Alvarez & Marsal charts Saudi Arabia’s path from defense localization to sovereignty
Saudi Arabia faces a clear opportunity to capture significantly more value from its defense spending by moving beyond assembly-led localization and building indigenous engineering capability, according to a new report from Alvarez & Marsal. Capturing this opportunity will be central to the Kingdom’s defense development in the coming years.
The report, titled ‘Beyond Localization: The Next Phase of Saudi Arabia’s Aerospace & Defense Ambition’ sets out how Saudi Arabia can build on its progress in localized assembly to develop the engineering capability that turns defense spending into lasting sovereignty, lifecycle value and an exportable national industry.
To place the opportunity into context: domestic engineering captures 30% to 40% of the sector’s lifecycle value, compared with 5% to 15% for assembly-only localization. Shifting towards more localization depends according to the report on the depth of engineering capability established in-country, rather than the pace of factory buildout alone.
“Saudi Arabia has built real momentum in localization and the next phase is about engineering,” said Colie Spink, Middle East Regional Leader at Alvarez & Marsal. “Sovereignty starts with domestic engineering capability, and the ability to design, modify, certify and sustain platforms in-country.”
“Our benchmarks show that this capability typically takes decades to build. With the right operating model, disciplined execution and digital product development methodologies, the Kingdom is well positioned to accelerate that journey. That is the real opportunity ahead.”
The shifts creating opportunities
The report identifies six structural shifts reshaping the sector: the spread of AI-augmented digital product development; software becoming a primary source of defense advantage; autonomous and networked systems becoming core force elements; localization and technology transfer playing a greater role in contract awards; supply-chain resilience taking priority over cost alone; and consolidation and private capital reshaping the competitive landscape.
Together, these shifts are changing how aerospace and defense companies compete, build capability and deliver at scale. For Saudi Arabia, they create an opportunity to capture high-value knowledge as the industry evolves.
“These shifts move value creation away from manufacturing alone and towards engineering, software and intellectual property, creating a unique opportunity for Saudi Arabia to accelerate capability building,” said Spink.
Growing engineering capabilities
To support decision-makers with growing localization maturity, Alvarez & Marsal developed the ‘engineering capability ladder’, a five-level pathway from tooling and manufacturing through to full systems design and model-based systems engineering-native program ownership.
Built organically, climbing this ladder can take decades. “But Saudi Arabia has an opportunity to accelerate this progression,” notes Andrea Di Lello, Senior Director at Alvarez & Marsal.
“Digital product development is the single biggest accelerator available to Saudi Arabia,” he continued. “Model-based systems engineering, digital twins, virtual testing and AI-augmented engineering can compress requirement-to-market timelines materially. AI in particular shortens the experience gap, allowing junior local teams to work at levels that once required decades of accumulated know-how.”
“Combined with the Kingdom’s national AI agenda, this can turn capability transfer into a matter of months rather than years, provided governance is in place from day one.”
Saudi Arabia’s ambition
Vision 2030 has set a target of 50% defense localization by 2030, up from around 25% today, with the Public Investment Fund and SAMI anchoring capital, joint ventures and technology transfer with global primes. With maintenance, repair and overhaul already at an advanced stage, the greatest strategic return now sits upstream, across product development and industrialization.
The experience of other emerging defense industries shows how this progression can translate localized production into sovereign engineering capability and export growth. The report points to Turkey as an illustrative benchmark, tracing a four-decade journey from F-16 license production in the 1980s to indigenous programs such as the KAAN fighter and annual defense exports exceeding $7 billion.
The benchmark demonstrates how capabilities built in sequence can support the transition from localized production to exportable engineering expertise.
“Digital development methods offer Saudi Arabia an opportunity to progress faster,” said Di Lello. “By deepening its engineering, R&D and innovation capabilities, Saudi Arabia can capture more high-value work, reduce strategic dependency and build the foundation for regional engineering services and export competitiveness.”
Spink added, “Long-term competitiveness in aerospace and defense will be defined by engineering capability, certification autonomy and sustained innovation, with manufacturing serving as the essential foundation rather than the destination.”
