Korea Aerospace Industries (KAI) is expected to complete construction of the first KF-X fighter aircraft prototype by the first half of 2021 and conduct the first test flight of the platform a year later, South Korea’s Defence Acquisition Programme Administration (DAPA) confirmed in a 26 September statement…
Total production is expected to exceed 350 units, including a quota for exports. Indonesia is currently renegotiating its involvement in the programme, although Jakarta remains committed to honouring its payment obligations set out under a 2015 financial agreement.
Under this original agreement, which is now subject to renegotiation, Indonesia committed to paying for 20% of the total development costs, which are estimated at about USD8 billion. The South Korean government would pay for 60% of the development programme, with prime contractor KAI covering the remaining 20%.
That was from Jane’s, “KF-X fighter prototype to be rolled out in first half of 2021, DAPA confirms“. So KAI is expected to spend about $1.6 billion on fighter development costs, which is pretty substantial — especially considering that it looks like KAI’s total sales in 2018 were only about $2.5 billion. They were the 37th largest aerospace firm in 2018. It puts skin in the game for KAI to ensure things don’t get too out of control, even if that is from spiraling government requirements. The firm even took a hefty 10 percent loss in 2017.
Now, the Air Force’s fighter variant — the F-35A — has an airframe development costs of about CY18 $28 billion (i.e., excluding engine development and costs for F-35B/C variants, as well as any procurement mod funding). If Lockheed forked over 20 percent of that, it would be about $5.6 billion. That’s just one-tenth of their 2018 sales, and well within their operating profit of $7.3 billion. In other words, they could have absorbed 20 percent of the development risk, especially when put in contrast to KAI whose risk exposure would have been 5x higher with the same deal.
In reality, Lockheed risked little or nothing of its own funds. The X-35 was financed by the government, and so was the entirety of the F-35 development. Certainly Lockheed put some Independent R&D (IRAD) funding into the F-35 upfront the 1990s and again in the 2010s as a sign of good faith. But for the most part, IRAD is relatively small and safe. They spent about $1.3 billion in 2018 (most of which wasn’t for the F-35), which represents a major increase over previous years. That’s only 2% of sales, and most of it will get reimbursed by the government anyway as a G&A expense within a couple quarters. So they weren’t risking all that much in IRAD.
Final note: the KF-X is a 5th-ish generation fighter that is expected to cost about $8 billion in R&D, while the Air Force F-35A variant development will cost CY2018 $35 billion (including engine). That more than a 4x difference. The KF-X isn’t expected to be as stealthy, nor will it likely have some of the advanced electronics, and it hasn’t been accomplished yet so costs could skyrocket. But still, something to think about.
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