First KF-X Emergency Response Meeting Chaired by the Minister

On the 14th, a model of the Korean fighter jet KFX was unveiled at the 'Seoul International Aerospace and Defense Industry Exhibition 2019 Media Day' held at Seoul Airport in Seongnam, Gyeonggi Province.
Seongnam - Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Yang Nak-gyu] On the 6th, Defense Minister Jeong Kyeong-du directly presided over a meeting to discuss countermeasures for the contribution fees related to the Korean Next-Generation Fighter (KF-X) project. Although working-level meetings were held this year regarding the KF-X project, this was the first meeting presided over by Minister Jeong. This urgency arose as the unpaid contribution amount from Indonesia, a joint participant in the KF-X project, has increased, putting the project in jeopardy.

The meeting was attended by key officials including Deputy Minister of Defense Park Jae-min, Defense Acquisition Program Administration (DAPA) Administrator Wang Jeong-hong, and Deputy Administrator Kang Eun-ho. At the meeting, Minister Jeong reportedly pointed out the severe shortage of development funds for the KF-X and instructed to seek measures to cover the project costs.

The KF-X project has been underway since 2016, with a total development cost of approximately 18 trillion KRW, including development costs (about 8 trillion KRW) and mass production costs (about 10 trillion KRW). Upon completion of the KF-X development by 2026, the Republic of Korea Air Force plans to mass-produce 120 units, and Indonesia plans to produce 50 units. The project costs are shared with the Korean government covering 60%, Indonesia 20%, and Korea Aerospace Industries (KAI) 20%, jointly investing in the KF-X development. For the project to proceed normally, Indonesia was supposed to have paid 623.5 billion KRW to the Korean government by last year out of its total contribution of 1.7 trillion KRW by 2026.

However, Indonesia has only paid 227.2 billion KRW up to last year. It is known that Indonesia hopes to pay the remaining contribution in kind, such as CN-235 transport aircraft, ground equipment, and adult clothing. They are also requesting an extension of the payment deadline and an expansion of KF-X technology transfer. When Indonesian President Joko Widodo visited Korea in September 2018, he expressed his willingness to renegotiate with President Moon Jae-in to reduce Indonesia’s contribution rate from 20% to 15%.

The government is in a difficult situation. Furthermore, reports from France indicate that Indonesia is considering withdrawing from the KF-X project and purchasing the French-made fighter jet 'Rafale.' If left unchecked, there are concerns that the KF-X project with Indonesia will face difficulties. In the worst case, the export performance of the 50 units Indonesia planned to introduce would disappear, increasing the production cost per fighter jet, and neither KAI nor the Ministry of National Defense has a clear way to secure additional funds.

A government official said, "If Indonesia does not pay the contribution this year as well, delays in the development schedule may be inevitable," adding, "We must explore all possible measures to cover the development costs going forward."