[Yang Nak-gyu's Defence Club] KF-X Renegotiation... The Key Issues

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 Jinhyung Kang aymsdream@

[Asia Economy Yang Nak-gyu, Military Specialist Reporter] The governments of Korea and Indonesia are entering renegotiations on the Korean-style next-generation fighter (KF-X) project, which they are jointly developing. With the prototype delivery of the KF-X approaching next year, Indonesia, which agreed to bear 20% of the development cost amounting to 8.7 trillion KRW, has defaulted on approximately 500 billion KRW in contributions since the second half of 2017, drawing attention to how they will propose a payment plan.

According to government officials on the 18th, recently Park Tae-sung, the Korean ambassador to Indonesia, met with Indonesian Defense Minister Prabowo Subianto to discuss the KF-X renegotiation plan. At that time, the Indonesian side reportedly proposed ▲ lowering the KF-X project contribution, ▲ increasing technology transfer to their country, ▲ paying in kind instead of cash contributions, and ▲ waiving interest on the overdue development fees. Indonesian President Joko Widodo had already expressed his intention to renegotiate by requesting a reduction of Indonesia’s KF-X contribution ratio from 20% to 15% during his visit to Korea in September 2018.

To finalize the negotiations, a delegation of about 10 members from Korea, including the Defense Acquisition Program Administration and Korea Aerospace Industries (KAI), is scheduled to depart on the 21st.

The KF-X project is a national initiative to develop a state-of-the-art domestic fighter jet to replace the air force’s fighters that have been in operation for over 40 years. KAI has passed the detailed design phase and has begun prototype production. The first prototype is scheduled for delivery in the first half of next year, with initial flight tests starting in 2022 and development completion planned for 2026.

However, Indonesia agreed to cover about 20% of the total KF-X project cost of 8.8304 trillion KRW, approximately 1.7338 trillion KRW, but has defaulted on 500 billion KRW of contributions since the second half of 2017. Although 270 billion KRW was allocated for the KF-X contribution in this year’s defense budget, even that has not been paid.

There are concerns that the current Defense Minister Prabowo, who was formerly an opposition party leader, opposes the KF-X project and is pushing for direct overseas procurement. Rumors have circulated within Indonesia that they are considering purchasing 48 French-made Rafale fighter jets.

If Indonesia withdraws from the KF-X project, disruptions to the project will be inevitable. Immediately, the unpaid 1.5318 trillion KRW must be secured. Due to the supplementary budget for the novel coronavirus (COVID-19), it will not be easy to get the National Assembly to approve an additional defense budget exceeding 1 trillion KRW. Also, the planned production volume of fighter jets will decrease, inevitably raising the price of the KF-X beyond previous estimates. Currently, under the mass production plan, the price per KF-X unit is estimated to be in the 80 billion KRW range.

A government official said, "Although difficult issues may arise during the renegotiations held after one year, we will do our best to ensure the normal progress of the KF-X project."