The Republic of Korea’s (ROK) defense industry brokered record earnings in 2011, largely on the back of inked deals with the Indonesian Military for Korea Aerospace Industries’ ( KAI, 한국항공우주산업) T-50 fighter jets and Daewoo Shipbuilding’s (DSME, 대우조선해양) Korean-made U209 Submarines.
The latter contract is now in jeopardy of slipping through Seoul’s fingers. Reports coming from the Turkish Hurriyet Daily News suggest that the U209 Submarine contract could be rescinded by Indonesia due to inflated price estimates by Daewoo.
The original agreement between the ROK and Indonesia, signed in December, tasked Daewoo with providing three Korean-made U209 submarines to the Indonesian military for $1.1 billion (USD) in total. Daewoo recently revised their cost estimates and now claim to require $1.4 billion for the requested submarines.
The Indonesian government has not taken the issue lightly, with South Korea now facing a very real chance of seeing the deal collapse.
A joint venture between Turkey’s Undersecretariat for Defense Industries (SSM, Savunma Sanayii Müsteşarlığı) and German conglomerate ThyssenKrupp had attempted to subvert the ROK’s bid in December, but saw the South Koreans prevail and win Indonesia’s favor. A potential re-submission of the Turkish/German bid on February 7th, and a late February visit to Turkey by Adm. Agus Suhartono, chief of staff of Indonesian military, suggests that the Daewoo price hike has effectively voided the ROK/Indonesian agreement, though Indonesia hasn’t implicitly kill the deal yet.
With Indonesia now potentially shopping around for a better offer. Adm. Suhartono eluded to an interest in the U214 Submarine, which both Turkey and the ROK are licensed to build. Indonesia military officials probably realize that the U209 is already something of a dated craft, and may be happy to jump on a deal giving a bit more bang for the buck if offered. Seoul has remained wary about selling their U214-variant submarines abroad, even to regional allies, as the ship is currently the best submarine in the ROK Naval fleet. This snafu by the ROK may give Indonesia perfect timing for bowing out and finding a better deal, and in the best case scenario, a better ship.
While Indonesia hasn’t canceled the deal with South Korea yet, the resubmitted bid by SSM/ThyssenKrupp and revived Indonesian interest in submarines that Seoul won’t sell, point to a suddenly dire situation for the Korean Defense Industry.
After what appeared to be a gangbusters 2011 as a ‘freshman’ on the global military industrial complex stage and high hopes for 2012 (and beyond), the South Korean Defense industry appears to be charting the path of ‘sophomore slump’ for 2012. Time will tell if the ROK learns the tricks necessary to play with the big boys.
This author suggests that the first trick Seoul might want to learn revolves around properly signing contracts and producing orders based on previously agreed-upon terms. There are plenty of defense corporations out there ready to pounce if they don’t honor what they agree upon.
No word yet on how this might affect previously smooth relations between South Korean and Turkish arms makers.
h/t to those on militaryphotos.net for alerting me to the story
Craig was born & raised in the United States, having recently returned there after over five years in Asia. He is currently pursuing further education in the realms of East Asian Studies and Politics. Craig is an avid fan of the political, economic, and military machinations occurring throughout the Asian continent and how those turning gears affect the rest of the world. He's currently covering both North and South Korea for Asia Security Watch, enjoying shedding light on to this far-too-often ignored slice of Asia.
Craig Scanlan has 82 post(s) on Asia Security Watch