Southeast Asia defence market opens up

duotiga83 SG

Singapore 2008 - Southeast Asia defence market opens up
By Siva Govindasamy

With South-East Asian air forces looking to update their fleets across the board, some fascinating manufacturer tussles are afoot

South-East Asia is developing into a very open and competitive market for military aircraft, with regional air forces looking to renew fleets which have some aircraft that have been in service for more than 40 years.

Almost all major defence contractors have a chance of selling to the region. Singapore has ordered US fighters and is choosing between South Korean, Italian and UK advanced jet trainers. Indonesia and Malaysia have gone for Russian Sukhoi fighters in recent years, while Thailand warmed Swedish hearts with an order for the Saab Gripen multi-role combat aircraft.

Not just fighters

All four are likely to order more aircraft in the next few years, and Vietnam could begin a major fighter replacement exercise early next decade. And it is not just fighters that are required - maritime patrol aircraft, airborne early warning capability, attack, utility and transport helicopters, and trainers are all on the region's shopping list.

"This is not a classic arms race as there is no real animosity among the players," says Richard Bitzinger, a senior fellow at Singapore's S Rajaratnam School of International Studies. "Most of the purchases are needed to replace old inventory and prevent a drop in relative capability. But there is also an element of 'keeping up with the Joneses' - tit-for-tat, non-aggressive procurement rivalries."

One official at a major Western defence contractor points out that although North-East Asia and India grab most of the headlines, South-East Asia is a key market. "Singapore, for example, has a big budget and its decisions are often taken very seriously elsewhere," he says. "Its order of the [Boeing] F-15, for example, was seen as a vote of confidence in the aircraft. Its decision in the advanced trainer competition will also be closely monitored."

Tough market

Boeing says the region will remain a tough, open market. "Competition is intense, and always will be. We believe customers will make their decisions based on technology access, low risk, proven capability and value for money."

Leading the way is Singapore, with tactical fighters, advanced trainers and maritime patrol aircraft all on the horizon. The South-East's biggest operator of Lockheed Martin F-16s has ordered 24 F-15SGs, and is looking to increase its "strategic depth" in the next decade, says air force chief Maj Gen Ng Chee Khern.

Singapore aligned itself with the Lockheed Martin F-35 Joint Strike Fighter programme in 2002 at the "security co-operation participant" level, the lowest rung of the four-tier international teaming set-up. Delays in the fighter's development have kept the country waiting for the final configuration, but that information should be delivered this year. Singapore will then have to choose between a second batch of F-15s and going ahead with the F-35.

Hawk viability

Advanced jet trainers are also on Singapore's wish-list. It is evaluating the AermacchiM-346, BAE Systems Hawk 128, and Korea Aerospace Industries T-50. The Hawk has been the standard for more than 30 years, but its viability has come into question after it was eliminated from an United Arab Emirates contest, where it faced the same rivals.

Singapore's choices could have an impact on those of its neighbour. Bitzinger points out that when Singapore ordered F-16s, Malaysia bought 18 Sukhoi Su-30MKMs to complement its fleet of 18 MiG-29s, eight Boeing F/A-18Ds and 13 Northrop F-5E/Fs. Its first all-Sukhoi squadron should be combat ready in the first quarter of 2009.

Kuala Lumpur is keen to buy more fighters and is likely to choose between a second batch of Su-30s and possibly F/A-18E/Fs for delivery from 2011. A contract must be awarded in 2009 if funding is to be secured in time for the country's 2011-15 five-year plan. Both internal and external politics will play a role in its decision.

"General elections are expected this year and the ruling Barisan Nasional coalition should win again," says a Kuala Lumpur-based observer. "Some factions favour the Russians and others favour the Americans, and we must see who gains the upper hand. Russia has been a reliable supplier, but the MiGs have faced technical problems. But if Malaysia buys American fighters, it must induct aircraft that are very different from what it already has. It may make sense to stick to one type."

Malaysia's priorities are maritime patrol aircraft and utility helicopters, however, says the observer. "Malaysia must live up to its commitment to monitor its waters. It also needs new utility helicopters to replace its ageing 'Nuris' [Sikorsky S-61] after recent high-profile crashes."

Financial considerations may lead to upgrades of the F/A-18s and MiG-29s, which have six years' life left without modification, instead of new fighters, he adds.

Neighbouring Indonesia, the region's most populous and largest country, also needs to upgrade its aircraft. A fleet of 12 F-16A/Bs, 10 F-5s and 11 A-4 Skyhawks are a testament to the country's historical close relationship with Washington. But much of the fleet was grounded after a US arms embargo, imposed in the late 1990s after the Indonesian government's bloody crackdown on separatist forces in East Timor, cut off the supply of spare parts.

Cancelled orders

Jakarta turned to Russia and ordered 12 Su-30s in 1997, but cancelled that order in 1998 after the Asian financial crisis. In 2003, former Indonesian president Megawati Sukarnoputri unexpectedly confirmed an order for two Sukhoi Su-27s and two Su-30s during a visit to Moscow. Eventually, Indonesia plans to buy 48 new aircraft to replace its front-line fighters. It is also looking to replace its ageing Rockwell OV-10 Broncos and BAE Systems Hawk 53s, and is considering the Aero Vodochody L-159, Hongdu K-8 and KAI KO-1B turboprop.

The USA lifted its embargo on Indonesia in 2007, which should lead to the availability of spare parts, possibly upgrades to existing fighters, and maybe even an order for newF-16s. But many in Jakarta are still unhappy. "How can we be sure the USA won't impose another embargo?" says an Indonesian defence ministry official. "The Russians seem to be more reliable, especially during difficult times for our country."

search and rescue

Indonesia also has a requirement for utility and search and rescue helicopters, a shortfall that was highlighted by the army's difficulty in reaching victims of the December 2004 tsunami. Jakarta has already been in talks with Russia to buy four Mil Mi-35 attack helicopters and five cargo helicopters of an unspecificed type.

A tight budget could halt those ambitions, however. "Indonesia says it wants 48 fighters by 2010, but I doubt it can afford half of that, even if the Russians give a good discount," says one defence contractor. "And while new fighters will bring bragging rights, the priority has to be helicopters. The government can't be seen to spend too much on defence procurements as well. Poverty alleviation remains a big goal."

Like Indonesia, Thailand postponed plans for new F/A-18s and F-16C/Ds after the 1998 economic crisis and stuck to its 60 F-16A/Bs and 35 F-5E/Fs. Last year, however, the air force said it would spend $1 billion on new helicopters and aircraft over the next five years. The first phase began in December last year with an order for six Saab Gripens and an option for six more to replace the F-5s. The deal includes two Saab Erieye airborne early warning aircraft, with the first likely to be delivered in 2010.

Thailand's choice of Sweden's Gripen over its traditional source, the USA, has raised eyebrows. "Talks have been ongoing for several years and the Swedes have developed a very good relationship with the Thais," says a Singapore-based observer. "Saab is also keen to get export sales and it must have made a very good offer."

The observer says he expects Bangkok to exercise its options for Gripens around late 2009, forming a proper squadron of the type. Thailand will then need to decide on a follow-up order between the F-16, F/A-18 and the Gripen. "The Thai-US relationship stretches back to the Vietnam war. Things were a little rocky during the 2006 military coup, but both countries will continue to be good friends. Gripen gave Thailand a very good deal this time around, but I doubt it can continue doing that," says the observer.

Swedish success

All the major contractors will also be eyeing Vietnam, which will require new fighters early in the next decade. Hanoi has about 220 combat-capable aircraft, mostly 1970s and 1980s-era fighters such as the MiG-21 and Su-22. It tried to modernise in the 1990s, buying Su-27s and Su-30s from Russia and reconditioning Su-22s and L-39s. But plans to buy Dassault Mirage fighters from France fell through under pressure from the USA and it did not go ahead with upgrades for the MiG-21s.

Defence contractors say Vietnam's growing economy has boosted state coffers, possibly paving the way for a competition. Dislodging the Russians could be tough, given the close relations between the countries, but Vietnam's growing economic ties with the USA and Europe could help defence contractors from those two regions.

But there is no such optimism about the Philippines, which is short of money and has a track record of corruption tainting tenders. Its air force has Aermacchi SF-260 and S-211 aircraft, many of which are not operational, and a helicopter fleet mainly comprising Vietnam War-era Bell UH-1H Hueys and MD Helicopters MG520s. But Manila desperately needs to renew its fleet, especially to help its army cope with separatist rebels.

Last year, after a delay of several years, Philippines president Gloria Macapagal Arroyo set aside a budget of about 1 billion pesos ($30 million) to buy attack helicopters. But this month the defence department overturned a decision to buy MD Helicopters MG530F helicopters following irregularities in the selection process and ordered a fresh tender. The government has also said it would set aside7 billion pesos for 20 attack and utility helicopters over the next few years.

Contractors are not rushing in to show off their wares, however. "We don't know if the money will come in, and the best equipment might not win anyway due to the corruption," says one official. "The best thing to do when it comes to the Philippines is to roll your eyes, offer your products with a shrug, and not expect anything to happen."

Countries such as Laos and Cambodia are in a similar position, with a shortage of cash and the taint of corruption putting off defence contractors. Oil-rich Brunei may have the money, but has dithered for years on a deal for light combat aircraft.

Myanmar, on the other hand, has been shunned by most contractors following an arms embargo imposed on its ruling military junta for its brutal crackdown on pro-democracy activists. The country bought 10 second-hand MiG-29s from Russia in 2001, but its main supplier is China. Beijing has sold it about 60 Chengdu F-7Ms, derived from the MiG-21, 42 Nanchang A-5s, which are modified MiG-19s, and 12 K-8 primary trainers that can be used for light ground attack.

China is seen as a potential alternative supplier of relatively cheap weapons to the region. It has offered to sell eight Harbin Aircraft Z-9, a licensed copy of Eurocopter's AS365N Dauphin, to the Philippines for its utility helicopter requirement and has reportedly held talks with Cambodia, Laos, Thailand and Indonesia. Its new Chengdu J-10 and Chengdu/PAC JF-17 fighters could be an alternative to Russian and US aircraft.

Beijing may need to improve the quality of its exports, however. Myanmar has had problems with the performance and reliability of many of its Chinese aircraft, and has reportedly lost several F-7s through accidents. It has also had trouble obtaining spare parts. China may find it tough to convince a market weaned on Western weapons that it offers viable alternatives.

Still, South-East Asia has an annual arms budget of around $2 billion, so the likes of China will not stop trying. And defence contractors will keep flocking to events such as the Singapore Air Show to display their offerings and talk to prospective customers.

"Look at China and India - they mainly buy Russian," says Bitzinger. "Japan, South Korea and Taiwan are all good customers of the USA. In South-East Asia, almost everyone has a fair chance of winning something. This is one of the most open and competitive markets around, and it will continue to be so for some time."

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Buyers' requirements and possible suppliers

Singapore: Fighters (Boeing F-15, Lockheed Martin F-35), maritime patrol aircraft (Boeing P-8, Lockheed MartinP-3C), advanced jet trainers (BAE Systems Hawk, Korea Aerospace Industries T-50, Aermacchi M-346)

Malaysia: Fighters (Sukhoi Su-30, Boeing F/A-18), utility helicopters (AgustaWestland AW101, Eurocopter EC725, Sikorsky S-92, Kamov KA-31), airborne early warning (Embraer R-99, Saab 2000, Northrop Grumman E-2)

Indonesia: Fighters (Su-30, Lockheed Martin F-16), light attack aircraft (Aero Vodochody L-159, Hongdu K-8, KAI KO-1), attack helicopters (Mil Mi-35), utility helcopters (unconfirmed)

Thailand: Fighters (Saab Gripen, F-16, Su-30, F/A-18), attack helicopters (Boeing AH-64)

Vietnam: Fighters (Su-30, ChengduJ-10, F-16, F/A-18, Gripen)

Philippines: Attack helicopters (MD Helicopters MG530F, PZL-Swidnik Kania), utility helicopters (Harbin Z-9)

Brunei: Light attack aircraft (Hawk, KO-1)

Myanmar: Fighters (Chengdu J-10, MiG-29), utility helicopters (Harbin Z-9, Hindustan Aeronautics Advanced Light Helicopter)