Saudi Arabia's Payment Challenges: A Cautionary Signal for U.S. Defense Contractors?

The recent surge in U.S.-Saudi defense cooperation, epitomized by the 2025 sale of 48 F-35 stealth jets and nearly 300 Abrams tanks, underscores a strategic realignment in the Middle East. These agreements, bolstered by Saudi Arabia's elevation to "major non-NATO ally" status, reflect a deepening partnership aimed at countering regional threats and modernizing the Kingdom's military capabilities. However, beneath the surface of these headline-grabbing deals lies a critical question for U.S. defense contractors: Are systemic payment delays and contractual inefficiencies in Saudi Arabia's procurement processes a latent risk to long-term profitability and creditworthiness?

Historical Context: Systemic Payment Delays in Saudi Defense Contracts

While the 2023–2025 agreements lack explicit reports of payment defaults, historical data reveals persistent challenges in Saudi defense procurement. A 2025 study identified 61 distinct causes of payment delays, with contractual ambiguities, bureaucratic inefficiencies, and deliberate client delays emerging as the most prevalent issues. For instance, 31.6% of analyzed projects in Saudi Arabia faced cash flow disputes, often exacerbated by slow processing of variation orders and complex administrative procedures. These systemic issues, though not directly tied to recent U.S. contracts, highlight a pattern of operational friction that could resurface in large-scale deals.

The financial implications are significant. The F-35s, for example, carry a flight-hour cost of approximately $34,000. If payment delays disrupt supply chains or maintenance schedules, U.S. firms like Lockheed Martin and General Atomics could face liquidity strains or project overruns.

Strategic Alliances vs. Credit Risk

The U.S. has historically leveraged its defense partnerships with Saudi Arabia to secure burden-sharing funds and expand economic investments, such as the Kingdom's $1 trillion commitment to U.S. infrastructure. These mutual benefits mitigate some credit risks, as Saudi Arabia's strategic interests align with maintaining a stable relationship. However, the absence of recent default reports does not eliminate the possibility of future disruptions.

For example, the 2025 agreements include provisions for Saudi investment in U.S. defense industrial bases, which could offset some financial exposure. Yet, if geopolitical tensions or economic instability disrupt these inflows, U.S. contractors might face unanticipated credit risks. The elevation of Saudi Arabia to "major non-NATO ally" status also introduces variables, such as potential shifts in U.S. foreign policy, which could indirectly affect payment timelines.

Operational Risks: Bureaucratic and Logistical Hurdles

Beyond financial defaults, operational risks loom large. A 2025 analysis noted that Saudi government agencies often struggle with cash flow management and project coordination. For U.S. firms, this could translate to delayed approvals, protracted contract renegotiations, or even disputes over deliverables. The complexity of integrating advanced systems like the F-35.

Moreover, Saudi Arabia's broader investments in emerging technologies, such as its partnership with 's xAI and Nvidia to build a large AI data center, suggest a long-term modernization agenda. While this signals financial commitment, it also raises questions about resource allocation. If defense budgets face reallocation toward AI or other sectors, U.S. contractors could encounter unmet obligations or delayed payments.

Conclusion: Balancing Opportunity and Caution

The U.S.-Saudi defense relationship represents a pivotal opportunity for American firms, with contracts like the F-35 sale projected to generate billions in revenue. However, the historical prevalence of payment delays and contractual inefficiencies necessitates a cautious approach. Investors and executives must weigh the strategic benefits of these deals against the operational and credit risks inherent in Saudi Arabia's procurement landscape.

For now, the absence of recent defaults in 2023–2025 offers some reassurance. Yet, as the Kingdom's defense ambitions expand, U.S. contractors would be wise to incorporate contingency planning and rigorous risk assessments into their partnerships. After all, in the high-stakes arena of international arms deals, even the most robust agreements can falter under the weight of systemic challenges.