the first time an aviation project of this scale has taken place in the kingdom. He anticipates it will set the stage for the company to take on additional assembly and manufacturing work, and continue to provide high-technology jobs for Saudi nationals. Manufacturing is now seen as a core function of the company and a way of ensuring its sustainability, contribution to the country's economy and the development of its aviation industry. In light of this change, its management recently decided to create a new identity, changing the company name from Alsalam Aircraft Company to Alsalam Aerospace Industries. Al-Ghoraibi believes that "the rebranding has told everybody that there is a manufacturing capability available in the kingdom."
Partnering opportunities
Having been working with F-15 aircraft since 2002, Al-Ghoraibi sees many ways that his company can use its experience to benefit collaborations with organizations in Japan, which has a huge fleet of almost 200 F-15s.
He believes Alsalam can provide the "total package" for the model: it started by performing maintenance of all parts, then moved into manufacturing basic components and has now taken on plane conversion. The company is also going to be responsible for supporting the operations of F-15s at RSAF air bases. But he's also enthusiastic about the experience Japanese organizations can bring to Alsalam and wants to learn from their techniques for maintaining the planes, especially in relation to extending the life of an aircraft.
Importantly, a number of Japanese companies have the approval of the original equipment manufacturer to carry out some work on their own, which Alsalam doesn't. Al-Ghoraibi thinks his company "can use this and leverage the capabilities that they have. We know that some of their aircraft are very old, but they still use them — so their capabilities in extending the operational life of aircraft is remarkable and if these could be shared with us they would be very valuable."
Alsalam is also the only Saudi Arabian aerospace company currently working with helicopters. Given the importance of this type of aircraft in Japan — it has the fourth-largest attack helicopter fleet in the world — Al-Ghoraibi sees this as an area for future collaborations. He would be interested in meeting Japanese entities interested in helicopters to discuss potential partnerships. "If the will is there, there is always a way, but you need to know their capabilities and they need to know yours. By sitting down together we can leverage both and work together in the best way possible," he says.
Encouraging collaborations
Having helped create a good foundation for aerospace industries in the kingdom, Alsalam now wants to help the country develop a domestic aerospace industry that includes the complete value chain — all the way from component manufacturing to aircraft manufacturing, as that is where the added value will be.
It is aiming to be a supplier to original equipment manufacturers and to sell its parts, not only to its own Ministry of Defense and other local organizations, but also to the region — and the world. Al-Ghoraibi is confident that this ambition is achievable and so his company is looking for international partners that can work with Alsalam to help make this happen. Partners that "have the capabilities and can bring those capabilities here, and work with us to grow in this direction." His confidence has probably been boosted by the announcement last year of the new $100 billion SoftBank technology investment fund, one of the largest funds of its type in the world.
While the SoftBank initiative is global in nature, its inclusion of up to $45 billion from Saudi Arabia's own public investment fund opens up the possibilities for potential international partners to bring exciting new technologies connected with defense into the kingdom. Alsalam is "open to all collaborations," says Al-Ghoraibi, and it is even looking at the option of partnering on the development of the F3, Japan's first radar-evading stealth fighter aircraft. The prototype of this model, the development of which is being led by Mitsubishi, made its first successful flight in 2016. But he stresses that, in any partnership, "the coordination, collaboration and understanding of each other's capabilities are crucial" — and the company needs to be sure that it can add value. If those factors are in place, Al-Ghoraibi says that the importance of the Saudi Vision 2030 plan to the country means that his government will offer no restrictions.
On the contrary, he is sure that "the government will encourage and support" any partnerships Alsalam makes, as both country and company share the same goal — bringing value-added capabilities into the kingdom, in order to become self-sufficient. Al-Ghoraibi is "immensely proud of what Saudi Arabia is today and where it is heading in the future" and says he is especially proud of the care and support his company gets from the government, of the development the country is making and of the welcome all visitors to the kingdom receive.
He believes that nobody can really understand how the country is developing until they have experienced it firsthand. With the country's drive for increased self-sufficiency in — and spending on — military equipment, and its focus on building collaborations with Japan, now might be a good time for Japanese companies to experience the Saudi Arabian welcome he is so proud of.
According to Al-Ghoraibi, this is the first time an aviation project of this scale has taken place in the kingdom. He anticipates it will set the stage for the company to take on additional assembly and manufacturing work, and continue to provide high-technology jobs for Saudi nationals. Manufacturing is now seen as a core function of the company and a way of ensuring its sustainability, contribution to the country's economy and the development of its aviation industry. In light of this change, its management recently decided to create a new identity, changing the company name from Alsalam Aircraft Company to Alsalam Aerospace Industries. Al-Ghoraibi believes that "the rebranding has told everybody that there is a manufacturing capability available in the kingdom."
Partnering opportunities
Having been working with F-15 aircraft since 2002, Al-Ghoraibi sees many ways that his company can use its experience to benefit collaborations with organizations in Japan, which has a huge fleet of almost 200 F-15s.
He believes Alsalam can provide the "total package" for the model: it started by performing maintenance of all parts, then moved into manufacturing basic components and has now taken on plane conversion. The company is also going to be responsible for supporting the operations of F-15s at RSAF air bases. But he's also enthusiastic about the experience Japanese organizations can bring to Alsalam and wants to learn from their techniques for maintaining the planes, especially in relation to extending the life of an aircraft.
Importantly, a number of Japanese companies have the approval of the original equipment manufacturer to carry out some work on their own, which Alsalam doesn't. Al-Ghoraibi thinks his company "can use this and leverage the capabilities that they have. We know that some of their aircraft are very old, but they still use them — so their capabilities in extending the operational life of aircraft is remarkable and if these could be shared with us they would be very valuable."
Alsalam is also the only Saudi Arabian aerospace company currently working with helicopters. Given the importance of this type of aircraft in Japan — it has the fourth-largest attack helicopter fleet in the world — Al-Ghoraibi sees this as an area for future collaborations. He would be interested in meeting Japanese entities interested in helicopters to discuss potential partnerships. "If the will is there, there is always a way, but you need to know their capabilities and they need to know yours. By sitting down together we can leverage both and work together in the best way possible," he says.
Encouraging collaborations
Having helped create a good foundation for aerospace industries in the kingdom, Alsalam now wants to help the country develop a domestic aerospace industry that includes the complete value chain — all the way from component manufacturing to aircraft manufacturing, as that is where the added value will be.
It is aiming to be a supplier to original equipment manufacturers and to sell its parts, not only to its own Ministry of Defense and other local organizations, but also to the region — and the world. Al-Ghoraibi is confident that this ambition is achievable and so his company is looking for international partners that can work with Alsalam to help make this happen. Partners that "have the capabilities and can bring those capabilities here, and work with us to grow in this direction." His confidence has probably been boosted by the announcement last year of the new $100 billion SoftBank technology investment fund, one of the largest funds of its type in the world.
While the SoftBank initiative is global in nature, its inclusion of up to $45 billion from Saudi Arabia's own public investment fund opens up the possibilities for potential international partners to bring exciting new technologies connected with defense into the kingdom. Alsalam is "open to all collaborations," says Al-Ghoraibi, and it is even looking at the option of partnering on the development of the F3, Japan's first radar-evading stealth fighter aircraft. The prototype of this model, the development of which is being led by Mitsubishi, made its first successful flight in 2016. But he stresses that, in any partnership, "the coordination, collaboration and understanding of each other's capabilities are crucial" — and the company needs to be sure that it can add value. If those factors are in place, Al-Ghoraibi says that the importance of the Saudi Vision 2030 plan to the country means that his government will offer no restrictions.
On the contrary, he is sure that "the government will encourage and support" any partnerships Alsalam makes, as both country and company share the same goal — bringing value-added capabilities into the kingdom, in order to become self-sufficient. Al-Ghoraibi is "immensely proud of what Saudi Arabia is today and where it is heading in the future" and says he is especially proud of the care and support his company gets from the government, of the development the country is making and of the welcome all visitors to the kingdom receive.
He believes that nobody can really understand how the country is developing until they have experienced it firsthand. With the country's drive for increased self-sufficiency in — and spending on — military equipment, and its focus on building collaborations with Japan, now might be a good time for Japanese companies to experience the Saudi Arabian welcome he is so proud of.
