In a strategic move to preserve the ongoing partnership in the KF-21 fighter jet development program, South Korea has agreed to significantly reduce Indonesia’s financial stake in the project. This decision comes as a response to repeated delays in payments from Indonesia, which have been a persistent issue since the project’s inception. The Defense Acquisition Program Administration (DAPA) confirmed the revised financial arrangement, which sees Indonesia’s contribution slashed from 1.6 trillion won (approximately $1.2 billion) to 600 billion won (around $440 million), as reported by Yonhap News Agency.

The KF-21 project, which began in 2015, represents a bold endeavor by South Korea to develop an advanced supersonic fighter jet capable of competing with the world’s leading military aircraft. Initially, Indonesia agreed to cover 20 percent of the program’s estimated cost of 8.1 trillion won. However, financial difficulties, exacerbated by the global economic downturn caused by the COVID-19 pandemic, hindered Indonesia’s ability to meet its financial obligations.

To date, Indonesia has only managed to contribute approximately 400 billion won to the project. The economic strain led Jakarta to request a substantial reduction in its financial commitment earlier this year, citing challenges in adhering to the original payment schedule. Following a thorough review of Indonesia’s proposal, South Korea has officially agreed to these revised terms.

DAPA’s decision to accommodate Indonesia’s request is influenced by several factors, including the strategic importance of maintaining strong bilateral relations between the two countries. A DAPA spokesperson emphasized, “We considered the bilateral relations between the two countries and other factors such as whether we would be able to fill the financial hole. After finalizing the new cost-sharing deal with Indonesia, we will focus on meeting public expectations by completing the project successfully.”

This revised agreement, however, does not come without consequences. In line with the reduction in Indonesia’s financial contribution, the benefits associated with technology transfer will also be scaled back proportionally. Although DAPA has not yet released detailed information on how this will impact the overall technology transfer, it is expected to have significant implications for Indonesia’s role in the project.

Indonesian Aerospace Ambitions

The reduction in financial contribution and the subsequent scaling back of technology transfer have raised concerns regarding Indonesia’s long-term aerospace development goals. The KF-21 project was initially seen as a crucial opportunity for Indonesia to gain valuable insights into fighter jet development—a step that would significantly enhance the capabilities of its state-owned aerospace company, PT Dirgantara Indonesia (PT DI).

Since joining the KF-21 program as an industrial partner in 2011, PT DI has focused on developing its expertise in aerospace technology. However, with the reduced financial commitment, Indonesia’s access to cutting-edge technology and developmental knowledge from South Korea will be limited. This curtailment could hinder PT DI’s growth in the aerospace sector, particularly in the specialized field of fighter jet manufacturing—a domain that Indonesia has yet to fully explore.

Moreover, the potential reduction in technology transfer could diminish the opportunities for Indonesian engineers to gain hands-on experience in the production and assembly of fighter jets. This is a critical skill set that goes beyond theoretical knowledge and is essential for establishing a robust indigenous defense industry.

Financial Repercussions for South Korea

With Indonesia’s financial contribution reduced, the financial burden on the Korean stakeholders, which include the South Korean government and Korea Aerospace Industries (KAI), has increased. Initially, the South Korean government and KAI were responsible for 60 percent and 20 percent of the total project cost, respectively. The revised financial arrangement means these parties will now need to absorb an additional 500 billion won to ensure the project stays on track for its scheduled completion in 2026.

However, South Korean officials have identified strategies to mitigate this increased financial burden. One approach includes reducing the total project cost from the initially projected 8.1 trillion won to 7.6 trillion won. This cost reduction is expected to alleviate some of the financial pressures on the Korean stakeholders and help ensure that the KF-21 project remains viable.

The KF-21 fighter jet program has faced several challenges since its launch, with Indonesia’s payment delays being a significant point of contention. Speculation has been rife about the possibility of another country stepping in to cover Indonesia’s financial obligations, but such a move has not materialized. The recent decision to reduce Indonesia’s financial commitment may help to stabilize the project and prevent further delays caused by funding issues.

Despite the challenges, the KF-21 program is progressing. In July, KAI officially commenced production at its facility in Sacheon, South Gyeongsang Province. The company has signed a 1.96 trillion-won agreement with DAPA to produce 20 KF-21 jets by 2027. This marks a significant milestone in the project, with the first units scheduled for delivery to the South Korean Air Force in late 2026.

Indonesia’s Future in KF-21 Program

The future of Indonesia’s involvement in the KF-21 program remains uncertain, especially given the recent scrutiny of the partnership. Notably, there have been allegations that Indonesian engineers may have attempted to steal sensitive KF-21 data while working in South Korea. Although the outcome of the investigation into these allegations is still pending, the incident has cast a shadow over Indonesia’s continued participation in the project.

Adding to the uncertainty is Indonesia’s recent procurement of 48 Dassault Rafale fighter jets from France and a memorandum of understanding for 24 Boeing F-15EX jets from the United States. These acquisitions have led to questions about Indonesia’s commitment to the KF-21 project. Some analysts suggest that Indonesia might be diversifying its defense capabilities by investing in multiple fighter jet platforms rather than relying solely on the KF-21.

South Korea’s Strategic Considerations

From a strategic standpoint, South Korea’s decision to accommodate Indonesia’s request for a reduced financial stake reflects a broader effort to maintain diplomatic ties and ensure the continuity of the KF-21 program. South Korea recognizes the importance of the project not only for its national defense but also for its ambitions in the global arms market.

The KF-21 program, also known as the Boramae project, is a critical component of South Korea’s defense strategy. The country plans to build 120 KF-21 jets by 2032, a move aimed at bolstering its military capabilities and enhancing its position as a key player in the international arms market. The successful completion of this project is expected to cement South Korea’s status as a producer of advanced military aircraft, opening up new opportunities for defense exports.

The agreement to reduce Indonesia’s financial stake in the KF-21 fighter jet development program is a pragmatic decision by South Korea to address ongoing payment delays and preserve the bilateral relationship with Indonesia. While this move alleviates some of the financial pressures on Indonesia, it also brings about significant changes to the dynamics of the partnership, particularly in terms of technology transfer and developmental opportunities.

For South Korea, the adjustment means an increased financial burden, but one that is being managed through cost reduction strategies. The KF-21 program remains a cornerstone of South Korea’s defense and aerospace ambitions, with the potential to significantly enhance the country’s military capabilities and international standing.

As the project moves forward, the focus will be on ensuring that the KF-21 jets are delivered on time and that the program meets its strategic objectives. The coming years will be crucial in determining the long-term impact of the revised financial arrangement on both South Korea and Indonesia, as well as on the broader landscape of global defense partnerships.