Indonesia set to legislate offset requirements for defense purchases
Indonesia—thanks to the fact it is Southeast Asia's largest economy—has emerged in the past 12 months as one of Asia's biggest defense spenders. This has meant foreign defense companies are now targeting Indonesia with renewed vigor, but they would be well advised to take note of legislation that is about to enter Indonesia's parliament, which will make offsets and industrial cooperation a legal requirement when selling military equipment to the country.
The secretary general of defense, Air Marshal Eris Herryanto, says his ministry's policy already requires that foreign companies provide offsets. However, “we will put it into a bill.” He says the legislation is due to pass parliament this year.
Having these requirements clearly defined in law will help to ensure there are no discrepancies in the future and that all companies wishing to sell to Indonesia are operating on a level playing field. Previously, there was no consistency. For example, whensecured a contract in February to sell nine military transports to Indonesia's air force, it had to agree to a 30% offset that included assembling some of the aircraft in Indonesia. However, was able to sell 16 Super Tucanos to Indonesia by offering much less in terms of offsets and industrial cooperation.
Eris, who is the third most senior official in the ministry, spoke to Aviation Week in Brazil last week, when he witnessed the delivery of the first four Embraer EMB-314 Super Tucano light attack aircraft to the Indonesian air force (IAF). Eris says the first four aircraft are due to arrive in Indonesia on Sept. 2, followed by another four by late 2012, and the remaining eight by the end of 2013. The 16 Super Tucanos will be at Malang air base on Indonesia's Java island, he says. Sixteen is enough to form a squadron, and at this stage the air force has no plans to order more, he adds.
Indonesia's deputy defense minister, Sjafrie Sjamsoeddin, told Aviation Week in April that his government hoped to persuade Embraer to assemble Super Tucanos at state-owned Indonesian Aerospace (IAe); the aircraft could then be sold to Indonesia and other Asia-Pacific countries. However, Embraer has not agreed to this proposal. Eris says the offset work that has been secured involves the manufacturing of some ground-based equipment and tools needed to support the type in Indonesia.
Indonesia also will be handling light and heavy maintenance for its Super Tucanos. Eris says the IAF plans to do the maintenance in-house, but it will be outsourcing the engine heavy-maintenance work to IAe, which intends to establish an overhaul facility to handle the Pratt & Whitney Canada PT6, the type that powers the Super Tucano and several types of commercial and general aviation aircraft.
Despite their disappointment regarding Super Tucano manufacturing, the Indonesians may have a future opportunity to be involved in the, the new military transport in development. Asked if the Brazilians have been pitching the KC-390 to Indonesia, Eris replied: “Yes. Prior to meeting you, we were shown a mockup today [Aug. 7] of the KC-390.” He says Indonesia needs a lot of military transports and wants to strengthen its capability to carry out disaster-relief operations. The archipelago is prone to earthquakes and volcanic disruptions.
The CEO of Embraer Defesa e Seguranca (ED&S), Luiz Carlos Aguiar, says Embraer already has signed up Argentina, Portugal and the Czech Republic as industrial partners on the KC-390. He says Embraer would be unwilling to immediately include Indonesia as an industrial partner because such a move could disrupt the program and jeopardize its schedule. “But in the future we would be open to discussions with Indonesia and other countries with regard to industrial cooperation on the KC-390,” he says. Embraer is aiming to complete the joint definition phase by the end of next March and conduct the first test flight in 2014.
In terms of industrial links, Indonesia has close ties with South Korea. The Southeast Asian nation is a 20% partner on the KFX, the new fighter that South Korea is developing. Indonesia also recently ordered 16 Korean Aerospace Industries T-50 jet trainers. The first T-50 is slated to be delivered to Indonesia next year. As for what offsets Indonesia has received for ordering T-50s, Eris says the two sides have come to an understanding that when the South Korean coast guard needs to purchase more CN235s, it will order them from IAe. The Korean coast guard already operates Indonesian-built CN235s, the last of which it received in the first quarter of this year. It was the final of four that the coast guard ordered from IAe.
In the longer term, Indonesia is eyeing airborne early warning (AEW) aircraft. The country currently uses old-200s fitted with surveillance equipment. Eris says: “Yes, we need AEW but I don't know when a budget will be made available.”