South Korea’s decision to reduce Indonesia’s contribution to the KF-21 fighter jet development program by two-thirds has shifted financial pressures onto Korea Aerospace Industries (KAI), the project’s primary contractor.
As of March 10, investment banking sources said the South Korean government is considering a plan to divide Indonesia’s outstanding contribution of 470 billion won ($322.2 million), with approximately $239.9 million covered by the government (74.5%) and about 82.3 million by KAI (25.5%). Some argue that KAI should shoulder an even larger share of the cost.
Since 2015, S. Korea and Indonesia have jointly developed the KF-21, a next-generation fighter jet, with a total budget of approximately $5.5 billion through 2026.
Under the original agreement, Indonesia was set to cover 20% of the total cost—$1.1 billion, later reduced to around $1 billion—in return for a prototype aircraft, technology transfers, and rights to produce 48 jets domestically. The remaining 80% was to be funded by the S. Korean government ($3.3 billion, or 60%) and KAI ($1 billion, or 20%).
However, with just one year remaining until the project’s completion, Indonesia has contributed only $274.4 million so far—just 25% of its pledged amount. Citing financial difficulties, Indonesia has requested a reduction in its share. In response, the S. Korean government proposed in Aug. 2024 to lower Indonesia’s contribution to $411.5 million. Under this adjustment, Indonesia would pay an average of $73.3 million per year from 2024 to 2026.
KAI has already reduced total development costs by approximately 6%, bringing them down to approximately $5.2 billion. However, the company now faces a heavier financial burden due to the additional $82.3 million it may need to cover. This would bring KAI’s total contribution to $1.1 billion, more than seven times its operating profit of last year.
A Defense Acquisition Program Administration (DAPA) official said, “The government and the company have agreed in principle to share the shortfall, and discussions are ongoing based on national budget considerations and the company’s financial status. The exact distribution of costs has not been finalized.”
Since last year, DAPA has sent 10 official letters to Indonesia, urging payments or requesting negotiations on adjusted contributions. However, the Indonesian Ministry of Defense has responded only three times. Two of these responses concerned an incident in which Indonesian technicians stationed at KAI were caught leaking technical data, while the third reiterated Indonesia’s request to lower its contribution to $411.7 million.
Despite the financial setbacks, S. Korea and KAI remain committed to working with Indonesia, as the country is expected to be the first customer for the KF-21. Under the agreement, Indonesia would purchase 48 aircraft. The country has also previously bought S. Korea’s KT-1 basic trainer aircraft and T-50 advanced trainer jets.
A defense industry official said, “It is our understanding that Indonesia’s reduced contribution will be offset by a decrease in technology transfers. The government led the negotiations that resulted in this concession, so it is unfortunate that a private company is being asked to absorb part of the burden.”
