This article was published on Mar. 10, 2025, at 3:36 p.m. on the ChosunBiz MoneyMove site.
South Korea has decided to reduce its share of development costs for Indonesia's Korean-style fighter jet KF-21 to one-third of the previous amount, causing backlash to the developer, Korea Aerospace Industries (KAI).
According to investment banking (IB) industry sources on the 10th, the government is considering a plan to allocate the outstanding 470 billion won from Indonesia, with the government covering 350 billion won (74.5%) and KAI covering 120 billion won (25.5%). There are reports that some suggest KAI should bear a larger burden.
Since 2015, South Korea has been jointly developing KF-21 with Indonesia at a cost of approximately 8.1 trillion won, set to complete in 2026. Initially, Indonesia committed to invest 1.7 trillion won, representing 20% of the total project cost (later reduced to 1.6 trillion won), and agreed to produce 48 next-generation fighter jets in Indonesia after receiving one prototype and technical materials. The South Korean government is responsible for 4.9 trillion won (60%) and KAI for 1.6 trillion won (20%), covering the remaining 80%.
With only one year remaining until the project expiration, Indonesia has so far contributed 400 billion won, which is 25% of the total KF-21 share of 1.6 trillion won. Indonesia is requesting a reduction in its share due to financial difficulties. Last August, the government proposed a revision to reduce Indonesia's share to 600 billion won. Based on this, Indonesia is expected to pay an average of 107 billion won annually from 2024 to 2026.
KAI reduced the total development cost to 7.6 trillion won through cost-saving measures during the development process, but it has to shoulder part of Indonesia's share, increasing its expense burden. Adding the existing 1.6 trillion won to an additional share of 120 billion won brings the total to 1.72 trillion won, which is over seven times last year's operating profit of 240.7 billion won.
A Defense Acquisition Program Administration official noted, 'The government and companies have agreed on the fundamental principle of jointly sharing the lack of funding and are negotiating various plans considering national financial conditions and company management status. The allocation ratio has not been determined yet.'
Since last year, the Defense Acquisition Program Administration has sent 10 letters to Indonesia. Most contained requests to urge payment of contributions or to conduct adjustment consultations. However, the Ministry of National Defense of Indonesia has only responded three times. Two responses related to the leak of materials from Indonesian technical personnel dispatched to KAI, and the remaining one was a request to revise the share to 600 billion won.
The reason the government and KAI continue development with Indonesia is that Indonesia is the first customer for the KF-21. Indonesia participated in the joint development on the condition of purchasing 48 KF-21s. Indonesia also purchased basic trainer aircraft KT-1 and advanced trainer aircraft T-50.
An industry source in the defense sector stated, 'I understand that it has been agreed to reduce the transfer of technology in exchange for lowering the share. The government led the negotiations to reduce Indonesia's share, and it is regrettable from the industry's perspective that private companies are shouldering part of the burden.'