A new report by Alvarez & Marsal states that Saudi Arabia can capture more value from its defense spending by developing its domestic defense engineering capability instead of focusing solely on assembly-led localization.
The study, titled “Beyond Localization: The Next Phase of Saudi Arabia’s Aerospace & Defense Ambition,” outlines steps to transition from localized assembly to independent engineering. According to the report, domestic engineering captures 30% to 40% of lifecycle value, whereas assembly-only localization captures only 5% to 15%.
Building Defense Engineering Capability in Saudi Arabia
This transition is aligned with Saudi Vision 2030, which targets a 50% defense localization rate by 2030, up from approximately 25% today. The Public Investment Fund and SAMI are currently anchoring capital, joint ventures, and technology transfers to support this goal.
“Saudi Arabia has built real momentum in localization and the next phase is about engineering. Sovereignty starts with domestic engineering capability, and the ability to design, modify, certify and sustain platforms in-country.”
Colie Spink, Middle East Regional Leader at Alvarez & Marsal
Value Capture and Economic Impact
The report identifies six structural shifts reshaping the aerospace and defense sector, including the spread of artificial intelligence in digital product development and software becoming a primary source of defense advantage. These shifts move value creation away from manufacturing toward intellectual property, creating opportunities for the local workforce.
The Role of Digital Technologies
“Digital product development is the single biggest accelerator available to Saudi Arabia. Model-based systems engineering, digital twins, virtual testing and AI-augmented engineering can compress requirement-to-market timelines materially.”
Andrea Di Lello, Senior Director with Alvarez & Marsal Strategy & Performance Improvement
The integration of artificial intelligence helps shorten the experience gap for junior local teams, allowing them to perform tasks that previously required decades of experience. When combined with the national AI agenda, this technology can accelerate capability transfer to a matter of months, enhancing local education and training. This acceleration is critical for establishing a sustainable defense engineering capability across the local industry.
Strategic Benchmarks and Future Outlook
The report points to Turkey as an illustrative benchmark for this transition. Turkey underwent a four-decade journey starting with F-16 license production in the 1980s, eventually developing indigenous programs like the KAAN fighter and achieving annual defense exports exceeding $7 billion. This benchmark shows how sequential development can help transition localized production into exportable expertise.
Ultimately, long-term competitiveness in the aerospace and defense sector will depend on sustained innovation and certification autonomy. By deepening research and development, Saudi Arabia can reduce strategic dependency and establish a foundation for regional engineering services. Developing a strong defense engineering capability remains the primary pathway to achieving these long-term national objectives.