Korea, South

According to official data released by the South Korean Ministry of National Defence, in 2017, the country’s defence budget is expected to reach 40.33 trillion South Korean Won – KRW- (approximately 36.5 billion US dollars), increased by some 4% compared to the previous year (38.8 trillion KRW or 34 billion US dollars) and surpassing the 40 trillion Won mark, for the first time. This increase, is largely attributed to the military threat posed by North Korea, the strengthening of military power of neighbouring countries in Northeast Asia and the changes in the security and military environment of the region. The lion’s share of the budget increase falls on plans to deploy the Korean Air and Missile Defence (KAMD) system. According to the 2017 defence budget, 533.1 billion KRW (about 456 million US dollars) will be allocated to the KAMD project, an increase of 40.5% compared to the 2016 budget in which 379.5 billion KRW (325 million US dollars) were allocated for the specific program. The KAMD system is currently capable of intercepting North Korean ballistic missiles in their terminal stage and its core weapons system consists of medium- and long-range surface-to-air missiles, Patriot missiles, and an early warning radar. The plans are for the KAMD construction project to be completed by the mid-2020s.

South Korea’s Aerospace and Defence (A&D) industry has a wide span of technological competencies and a broad portfolio of associated products. Korean authorities have heavily relied on the country’s large industrial entities for the development of the domestic defence industry. Amongst them, Doosan Corporation Mottrol manufactures electro-hydraulic and drive systems for armoured personnel carriers (APCs) and Main Battle Tanks (MBT), as well as naval and aerospace assets; Hyundai Rotem produces state-of-the-art ground weapon systems, such as Main Battle Tanks (MBT) and Infantry Fighting Vehicles (IFVs); LIG Nex1 offers NCW (Network Centric Warfare) products, precise guided munitions, surveillance and reconnaissance as well as other weapon systems; Hanwha Techwin has capabilities in the manufacturing ,as well as in the Repair and Overhaul (R&O) of gas turbines installed in aircraft fighters, helicopters and marine vessels and in the development of artillery systems; Hyundai Heavy Industries has the technology to design and build submarines and naval vessels of various hull sizes and forms and finally Korea Aerospace Industries (KAI) develops, manufactures and maintains, advanced fixed wing and rotorcraft aircraft,  UAVs and even space destined vehicles/satellites.

According to a report prepared by the Korean Institute for Industrial Economics and Trade (KIET), the vast majority of Korean defence companies, are 1st Tier companies, whereas only a relatively small proportion, varying from 5% in 2011, to 4.1% in 2013, were “System Integration” (S.I.) companies.

Type

Definition

System Integration (S.I.) Company

Large defence company that mainly produces weapon systems registered with the Government, Defence Acquisition Program Ad­ministration (DAPA)

Designated Defence Company

Defence company that mainly produces components registered with the Government, Defence Acquisition Program Ad­ministration (DAPA)

1st Tier Company

Small and Medium Enterprises that mainly produce associated parts,  as a 1st Tier supplier to Designated Defence Companies and 2nd Tier supplier to S.I. companies

Source: The Korean Defence Industry 2014: Current Status and its Policy Implications, Korean Institute for Industrial Economics and Trade

The sales of the Korean defence industry totalled $10.6 billion in 2013, an 8.2% increase compared to 2012. Defence S.I. companies accounted for 63.1% ($6.7 bn) of the total related sales, while Designated Defence companies and 1st Tier companies combined, generated a total of $3.9 bn in revenues from associated sales (36.9%). By type of weapon system, artillery’s sales in 2013 ranked highest with $3.2 billion (30%). Military aircraft and military vehicles ranked 2nd and 3rd, with $2.3 billion (22%) and $2.0 billion (19%), respectively.

Regarding exports, the Korean defence industry, in 2013, recorded total orders worth some $1.36 billion, increased by 3.5 times, when com¬pared to the amount of $0.39 billion, recorded in 2008. Additionally, it is worth noting that 45 Korean companies exported defence equipment in 2013. Moreover, the arms export ratio, as a % of total sales, reached the 12.8% mark. Military aircraft were the predominant area of associated exports in 2013, with a total value of $660 US m. (or 48.5% of total exports). The 2nd most important export direction was that of artillery equipment, with $413 million (30.4% of total exports), whereas the 3rd most important direction was that of military vehicles, with $184 million (13.5% of total exports).

In 2013, the total amount invested by arms manufacturers in the Republic of Korea, was $548 million, an increase of 28.1% compared to 2012. Moreover, the amount invested in R&D and equipment was $235 million and $313 million respectively.    

Regarding the total number of employees engaged in the domestic defence sector, these amounted to 33,162 in 2013, an increase of 5.6%, compared to the previous year. Finally, R&D personnel at 24.2%, constituted a notably high proportion of the total staff employed in the Korean defence industry, while production personnel amounted to 50.5% and support personnel to 25.3%.

On the other hand, the Korean aerospace industry, employed 11,100 people and recorded a total production of 3.6 billion US dollars in 2013, increased by 34% compared to the previous year. Growth was mainly fuelled by the growing exports of civil aircraft parts to Boeing and Airbus and the increased production of KAIs T-50 aircraft. More on that, exports reached their highest level in 2013, recording a three-year Compound Annual Growth Rate (CAGR) of 19.5%. The associated main export markets were the US (46%), Europe (25%), Indonesia (12%), Japan (9%), Peru (3%) and the UAE (2%).

The local aerospace industy has the ability to develop, test and evaluate the whole spectrum of fixed and rotary wing aircraft, with perhaps the exception of advanced 5th generation stealth fighters and large commercial/passenger aircraft. Additionally, it is worth noting that the Korean aerospace sector depends heavily on the military segment, with a military to civil business ratio of around 55% to 45%.

Furthermore, it ought to be stressed that through the effective use of industrial cooperation and offset programs, the South Korean Aerospace Industry has managed over time, to develop complete new products and reach the level of competing internationally against other leading Prime contractors. This process begun when Korea procured the first F-16s under the “Peace Bridge” program. Korean industry built forty centre fuselages for this program. Besides coproduction, offset programs resulted in the transfer of related technologies and training for Korean engineers. After the “Peace Bridge”, the “Korea Fighter Program” (“Peace Bridge II”) expanded on the established relationship, to develop indigenous aircraft capabilities. The first phase of the program involved the purchase of twelve F-16s, which were built at the Lockheed Martin facility in Fort Worth, Texas. The second phase of the program involved the assembly of thirty-six F-16s in Korea. The third and final phase of the initial program, involved the full production of seventy-two F-16s in Korea. As part of these programs, more than 600 Korean engineers were trained in the United States and F-16 technical data were transferred to Korea through a series of technical assistance agreements.

One of the offsets projects for the KF-16 program consisted in market assessments, feasibility studies, and preliminary design of a new advanced jet trainer. The design project was known as KTX-2. The Republic of Korea’s Air Force (ROKAF) recognized the potential of such a program and gave its approval for its realization. A $2.1 billion full-scale development program was initiated. Seventy percent (70%) of the program was borne by the Korean government, seventeen percent (17%) by Korea Aircraft Industries, and thirteen percent (13%) by Lockheed Martin. In February 2000, the program name was changed from KTX-2 to T-50, to commemorate the 50th anniversary of the ROKAF. The rollout ceremony for the first T-50 took place at KAI’s plant in Sacheon in October 2001.

To date, more than 100 aircraft have been built and delivered to the ROKAF. A second variant called the FA-50 light combat aircraft is currently in production. From the beginning, the T-50 was envisioned to be exported to other countries. In 2011, this vision became a reality when Indonesia ordered sixteen aircraft, in the T-50i configuration. All Indonesian aircraft have already been delivered.

Another country that choose the T-50, is the Philippines. The Philippine Air Force procured 12 KAI TA-50 aircraft to fulfill its requirement for a light attack and lead-in fighter trainer aircraft. The Department of National Defense (DND) announced the selection of the type, in August 2012.

Furthermore, in December 2013, it was announced that Iraq signed a contract on the acquisition of 24 aircraft of the T-50IQ variant, plus additional equipment and pilot training over the next 20 years.

Finally, in September 2015, the Thai government chose the KAI T-50 for its Air Force, over the Chinese made L-15, to replace its aging L-39 Albatros trainers. Deliveries are scheduled to be completed by March 2018.

In order to further build on the aforementioned success of the local A&D industry, Korean authorities have promoted the creation of cooperative schemes with foreign partners/countries. Under this notion, South Korea in cooperation with Indonesia are currently developing an advanced multirole fighter aircraft (known as the “KF-X” program). The work load and program costs are split 80/20 between South Korea and Indonesia. The project was first announced by South Korean President Mr. Kim Dae-Jung in March 2001, and it is expected that South Korea will begin building KF-X fighters, by the beginning of the 2030s.

 

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This is the third edition of the KIET Korean defense industry statistics and competitiveness report in 2014. The main purpose of this report is to establish the basis of the Korean defense industrial statistics with an actual survey from 2008 to 2013. Moreover, it also includes the defence SME’s statistical analysis for the first time on a basis of an industrial survey in the same period.

Source: Korean Institute for Industrial Economics and Trade (KIET)

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While the present international order dominated by the United States remains intact, many factors of chal¬lenges, such as the emergence of regional powers, are on the rise, calling for changes in such order. As local conflicts are still occurring and transnational threats continue to proliferate, security uncertainty in the international community is growing ever more. The magnitude of new security threats, including economic instability and the changing patterns of future wars, is also increasing.

Source: http://www.mnd.go.kr

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