What's next for KF-21 project after Indonesia's funding slash?

The KF-21 fighter jet development program, a collaborative effort with Indonesia to build Korea's first home-grown fighter jet, is facing a major setback after Jakarta proposed to significantly reduce its financial contribution, cutting it to just one-third of the initially agreed amount.

This would leave the Korean government and Korea Aerospace Industries, the KF-21 developer, to cover the remaining costs.

However, a larger issue looms, as observers warn that Indonesia may not follow through on its commitment to purchase 48 fighter jets as initially promised.

In 2016, Korea and Indonesia inked a deal to cooperate on the joint development project, under which Jakarta would fund 20 percent of the total development cost of 8.8 trillion won ($6.59 billion) by 2026 in exchange for 48 planes that would be manufactured there for the Indonesian Air Force, as well as for technology transfer.

However, cost-sharing problems have emerged as Indonesia has only paid approximately 300 billion won so far.

Following years-long back-and-forth negotiations, earlier this month, Indonesia requested to reduce its contributions to 600 billion won, down from the originally agreed 1.6 trillion won, according to Korea's Defense Acquisition Program Administration (DAPA). By reducing its financial share, Jakarta said it will receive less technology transfer.

As the proposal was made during the final stage of the development of the fighter jet, the Korean government apparently has no choice but to agree to it in order to minimize disruption in the planned deployment by 2026. DAPA is set to make a final decision on whether to accept Indonesia's proposal in a meeting next month.

Kim Dae-young, a military expert at the Institute for National Security Strategy, believes that the cost reduction is just the tip of the iceberg, and the bigger problem is whether Indonesia will keep its promise to acquire 48 fighter jets.

"It's highly unlikely that Indonesia will be able to purchase all 48 aircraft using its own funds. The country is already pursuing multiple fighter jet acquisition projects worth trillions of dollars," Kim told The Korea Times.

While Indonesia cited financial constraints as the main reason for slashing funding for the KF-21 program, its decision to purchase fighter jets from other countries has notably undermined Jakarta's reliability as a partner for Korea, Kim pointed out.

In August 2023, Indonesia signed a memorandum of understanding to acquire 24 units of the F-15ID from U.S. manufacturer Boeing. In January, the Southeast Asian nation sealed an $8.1 billion deal to procure 42 Dassault Rafale fighter jets from France.

Indonesian Defense Minister and President-elect Prabowo Subianto gestures during his formal declaration as president-elect at the General Election Commission building in Jakarta, Indonesia, April 24. AP-Yonhap

Military observers suggest that these decisions were largely influenced by Indonesian Defense Minister and President-elect Prabowo Subianto, who appears to believe that purchasing fighter jets is more advantageous than developing them.

"In the end, Indonesia might request loan support from Korea to purchase the 48 jets or reduce the number of jets to be acquired," Kim said, noting that these options would further diminish the partnership.

A primary reason Korea teamed up with Indonesia was to simultaneously produce fighter jets in the Southeast Asian country. This would reduce production costs and contribute to weapons exports by promoting the KF-21 in the overseas market.

Kim said, "The Korean government and the National Assembly should make a decision to either sever ties with Indonesia and pursue independent development or team up with a new partner."

Shin Jong-woo, a senior researcher at the Korea Defense and Security Forum, a think tank, said the current situation underscores a crucial lesson for Korea: The need for vigilance in handling international defense contracts, especially as they are often swayed by the domestic political landscapes of partnering nations.

"It's Indonesia's fault initially, but government officials who mishandled the negotiations cannot evade responsibility. There should be a thorough audit of DAPA officials who were in charge to convince the public why the government needs to allocate more budget to cover costs caused by Indonesia's failure to keep its promise," Shin said.