Dian Firmansyah (dian.firmansyah@yahoo.

com)

Segment Aerospace - Manufacturing - MRO -- Airframe and Modification -- Engine Maintenance -- Line Maintenance -- Component Maintenance Defence - Land System - Naval System - Airborne System - C4ISR - Others

SOE/SoE Subsidiary

Private

Dirgantara Indonesia UAVindo, GTSI

Aerospace
Manufacturing
Civilian Aerospace Military Aerospace

GMF NusantaraTurbin & Propulsion (NTP) GMF NusantaraTurbin & Propulsion (NTP)

Aero Nusantara Indonesia (ANI)

MRO
Airframe and Modification Engine Maintenance Line Maintenance Component Maintenance

Aero Nusantara Indonesia (ANI)

Defence

Pindad PAL (see Aerospace Manufacturing) LEN Industri Pindad

SSE, Hoverindo Palindo Marine, Lundin (see Aerospace Manufacturing) Global Asia Teknologi Fajar Indah

Land Systems Naval Systems Air Systems C4ISR Others

Parties Ministry of Industry (MOI) Ministry of Research & Technology (MORT) National Aerospace Research Agency (LAPAN) Agency for Assessment and Application of Technology (BPPT) Indonesian Science Agency (LIPI) Ministry of Defence (MOD) Indonesian Armed Forces (TNI) House of Representatives (DPR) Ministry of Finance (MOF) Ministry of SoE (MSOE) National Development Planning Agency (Bappenas) Technical Universities (Bandung Institute of Tech, Surabaya Institute of Tech, UI, UGM, etc)

Relevance Develop policy to grow industrial capacity and capability Develop policy to foster building research capability of defence industry Research and development of satellites, remote sensing and delivery systems Provide research and development service for government projects and SoE Basic science research Defence policy and procurement of defence systems User requirement of defence systems Budget approval for defence systems Budget approval for defence systems Develop synergy between SoE Budget approval for defence systems (major projects) worth more than 50 Billion Rp Provides ad-hoc research cooperation & expertise pool for strategic defense industry

Companies

Supply Chain

Industrial Activity
Complete, integrated weapons systems and direct customer interface

PAL, Pindad, Dirgantara, Lundin, Palindo Prime Marine, UAVindo, GTIS, Aviator, Contractors Hoverindo, SSE Texmaco

Principal First Tier Suppliers Second Tier Suppliers

Systems (engines & transmission) Subsystems : operational management systems, combat management systems, radar, weapons and electronics systems Special components and services

LEN Industri, Asiatek

Dahana, INKA, PGASI, Sari Bahari

Krakatau Steel, Barata, Pupuk Kaltim Workshop, Boma Bisma IndraRaw Material

Metals, composites, metal work, castings, forgings, electrical/electronic components Paints, sealants, bolts, wire & cabling Upgrade, conversions, overhaul and maintenance

Generic
Aerospace MRO Workshops in Indonesia, Life Cycle Support PAL, Pindad, Dirgantara Companies

The Indonesian A&D value chain is more visible in the top

 Most of Prime Contractors are Strategic SoE (BUMN Strategis) under

auspices of MoD, MoSOE, MoI, MoRT : PAL, Pindad, Dirgantara Indonesia  These companies comes as a result of gov defence industrial policy that prioritized on building prime contractor tier first with substantial investment and protection from the state

Some private companies later emerged in early 2000s as prime contractors, providing supplementary products The lower tiers in Indonesia is still very limited in terms of technology and industrial capacity, that majority of subsystems and components for prime contractors acquired from foreign supply chain
 Many of local lower tiers started as companies serving commercial market

and then later began serving defence prime contractors  Lower tiers companies is under auspice of the MoI

Companies Pindad PAL Dirgantara Indonesia Dahana LEN Industri INTI Krakatau Steel INKA Barata Boma Bisma Indra

Products/Activities Small arms, munition, land systems Commercial ship and Naval ships Civilian and Military Aircraft Commercial and military explosives Electronics and telecom , Combat Mgmt Systems Manufacturing of telecom systems Steel products Manufacture train-related products Manufacture Diesel Engines Steel works

Remarks Designated as SOE Main Strategic Industry Designated as SOE Main Strategic Industry Designated as SOE Main Strategic Industry Designated as SOE Main Strategic Industry Designated as SoE Strategic Industry Designated as SoE Strategic Industry Designated as SoE Strategic Industry Designated as SoE Strategic Industry Designated as SoE Strategic Industry Designated as SoE Strategic Industry

Pre-1970 Era


Gov taking over A&D industry legacy from the Dutch (1949), with strong vision but lack of resource allocated to A&D industry

BPIS Era (1970s-1998)

A&D industry consolidated under Badan Pengelola Industri Strategis (BPIS/Strategic Industries Governing Agency) who assume central role in A&D industries. Gov heavy investment in subsidy, production infrastructure, R&D capability & brainware  Start with the end, End with the start philosophy (begin by doing system integration and later moving down the value chain)  A&D industry successfully engaged in a number of license production projects and acquire needed technology (Example: CN-235, Fast Patrol Boat 57m)  Private companies began to grow as subcontractor for A&D industries


Post-Asian economic crisis (1998-2003)

Gov stopped subsidy to A&D and placed them under MoSoE, with task to produce profit A&D barely survives, with massive lay off and restructurization of A&D industry. Erosion in manufacturing and R&D capability  US and West bloc military embargo 1991-2005
 

Resurgency Era (2003-present)

 Nation-wide consensus to achieve self-reliance in defence  Reaffirm domestic preference in gov procurement practice, including

defence procurement
Presidential Decree No. 80/2003 on Government Procurement of Goods and Services Presidential Decree No.2/2009 on Increased Use of Domestic Products

 Gradual improvement in defence planning and procurement and gov related

processes
Multiyears budgeting allowed since 2009

 Foreign procurement more inclined to avoid Western technology

Preference to Countries with Transfer of Technology (TOT) scheme (Co-production, License production, Co-design) Russia become biggest weapons supplier to Indonesia

Resurgency Era (2003-present)

 A&D conducting reverse engineering on low and medium technology, a

number of tech transfer project scored success

SS2 Assault Rifles (Pindad), CN-235 MPA & Nc-212 MPA (DI), Fast Missile Boat (KCR-40) (PAL)

 Private system integrator in A&D industry began to emerge: UAV, Hovercraft,

Recon Vehicles, Radar & C4ISR System

Some companies exported to international customer : SSE, Lundin

 Establishment of Defence Industrial Policy Board (KKIP) in early 2010  Strategic partnerships initiatives by MoD (2010)

Aerospace MRO Market

 Currently there are 55

companies related to Aerospace MRO activity in Indonesia  The market for Aero MRO for Indonesia is expected to grow from $700 M in 2009 to $2 Billion in 2014  Due to limited capability and capacity, only 35% of this market will be served by Indonesian Aerospace MRO shops

Source: Media

Defence Market
 Weathering the 2008 economic crisis,

Trillion Rupiah

the defence of budget has been slashed into just below 1% of GDP  Indonesian Gov has plans to reincrease the defence budget into 1% of GDP in 2011. This translates into 5 Billion USD for 2011  A total of 78.265 Trillion Rupiah (8.7 Billion USD) is allocated for upgrades and purchase of new systems between 2010-2014  Share of Indonesia s Defence Industry is estimated not more than Rp 1 Trillion (111 Million USD) annually (less than 10%)
Source : SIPRI.org, National Development Plan (RPJMN) 20102014

MILEX % of GDP (Source : World Bank, SIPRI)

1.6 1.36 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 1 1.06 1.4 1.25 1.25 1.22 0.98 0.91

Planned Expenditure for Upgrades and New Systems (2010-2014)

35 30 25 20 15 10 5 0 TNI HQ Army Navy Air Force 7.101 17.632 21.132 32.41

Indonesia exported at least 525.5 Million USD of A&D products since first export in 1995
 Mostly DI s products: CN-235 NC-212  Other products: 6x6 APC (Pindad)

Indonesia A&D Industry Export

250 200 150 100 50 0 1990-1994 1995-1999 2000-2004 2005-2009 Million USD

Source: SIPRI Database

Environment


Absence of National Defence Blue Print, leads to:

Haphazard planning, Crash Projects without long-term, consistent capability planning Confusion in A&D industry to invest in technology and brainware Non existence of Defence Industrial policy and Defence Procurement Policy

Lack of leadership and commitment in Gov

Gov affirmative policy and action The devil is in the details- the lack of Gov ability to ensure decisions are implemented down to the lowest level

Poor governance practice

Late disbursement of payments toA&D industry Multiyears projects not allowed until recently

Weak commitment from user (MoD and TNI) to use products and services from indigenous defense industry
Agency-driven procurement (Comission-driven procurement) began to diminish

Internal A&D industry

 

High dependence on foreign supply chain, due to immature lower tiers Stagnant and eroded R&D capability in A&D industry
Years of poor financial standing and disincentive to invest in R&D capability

Synergy with other SoE

A&D industry partnership in with foreign companies, aimed at tech transfer & increased local content while fulfilling national needs


4.5 G fighter jet (KF-X) project with South Korea (2010)

Joint development : Indonesia to contribute US$1.2 Billion (20% of the development cost) Production to start in 2020, Dirgantara will manufacture 50 units

PKR-105 Frigate project (2010-2014)

Co-design with Damen Schelde (DSNS), production of 4 vessels by PAL Program worth 700 Million Dollars, 15% by State Budget First Unit operational by 2014 Local content target of 40%

Light Tank project : Pindad FNSS Turkey

Co-design , co production of 13-14 tonnes tank by 2014

Government affirmative action

 Certainty of procurement order, availability and timely disbursement of fund  Removing restricting regulation (example : tax & duty on imported

components)  Foster synergy among SoEs, and synergize R&D capability distributed among gov bodies, military and A&D industry  Protection of Indonesia A&D industry
Negative list on military system imports Enforce offset /local content policy to avoid free fight competition

A&D industry
 Enhance their marketing ability  Go faster at the learning curve by partnerships and R&D investment  Change their culture : meritocracy, risk management, openness to advice and

being more responsive to customer feedback

SoE have been and will continue to be the backbone of Indonesia A&D industry Private A&D industry role begin to grow and assume supplementary roles in prime contracting/system integration

 Most are small and medium company  Still limited to non-lethal products: C4ISR, UAV, transport platforms,

etc

Strong drive towards self sufficiency

 low share (but growing) of local A&D industry products in Indonesia s

military procurement

Era of Strategic partnerships ahead

Pindad
 Small arms License production of SS-1 Assault Rifle (1984) SS-2 (own design) in 2005  Design & Production of 6x6 APC (2006) 150 units order for Indonesian army

PAL
 Landing Platform Dock 125 meter  KCR-40 Fast Missile Boat, with Tacoma,

South Korea  Fast Patrol Boat-57 with Lurssen, Germany  Sigma Corvette with Damen, Netherlands

Dirgantara Indonesia (DI)

 Rotary Wing: NBell 412, NAS-332 Super

Puma, NBO-105  NC-212 (1976)

License production Over 100 units delivered to national and int l customers

 CN-235 (1986) Co-design and co-production with CASA Market success with 28 international customer Military Transport version Maritime Patrol version Civil Transport version