By Avascent Analytics team
A quick look at the biggest stories of the week
Germany • Bulgaria • Southeast Asia
Avascent Analytics introduced a segment to the Weekly Wire called “Beyond the Headlines.” Each week, we will provide an in-depth look on various defense topics, ranging from country-specific defense news to emerging technologies impacting defense.
Indonesia Caught Between Equipment Diversification and Possible Sanctions
Aaron Lin, Senior Market Analyst
Indonesian Defense Minister Ryamizard Ryacudu stated that he expected deliveries of 11 Su-35s from Russia to begin at the end of 2019. Indonesia is paying for about half of the $1.14 billion acquisition through a barter. Earlier hiccups in the transaction stemmed from discussions over what commodities would be bartered to Russia and delays from the Indonesian Trade Ministry and Finance Ministry approving the deal. Despite these setbacks, Indonesia appears to be committed to the Su-35 acquisition. More recently, Indonesia also announced that it would be purchasing $175.2 million worth of BMP-3F and BT-3F amphibious armored vehicles from Russia. These would be paid for through loans.
Of course, the big elephant in the room is the potential for repercussions from the US due to the Countering America’s Adversaries Through Sanctions Act (CAATSA). Some Indonesian sources appeared confident that Indonesia would get a waiver for the earlier Su-35 acquisition, though such a waiver has not yet been received. By paying for half of the Su-35 acquisition through a barter, Indonesia could hope that this would provide some protection from CAATSA, even that was not the original intention. This lowers the amount of money being transferred to Russia to levels much lower than the multi-billion S-400 deals with Turkey and India. Confidence that Indonesia would not be hit with major repercussions also came from planned purchases of C-130Js and possibly CH-47Fs, which together could total more than $1 billion. Furthermore, Indonesia is looking to acquire more fighters in the mid-2020s, with the F-16V being a potential candidate. Finally, the US is looking for more partners in Southeast Asia as it seeks to counter China’s South China Sea actions. The fact that Indonesia is a democracy would only seem to help their case.
But recent US reactions to Egypt’s planned purchase of 20 Su-35s and India’s S-400 acquisition raise questions about whether Indonesia’s confidence is well placed. Egypt’s case represents an acquisition similar to Indonesia’s that is being threatened by CAATSA, even though Egypt has been a long-time non-NATO ally of the US. But the case of India is probably more pertinent to Indonesia. These two Indo-Pacific nations have gone through periods of time without access to American defense equipment, both have diverse sources for defense equipment but have been increasing procurement from the US in recent years, and both are regional counter-balancers with regard to China. Some in India has believed that simply increasing purchases from the US would shield them from CAATSA. But this may not be the case as US officials have directly contradicted this view.
The irony is that much of the Indonesian military’s Russian equipment was acquired as a result of US sanctions than began in the 1990s and lasted until 2005. This made sustaining American equipment that was purchased in the 1980s very difficult. The Indonesian military has long tried to keep a diverse set of suppliers to lessen dependency on any one country in order to protect itself against similar events. Indonesia will need more time to further develop its domestic defense industrial base, and further expand defense industrial ties with other countries like Turkey and South Korea. Until then, the military will likely be reluctant to completely divest itself from Russian arms purchases.
Germany’s Parliament Budget Committee is likely moving forward with approving initial funding for the Future Combat Air System (FCAS). The Budget Committee is expected to confirm funding for $36.5 million on June 5. The proposed FCAS program will be jointly developed with France, with the development cost alone estimated to be $9 billion through 2030. Official contracts for the concept studies phase of the fighter program are expected to be signed during the Paris Air Show in mid-June, with contracts awarded to Dassault Aviation, Airbus Defense and Space, Safran, and MTU Aero Engines. Dassault and Airbus would work on developing the next generation fighter while Safran and MTU Aero Engines would focus on the engines. The FCAS is just one of several Franco-German efforts to joint develop new military platforms. In addition to the FCAS, France and Germany are also developing a new main battle tank and maritime patrol aircraft.
The US State Department approved a possible foreign military sale (FMS) of eight F-16 C/D Block 70s to Bulgaria worth up to $1.6 billion. While the actual value of the deal is expected to be lower than $1.6 billion, Bulgarian citizens are concerned about the potentially high cost as the country is one of the poorest European nations. The Bulgarian defense minister announced that they anticipate the cost to be between $1-1.15 billion, with the idea of minimizing the weapons and logistics packages associated with the deal. The current FMS deal includes 16 AIM-120 advanced medium-range air-to-air missiles, 24 AIM-9X Sidewinders, 28 GBU-39 Small Diameter Bombs, 24 Mk 82 bombs, 15 GBU-49 Enhanced Paveway IIs, and 15 GBU-54 Laser Joint Direct Attack Munitions. Bulgaria announced its decision to acquire the F-16s in December 2018, beating out Saab’s Gripens and secondhand Eurofighter Typhoons from Italy. Bulgaria is ultimately looking to acquire 16 new fighter aircraft to replace its MiG-29s and Su-25s, but budget constraints forced the government to acquire the F-16s in two batches of eight instead. This deal represents the first batch of eight.
On May 31, the United States’ Department of Defense awarded Insitu with a contract to provide 34 ScanEagle unmanned aerial vehicles (UAVs) to several countries in Southeast Asia. The contract is valued at $47.9 million, and the aircraft will be delivered to Vietnam, the Philippines, Indonesia, and Malaysia. Vietnam will receive six, the Philippines will receive eight, Indonesia will receive eight, and Malaysia will receive 12. The new ScanEagles will likely be used for maritime surveillance, as all four countries border the South China Sea and have expressed concern about Chinese activity there.
For more information about this Weekly Wire, contact firstname.lastname@example.org.
Analytics Users: If you’d like to see the markets discussed in any of these articles in greater depth, please visit avascentanalytics.com.