The aftermath of Indonesia's continued 'delays' in the installment payment phase of the KF-21 Boramae fighter jet development project, prompted South Korea to prepare plan B. This is because Indonesia's continued failure to pay the KF-21 Boramae installments will have an impact on Indonesia's commitment to purchase the fighter jet in the future. So, what is plan B?
Please note that the total number of fighter jets to be produced will affect the cost per unit of the fighter jet itself. In this case, if Indonesia's commitment to buy 48 KF-21 units turns out to be 'canceled', then in general it will affect the price per KF-21 unit. This is of course outside the case of stalled development cost installments.
Quoted from The Korean Economic Daily – kedglobal.com (1/11/2023), the Defense Acquisition Program Administration (DAPA) said on Wednesday that Indonesia had not provided its payment plan at the end of October (2023) as promised.
In 2016, Indonesia agreed to underwrite around US$1.5 billion or around 20 percent of the multi-billion dollar project in return for Indonesia's agreement to receive fighter jet prototypes and technical support for the KFX/IFX project, and a commitment to local production of the KF-21 as many as 48 units in Indonesia.
As a partner country, Indonesia agreed to cover about 20 percent of the cost of the 8.8 trillion won (US$6.73 billion) project launched in 2015 to develop a twin-engine supersonic fighter aircraft. However, due to budget constraints, Indonesia had stopped paying installments since January 2019, and currently Indonesia is late in paying installments of around 800 billion won.
Earlier this year, Indonesia said it would notify South Korea of the payment schedule by the end of June, but apparently did not. It then said that it would submit the plan at the end of October, and failed again.
DAPA Minister Eom Dongwhan said in a parliamentary audit of the arms procurement agency last month that it had “no other choice but to return the joint project” if Jakarta continued to renege on its promises.
If Jakarta does not fulfill its payments it will undermine confidence in its commitment to develop advanced multirole combat aircraft for the two countries' air forces, he said.
At a DAPA briefing to the Ministry of National Defense on Tuesday, a DAPA official said it was considering various possibilities regarding what to do in its partnership with Indonesia while waiting for a payment plan from Jakarta.
He said DAPA also plans to revise its basic agreement with Indonesia on the joint project by the end of this year to help resolve payment issues.
Korea Aerospace Industries (KAI), as the aerospace manufacturer that developed the KF-21, stated that it would not experience financial difficulties even without Indonesia's contribution. However, a company official said it has a “plan B” and is considering what it is.
Industry officials say several countries, including Poland and the United Arab Emirates, have shown interest in the KF-21 project, and are tapping into a possible partnership with South Korea.
Option to Reduce Order Quantity
One of the plan Bs that South Korea will implement is to reduce the number of orders or production of the KF-21. A South Korean defense research agency has recommended reducing KF-21 production. Concerns over price competitiveness and uncertainty surrounding South Korea's KF-21 Boramae project have prompted the Korea Institute for Defense Analyzes to recommend reducing initial production volumes.
South Korea's initial plan was to produce 120 KF-21 units by 2032, but now this number may be reduced. Due to project uncertainty, the Korea Institute for Defense Analyzes suggested reducing the number of first batch production by half to 20 units.
Based on the big plan, DAPA will sign a mass production contract in the first half of next year, namely after conducting a production feasibility study from May to August this year and completing the mass production plan in December 2023.
KAI has developed six 4.5 generation fighter prototypes with the first delivery to the Air Force scheduled for the second half of 2026. In the Indonesian portion, if the plan goes smoothly, the Indonesian Air Force will get 48 KF-21 units. So how much does this twin engine fighter jet cost per unit?
Quoting from tealgroup.com, the price of one KFX/IFX unit in 2020 is estimated at US$100 million, but that is the highest price estimate, there are other sources that say the selling price per unit of this fighter jet will be around US$70 million.
However, global dynamics, such as the outbreak of war in Ukraine since early 2022, will have an indirect effect on production costs. Apart from that, the price per unit will change to be much higher, if in the future Indonesia cancels acquiring 48 KF-21 Boramae units.
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