Wednesday, April 13, 2011

Indonesia Seeks Offset Barter Over T-50 Jet Buy

SEOUL - Indonesia wants South Korea to buy four more of its locally built CN-235 maritime patrol aircraft in an offset barter deal over Indonesia's purchase of 16 T-50 trainer jets, according to government and industry sources here.
On April 12, the Seoul government announced that it won exclusive rights to negotiate the sale of the T-50 Golden Eagle, co-developed by Korea Aerospace Industries (KAI) and Lockheed Martin of the United States, to Indonesia. The T-50 had competed with Russia's Yak-130 and the Czech-built L-159B.
Jakarta notified Seoul of a plan to "treat KAI as the de facto preferred bidder" for its advanced trainer acquisition contest, according to a spokesperson for South Korea's presidential office Blue House.
"Both governments agreed in principle to sign a memorandum of understanding on the sale of the T-50 within the next nine months," he said.
In a news conference at the Ministry of National Defense, KAI Chief Executive Officer Kim Hong-kyung said the T-50 would be sold "much cheaper" than its original price tag of $20 million to $25 million.
"We asked our suppliers to lower the costs of manufacturing T-50 spare parts, and based on those efforts, we offered a per-unit price far lower than standard price," Kim said. He hinted that the total value of the trainer deal would be lower than the estimated $400 million, which is based on a per-unit price tag of $25 million.
"The final value of the trainer deal could be decided after negotiations," said Kim, expressing hope to conclude a final agreement within two months.
"Through negotiations, both sides will discuss a wide range of issues, such as the price, delivery timing, ground-based training equipment and systems, integrated logistics support and replacement parts," Kim noted.
Once a final contract is signed, the first delivery of T-50s will be made in 2013, he added.
The T-50 was defeated in competitions in the United Arab Emirates (UAE) and Singapore, where both countries selected Italy's M-346 trainer.
The single-engine T-50 features digital flight controls and a modern, ground-based training system. It is designed to have the maneuverability, endurance and systems to prepare pilots to fly next-generation fighters, such as the Eurofighter Typhoon, the F-22 Raptor, the Rafale and the F-35 Joint Strike Fighter. The jet has a top speed of Mach 1.4 and an operational range of 1,851 kilometers.
Other potential customers include the United States, Israel, Greece and Poland.
According to industry sources, Jakarta requested that Seoul purchase four CN-235 aircraft built by PT Dirgantara Indonesia (PT DI) in return for buying T-50s. The per-unit price of the CN-235 is known to be around $25 million. Seoul purchased four of the aircraft in 2008.
Indonesia also asked South Korea to write off $10 million in penalties over the former's delayed delivery of CN-235 planes under the 2008 deal that was worth $100 million. The first batch of two of the four planes had been scheduled to be delivered to the Korea Coast Guard in December and the remainder in April.
PT DI sent a document to the Coast Guard recently, saying delivery would be delayed for production problems, Coast Guard spokesman Koh Jae-young said.
In addition, Indonesia demands South Korea pay for the costs of integrated logistics support, according to sources.
"Indonesia is expected to offer to locally produce some of the 16 T-50s to be ordered, should a contract be signed," a source said. "How many aircraft Indonesia wants to produce locally could be a contentious issue during negotiations."
Seoul and Jakarta had a similar barter trade deal in 2001 when South Korea bought eight CN-235 transport planes in return for selling 12 KT-1 Woongbi basic trainers.
The CN-235 is a medium-range twin-turboprop airplane, jointly developed by Spain's CASA and PT DI, formerly known as IPTN. The plane is used for VIP transport, maritime patrols, airlifts and troop carrying.
South Korea has 20 CN-235s, 12 built in Spain and eight in Indonesia.
In a summit last December, President Lee Myung-bak and his Indonesian counterpart, Susilo Bambang Yudhoyono, agreed to jointly manufacture tanks, submarines and fighter jets.

Pentagon Seeks More Savings in Next JSF Order

The Pentagon is preparing to negotiate its next order of F-35 Joint Strike Fighter aircraft with Lockheed Martin, this time with a concerted effort to crank down the jet's price, according to the Air Force's top acquisition official.
The Defense Department will "focus on continuing to build the inertia on the program and production side and to continue to get the right price of the aircraft for both the Air Force and the Navy customers," David Van Buren, the Air Force's acting acquisition executive, said during an interview at the Pentagon.
To that end, the Air Force has listed "a more affordable JSF" as its top acquisition priority, replacing the long-standing top priority of purchasing a new tanker. The service awarded the tanker contract to Boeing in February. Getting that program off and running is now the No. 2 priority.
The so-called low-rate initial production lot-5 (LRIP 5) includes the next batch of JSF aircraft requested in 2011. DoD's 2011 budget proposal requested 43 F-35 aircraft, however, Congress has indicated that it would not fund more than 32 jets. This factor prompted the Pentagon to request 32 JSF aircraft in 2012, according to DoD budget documents. Lawmakers are expected to vote on the 2011 budget this week.
Last year, the Pentagon converted its F-35 contract with Lockheed from cost plus incentive fee to fixed price. Those negotiations took about five months before a deal was reached in September.
"My sense is that it would be a shorter period of time than [LRIP] 4, because [LRIP] 4 was a conversion of the proposal that came in as a [cost plus incentive fee contract] that we converted to a fixed-price-type contract, basically, at the table as we evolved through that negotiation process," Van Buren said.
While a proposal for the multiservice jets has not been written, officials are looking at the upcoming negotiations as a continuation of the last round of talks.
"I think that is just a building block of what we did from LRIP 4, where we converted to a fixed-price-type contract, which I think was very important," Van Buren said. "This will just be a continuation of that endeavor."
Pentagon officials have yet to receive a finalized proposal for the LRIP 5 jets, but expect the negotiations to commence this year.
Over the years, the F-35 has encountered numerous setback and issues that have prompted cost projections to soar. Last year, DoD warned that the program, which includes more than 2,400 U.S. jets and an expected 700-plus international order, could top $380 billion.
Industry and defense officials have committed to lowering that price and last year's signing of a fixed-price contract with Lockheed was considered an initial step. The Pentagon's 2012 budget proposal reflects a restructuring of JSF development and production.
In recent months, the JSF program has exceeded flight testing goals, with a few speed bumps along the way.