12 Juli 2010

RI-S. Korea KFX Cooperation: The Second Best Option?

12 Juli 2010
KFX model fighter aircraft (photo : swerc)

Indonesia and South Korea are getting ready to sign an MoU on the joint-development of a KFX fighter jet program (dubbed Boramae) later this year, following a letter of intent in March 2009 on Indonesian participation in a KFX study. When enacted, the MOU will provide a breakthrough for both countries in terms of bilateral defense collaboration and aircraft technology indigenization.
The defense community and members of parliament believe that the cooperation will help the revitalization of the Indonesian defense industry. MPs urged the government to conduct a feasibility test before embarking on a US$2 billion venture that spans across an eight-year period. It is expected from the collaboration that five prototypes will be built before 2020.

Approximately 200+ aircraft will be manufactured for both the Indonesian and Korean Air Force. Surely there is a sense of pride creeping into every Indonesian’s minds knowing that the biggest Muslim country in the world is going to carry on an indigenize a fighter jet program, debunking the myth that only technologically advanced countries can achieve this.

Indeed, the cooperation will not only allow Indonesia to access the so-called 4.5th generation fighter jet technology, but also help South Korea preserve the bloodline for an indigenous fighter jet program since they can only afford 60 percent of the necessitate fund.

But before we indulge in a techno-nationalism fantasy, several imminent issues need to be pondered. Sarcastic remarks as to why Indonesia uses a jet fighter project as sustenance for the aerospace industry when the capacity of the Indonesian Aerospace is still limited to transport aircraft and helicopter, will inevitably raise.

Therefore, it is important to answer basic questions such as what the “indigenize fighter jet program” means in reality and how this will help revitalize the defense industry. There is also an urgency to shed some light upon the KFX program and whether it fits into the Indonesian strategic and defense-industrial interests.

The first issue is the technical and fiscal feasibility of the KFX project. The controversial project was initiated in 2001, with an estimated cost of $13 billion for the production of 120 aircraft, and has not progressed from a feasibility study since. It is acknowledged that South Korea is lacking both in technical and fiscal abilities to kick start the program, with the Korean Aerospace Industry (KAI) as a prime contractor possessing only 63 percent of technological capability needed.

Established through a merger of three companies in 1999, KAI has a modest experience of developing the indigenous KT-1 Wong Bee trainer, license-producing F-16K and joint-developing T-50 advanced trainer as well as making parts for F-15 (forward fuselage and wings).It does not have an extensive track record as it exports only the KT-1 trainer to Indonesia and Turkey, and is still unable to sell a single T-50 advanced trainer jet despite having been shortlisted for procurement in the United Arab Emirates (UAE), Israel, Greece, Singapore and the US.

The second issue is the “sovereignty” of technology contained in the KFX and sustainability of in-service operation, since the KFX will be using subsystems such as engine and avionics from third countries that might present political complication for Indonesia. The KFX will be developed from T-50 Golden Eagle, a supersonic advance jet trainer jointly developed by KAI and the US Lockheed Martin, with the latter provided the avionics system, flight control and wings. In addition to the US, it is possible that Israel also contributes through an Active Electronically Scanned Array (AESA) radar that will be built domestically in South Korea.

With the Korean Defense Acquisition Program Administration (DAPA) statement about the necessity to bring in international partner from big players such as Boeing, Lockheed Martin, EADS and Saab to help develop the KFX, obviously there will be further third country subsystems fitted into the KFX platform, which bring more complexities of supply in the future. Nevertheless, there is benefit, as Indonesia might be able to absorb world class knowledge through cooperation with those big aerospace companies and establish a position in the global supply chain.

The third issue is risk associated with developing new technology; among them are cost overruns, under performance and delay. Under the MOU, Indonesia will bear 20 percent of the initial budget worth $8 billion, but the real cost can easily stretch out along the process. The risks of cost overruns and delay have taken place in similar collaborations such as the Joint Strike Fighter (JSF) and the Eurofighter.

The JSF cost overrun is almost double its initial estimated price within 10 years of project (2001-2010), whereas the Eurofighter experienced cost overrun and “eternal delay” so bad that the participating countries decided to cut down the amount of aircraft order. Indonesia needs to be clear on how flexible they can be in terms of accepting risks incurred from participation in the project and whether the risk will be worthy of being paid off.

The fourth issue is whether the KFX project will really help revitalize the Indonesian defense industry, through job creation, transfer of technology and creation of local supply chains. Jakarta needs to be articulate in the clearest way possible about the expectation of the economic benefits possibly derived from the project.

It is not clear yet as to which model of work share is to be employed, whether it is juste retour (just return) or earned work shares (participation based on demonstrated competencies), or will Jakarta only access the know-how without participating in the production line (which is nearly impossible).
For the sake of comparison, the Eurofighter project helps create 30,000 jobs across Europe.
However, with a cost at $45-50 million per copy, it sees limited prospect of export when facing competition from the JSF and Gripen, not to mention competing Russian and Chinese products in the non-European market.

Aviation Week estimated the break-even-point of the KFX will be reached with production of at least 200-250 aircraft, and it is only if the unit price of each copy can be pushed down to $41 million that makes it possible for export. If Indonesia were to order around 50 aircraft, it is possible to negotiate 20-25 percent of total work-share based on juste retourprinciple, and this will materialize in a significant number of jobs. Without export, however, the long-term economic benefits will likely demise once the project completes.

Experts share doubt whether the KFX can really offer the cutting-edge technology as offered by 5th Generation fighters such as the JSF and the Indo-Russian PAKFA in 2020s, which means in terms of strategic calculation, the KFX may not be the best option to fight with a more technologically advanced enemy.

Facing the 5th G fighter jet race from China, Japan, and Indo-Russia, the South Korean government has a difficult time calculating a trade-off between strategic and industrial interest, between building an indigenous fighter or buy best off-the-shelf (OTS) available on the market. Indonesia may not face a similar dilemma as there is no imminent 5th G fighter race with neighboring countries, but it does not mean that Jakarta do not need to explore another value for the money option.

Another possibility of using defense acquisition as industrial policy tool is using an offsets obligation to accompany the OTS procurement. Alternatively, $2 billion will enable Indonesia to get more than a squadron of cutting-edge OTS technology. Neither joint-development nor procuring OTS will give sovereignty of supply, but the OTS does not only give the advantage of value for money because it bypasses the development cost, but it also ensures getting the attested technology that probably would serve both defense-industrial and strategic interests better.

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