[Yang Nak-gyu's Defense Club] Flood of Defense Industry Contracts... The Inside Story

There are simultaneous claims that the Defense Acquisition Program Administration's cost verification system was flawed from the beginning and that a collusive relationship between private accounting firms and defense contractors led to this outcome.

[Asia Economy Reporter Yang Nak-gyu] On the 30th of last month, a series of press releases on defense companies' order achievements drew attention. Contracts were signed even for projects originally scheduled for the end of this year, raising concerns that these might be 'show-off contracts.'

According to the industry on the 1st, Hyundai Rotem secured orders worth a total of 300 billion KRW from the Defense Acquisition Program Administration (DAPA) on the 30th of last month, including additional mass production of obstacle-clearing tanks and overhaul projects for recovery tanks and bridge tanks. Following the 174.6 billion KRW order for obstacle-clearing tank mass production in November last year, they secured an additional 236.6 billion KRW order this time, advancing the projects originally planned for year-end procurement.

Hanwha Defense also signed an additional mass production contract for the K56 ammunition carrier armored vehicle worth 380.3 billion KRW on the same day. Earlier, on the 19th and 22nd, they signed contracts with DAPA for outsourced maintenance of the K9A1 self-propelled howitzer performance upgrade at 194.3 billion KRW and for the surface-to-air missile system 'Cheongma' outsourced maintenance at 238.3 billion KRW, respectively. Then, on the 24th, they signed the first mass production contract for the 30mm wheeled anti-aircraft gun replacing the old Vulcan cannon at 251.7 billion KRW, and on the 29th, they signed an additional mass production contract for the K56 ammunition carrier armored vehicle at 380.3 billion KRW.

Korea Aerospace Industries (KAI) was no exception. On the same day, KAI signed a contract worth 688.3 billion KRW with DAPA for 20 units of the TA-50 Block 2. The tactical introduction trainer aircraft is used for combat pilots to master tactical missions such as weapon and radar operation before being assigned to combat flight squadrons. Compared to the existing TA-50 used as a tactical introduction trainer, the TA-50 Block 2 has improved steering functions and night mission capabilities.

For defense companies, there is a sense of relief as the contracts were advanced, reducing concerns about project delays or cancellations. However, advancing contracts originally scheduled for the end of this year has raised concerns about second-half sales. It is believed that DAPA made these somewhat crafty contracts to increase budget execution rates and promote them, so it is uncertain how many contracts will be secured in the second half of the year.

Wang Jeong-hong, head of DAPA, promoted that within one year of his appointment, the agency achieved a budget execution rate close to 94% of the total defense capability improvement budget last year, the highest in the past decade. However, the budget execution rate sharply declined in April this year. According to the Ministry of Economy and Finance, out of the 307.8 trillion KRW budget for major managed projects of central government ministries and public institutions this year, 137.7 trillion KRW was executed by April, showing a 44.7% execution rate against the annual plan. DAPA used 4.1269 trillion KRW out of its 10.7294 trillion KRW budget, ranking low at 38.5%. In response, it is known that since last month, Director Wang has sent DAPA’s cost team to defense companies’ sites to expedite contract signings.