Indonesia Factor May Postpone KF-X Project

02 November 2017

KF-X fighter (photo : Air Recognition)

Indonesia has failed to pay its annual share of expenses for a joint project with South Korea to develop high-tech fighter jets, an opposition lawmaker claimed Wednesday.

The claim prompted concerns the project, dubbed KF-X, could be suspended.

Rep. Kim Jong-dae of the Justice Party, a member of the National Assembly Defense Committee, said Indonesia's state-run defense firm PT Dirgantara Indonesia (PTDI), a participant in the project, has yet to pay this year's remaining allotted 138.9 billion won ($124.5 million) to Seoul as of the end of October, based on a document from the Defense Acquisition Program Administration (DAPA).

"If Indonesia does not pay in time, the Korea Aerospace Industries (KAI) has to shoulder the burden of 40 percent of the development costs," Kim said. "Coupled with the current issue of the company being financially strapped, the KF-X project could easily be put in danger."

KAI is the nation's sole aircraft manufacturer that signed the KF-X contract with DAPA.

Seoul launched the KF-X project in 2015 to build its own 4.5-generation fighters to replace the Air Force's aging fleet of F-4s and F-5s by 2026.

PTDI signed an agreement with KAI in January 2016 to foot 20 percent of the cost in the development of the program, while KAI pays 20 percent and the South Korean government pays the remaining 60 percent of the 7.5 trillion won for the program.

Due to the form of agreement, the KAI faces a burden when payments from PTDI are delayed, Kim said.

KAI is reportedly in a liquidity crunch amid corruption allegations against its former management. According to a government audit, corporate bonds worth 600 billion won and 290 billion won in corporate paper are due by the end of this year. An internal report said KAI is 630 billion won short for its projected spending this year because of the shortage of cash and required payments on loans.

"The right timing of financing is critical in an R&D project that requires state-of-the-art technology. With no special measures for the delay in payment, the KF-X project could be suspended," the lawmaker said, calling for government action.

Starting April 2016, Indonesia agreed to pay 1 percent of the program costs annually, with its contribution to rise above 2 percent from 2017 onwards. Overall, the Southeast Asian country is supposed to pay 1.6 trillion won ($1.33 billion) into the KF-X program.

In 2017, the Indonesian government should pay 184 billion won but it only paid 45.2 billion won out of 92 billion won due in the first half of the year.

Kim accused DAPA of having downplayed concerns over the delayed payment.

He pointed out that the Indonesian government had officially disclosed its difficulty in paying 138.9 billion won in late September after it failed to include the money in its budget finalized in August.

But DAPA denied this, saying it was in close coordination with the Indonesian government for the payment due by October.

DAPA said the issue will be on the agenda for a summit between leaders of South Korea and Indonesia. President Moon Jae-in is scheduled to start an eight-day official trip to Southeast Asia, Nov. 8.

(Korea Times)