Lockheed Martin, the leading developer of sophisticated air defense systems and aircraft is hoping to reconnect with Indonesia after a long hiatus. Its new strategy to build a local partnership for a country-wide radar system could act as a catalyst for the emergence of a whole new high-technology industry.
James Gribbon does not come across as a typical military salesman. The heavyset American has a gentle voice and an easygoing demeanor but he heads Lockheed Martin’s Southeast Asian operations and he talks of F-16s and other military hardware with both familiarity and passion.
Lockheed Martin is one of the oldest and best known military aircraft suppliers in the world, the builder of F-16 fighter jet, which is widely regarded as the most successful fighter ever built. Currently more than 20 countries around the world employ the F-16 to safeguard their nations and provide air defense cover, including Indonesia.
Glenn L. Martin, in fact, learned to build aircraft from the Wright Brothers while both William Boeing and the Lockheed brothers, in turn, learned the same skill from Martin, who was a pioneer of the aircraft industry and a great proponent of the use of aircraft in defense.
The two companies formed by Martin and the Lockheed Brothers eventually merged in 1995 to form Lockheed Martin and provide state-of-the art air defense equipment and aircraft to countries around the world. And it is now looking to build both its presence and customer base in Southeast Asia.
With Asia now the center of global economic gravity, the region is also forecasted to be one of the fastest growing markets for defense companies. The United States is still the country with the biggest defense budget in the world, accounting for 43% of the $1,630 billion spent globally on defense in 2010.
China, India and Japan combined accounted for 15% while the rest of Asia made up 8% of the total. But with the US now facing severe budget deficits and Europe in the midst of a major sovereign debt crisis, the growth is likely to come from Asia.
“Most of our business in this region is defense related,” notes Gribbon “We have customers in Korea, Japan, Taiwan, Singapore, Indonesia and Australia,” he tells Globe Asia at the company’s regional headquarters in Singapore.
“One of the main concerns of many nat ions in the region is freedom of trade, innocent right of free passage, airspace and coastal surveillance and the monitoring of sea lanes,” he adds. “How do you do that? With radars and high speed surveillance aircraft.”
He notes that there is a significant rebuilding of military assets that were purchased 20 to 30 years ago. With strong economic growth, many countries in the region are reevaluating and rebuilding their defense systems.
Korea and Japan allocate about 1.3% of their GDP to defense spending while Indonesia has been doubling its own defense budget over the past few years. This year, the government has allocated $6.5 billion towards defense, up from $2 billion a few years ago.
“We believe that the Asia Pacific is a good area for our company to invest in,& #8221; Gribbon says. “We are looking not just to sell military hardware but to build partnerships with the countries in the region.” By this he means that helping his customers develop their own defense industries and produce components for Lockheed Martin products.
The company has developed such a partnership with Korean Aerospace Industry (KAI) to help develop the T-50 trainer aircraft, which Indonesia is considering to acquire.
“We have done this for many years with countries such as Turkey and Japan where we build sections of the aircraft in the home country and transfer technology into the country so they can look after the aircraft,” he adds.
Lockheed Martin also has a similar partnership in India with Tata Aerostructures to build key sections of the C-130 tran sport aircraft for the world market. The Indian government has ordered six of these C-130 aircraft with five already having been delivered. A follow-on order for six more is imminent.
Punching at its weight
For more than a decade, Indonesia has not been able to meet its defense needs due to the impact of the 1998 financial crisis and the arms embargo imposed by the US Congress following the East Timor violence.
But as the nation begins to play a greater economic role on the regional and global stage, it is also building up its defense capabilities. With the arms embargo having ended in late 2005, the Indonesian military has once again become an important client of US arms manufacturers.
“Indonesia has bee n a strong customer of ours as it was one of the early users of the C-130 transport aircraft and the F-16 fighter aircraft,” says Gribbon. “It was also the second international operator of commercial satellites in the 1970s. Indonesia had satellites before the Europeans!”
The challenge for Indonesia now is to scale up its defense industry and participate in the global supply chain. “We believe this is where Indonesia should be moving towards. It is beneficial to have the economies of scale that Indonesia offers.”
The country does have its own defense industry and produces airplanes, armored vehicles and light ammunition.
Controlling Indonesia’s air space
Lockheed Martin is no w in the process of entering into a similar partnership with Indonesia that could have far reaching benefits for the country’s air defense as well as its civilian aviation industry.
Currently, the country does not have the capability to allow air controllers to track aircraft across the entire breadth of the archipelago. That would change if Lockheed Martin is successful in working with the country to install 20 to 30 long range radars that have the capability to provide surveillance range of up to 400 kilometers each.
“We are looking at a national scale system rather than just an airport control system,” Gribbon says. “Indonesia has been growing economically and domestic air traffic has shot through the roof so it is very important for the country to have a total air surveillance capability to defend the archipelago and a radar system tha t can tie in with the airports.”
The system would also be able to track unauthorized incursions into Indonesian airspace, and illicit economic activities that aid illegal logging and smuggling; activities that Indonesia has struggled to control.
Gribbon notes that if Indonesia were to simply buy and import the entire radar system, it would be far more expensive than if the country were to establish local industries that could produce and supply key components of the system.
“We believe that having a local partner to help build the parts and install the system is critical,” he says. “We have been talking about this project for a few years with various Indonesian governme nt institutions and hopefully we are now close to an agreement.”
The Ministry of Industry, for example, controls the regulations for TKDN (Tingkat Komponen Dalam Negeri – Local Content) which is being revived while Presidential Decree 54 is aimed at revitalizing the domestic defense industry.
“This situation is familiar to us as we have partnered in many other countries,” says Gribbon. “We have built up the capacity of local partners so they can carry on after we have completed our work. Our strategy fully supports the Government of Indonesia policy on Defence Industry Revitalization.”
The new system would also be a great boost to the civilian aviation industry as it would boost confidence in the management of airspace, both domestically and along international air routes. Knowing that the airspace is well monitored, more people will opt to fly, which in turn will boost the commercial aviation industry.
A strong domestic radar manufacturing industry will also help create jobs and new opportunities for primary and secondary tier suppliers. The skills they pick up will also help them to participate in other high-technology projects.
The rise of a high-technology industry will also act as a catalyst for the education system as more schools and universities can offer engineering degrees tailored to the needs of the industry. A new eco-system can be built around this one industry given that it will spur new entrepreneurial behavior among graduates leading to the creation of new intellectual property that is wholly Indonesian.