Indonesia Keen on Continuing with the IFX Fighter Project, Seeks New Payment Terms with South Korea

Indonesia’s commitment to procuring a future “4.5-generation” combat aircraft being developed by South Korea’s Agency for Defense Development (ADD) and Korea Aerospace Industries (KAI) with participation from PT Dirgantara Indonesia (PTDI) appears firm.

Nonetheless, due to a challenging financial situation made all the more uncertain by news of slowing economic growth in China the Indonesian government is seeking to renegotiate the current payment structure of the joint development undertaking.

The two sides inked a joint engineering and manufacturing development (EMD) agreement for the Korean Fighter Xperiment (KFX) – Indonesian Fighter Xperiment fighter (IFX) project back on October 6, 2014. This agreement brought the project forward and cemented a previously outlined division of costs (80 percent funded by the South Korean side, 20 percent by Indonesia).

Then on January 7, 2016, Indonesia and South Korea signed a $1.3 billion deal to jointly develop their KFX-IFX fighters.

Under the deal, the Indonesian Defense Ministry would invest the $1.3 billion toward development of the KFX, and in return, receive one fighter prototype, as well as access to technical data and information involved in the aircraft program.

However, concerns on the South Korean end began to mount as Indonesia failed to make good on a payment of $124.5 million due at the end of 2017 (the second of two payments due per year). A month later the Indonesian side acknowledged that its financial standing on the project stood at $140 million in arrears.

By April reports began circulating that the Indonesian government was contemplating leaving the project altogether. One issue raised as a concern was less on the financial side, but related to U.S. concerns that technologies imparted to Indonesia (via South Korea) under the project might be passed along to Russia, with whom Indonesia shares deep military-industrial ties. Under the joint development agreement Indonesia may not sell the aircraft to another nation.

But financing, too, remained an issue – and continues to remain an issue as Indonesia hopes to renegotiate the terms of payment. As a gesture of its ongoing commitment to the project Indonesia plans to make good on an undisclosed financial contribution to South Korea while talks are underway.

The Indonesian National Defense-Air Force (TNI-AU) maintains a goal of fielding around 150-160 combat aircraft in 12 squadrons by 2024. The fleet will be mixed with Russian- and U.S.-produced models, including Sukhoi Su-30MK2s and Sukhoi Su-35s, plus 24 Lockheed Martin F-16C/Ds acquired via excess U.S. stocks and upgraded by the U.S. Air Force to Block 52 status before their handover .

The KFX-IFX – described as a twin-engine, multi-role platform equipped with stealthy features and active electronically scanned array (AESA) radar – would fit into this mix as a core long-term element.

About Daniel Darling

Dan Darling is a senior analyst covering both the Europe and Asia-Pacific regions for Forecast International's International Military Markets group.

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