Indonesia has recently selected Korea Aerospace Industries as the preferred bidder for its trainer jet project ― a deal which is brightening the prospects for exporting Korean-made supersonic T-50 trainer jets. As the KAI chief executive officer says, it will take some time to conclude negotiations on a final contract regarding the price, the time of delivery, the provision of parts, assistance in training and other crucial issues.
Winning preferred bidder status has been anything but easy since KAI developed the trainer in 2005 ― a 2.8 trillion won project that had been launched in 1997 with assistance from Lockheed Martin. KAI was priced out of bids when it competed against the Italian maker of M-346 trainers for similar projects from the United Arab Emirates and Singapore in 2009 and 2010, respectively.
KAI’s bid for the Indonesian project appeared doomed in the initial stages, with the Southeast Asian country reportedly preferring the Russian-made Yak-130. For a reversal, KAI reduced the purchase prices of engines, electronic equipment and other parts last November to bid for the Indonesian project at a price below the previous $25 million per unit. Then came Korean-Indonesian summit talks the next month ― a rare occasion given to President Lee Myung-bak to lobby his counterpart Susilo Bambang Yudhoyono.
President Yudhoyono dispatched a group of his special envoys to Seoul in February apparently to follow up on his previous talks with Lee on the purchase of trainer jets. But the KAI’s desire to sell 16 trainer jets appeared derailed again when overzealous Korean officials, allegedly from the National Intelligence Service, bungled an attempt to steal confidential information from the Indonesian mission’s computers. Nonetheless, Indonesia awarded KAI preferred bidder status.
It is not known who should be given credit for resurrecting the moribund bidding process or what concessions had to be made in return. But it does not take genius to guess that it did not come cheap. Moreover, Indonesia apparently was well aware what it meant to KAI, which was not just aiming at a one-off deal but at becoming a major player in the advanced trainer market. With 104 nations holding advanced trainers in their possession, one estimate puts the global demand for new ones at more than 3,000 during the next two decades.
South Korea regards trainer assembly as one of the pillars of its defense industry, which it wishes to develop into one of the leading exporters and job creators. According to a presidential commission’s 2010 blueprint, South Korea is aiming at expanding the industry’s annual production from $6.58 billion in 2008 to $10 billion in 2020.
South Korea, placed under constant military threat from the North, needs to boost its defense industry for security reasons. But the problem is that domestic demand alone will not make the industry profitable, making it necessary to promote exports as well.
To boost the defense industry, a stricter division of labor is needed between the state-funded Agency for Defense Development and the private manufacturers of weapons and other materiel. Experts recommend the ADD confine itself to the development of weapons of strategic importance and hand over quality improvement and other lesser functions to the private sector.
Should the defense industry grow as planned, it would create 50,000 new jobs and its exports would jump from a mere 4 percent of its production to 40 percent during the cited period. It goes without saying that this ambitious goal cannot be achieved if no breakthrough is made in T-50 exports.
South Korea may have to sweeten the proposed deal with Indonesia, for instance, with a commitment to purchasing Indonesian-made CN-235 transporters, as reportedly desired by the Indonesian government. After all, it takes two to tango.