INDONESIA LOOKING AT TWO LARGE F-16 DEALS

C O N F I D E N T I A L SECTION 01 OF 02 JAKARTA 002725

SIPDIS

SIPDIS

DEPT FOR EAP, EAP/MTS, EAP/RSP, PM, PM/DTC, ISN, T
SECDEF FOR USDP/ISA/AP (IPSEN)
JOINT STAFF FOR CLEMMONS

E.O. 12958: DECL: 09/24/2017
TAGS: PREL MARR ETTC PGOV ID
SUBJECT: INDONESIA LOOKING AT TWO LARGE F-16 DEALS

REF: A. JAKARTA 2475

B. MOSCOW 4447

Classified By: Deputy Pol/C Stan Harsha for reasons 1.4 (b,d).


1. (C) SUMMARY: Indonesia is actively pursuing two large
orders for new U.S. F-16 planes and parts to refurbish its
existing older models. The two deals, a Foreign Military
Sales (FMS) case and a commercial case, each involving
several hundred million dollars, demonstrate that the
Indonesian Air Force and Ministry of Defense can find the
money to spend on high priority arms and are willing to buy
U.S. equipment, if the deal is right. The F-16 purchases,
should they proceed, suggest the Indonesian Air Force is
serious about longer-term military cooperation with the USG.
The Army and Navy, however, have shown little interest in
U.S. equipment since the resumption of mil-mil relations in

2005. END SUMMARY.


2. (C) GOI CONSIDERS DEALS: The Indonesian government is
seriously pursuing spending several hundred million dollars
on U.S. F-16 fighter jets and parts as part of Indonesia's
effort to rebuild its military. Despite a defense budget
which is one of the lowest in the region, Indonesia is
apparently finding the money and the financing to consider
major deals. The two purchases, which originate from the Air
Force and Defense Ministry, respectively, do not appear to be
coordinated with one another, pointing up the bifurcation
that persists in Indonesian military budgeting, planning and
procurement. These deals come on the heels of a
much-ballyhooed USD 1 billion arms deal with Russia, based
entirely on credit, which was signed during President Putin's
recent visit to Jakarta (see reftels).


3. (C) DEAL NO. 1 DIRECT USG SALE (FMS): The first deal
involves a request for price and availability data by the Air
Force for sixteen new F-16s block-52 production models, with
the stated intention of taking delivery beginning in 2012.
The basic block normally costs about USD 12.5 million and
additional systems can run as high as USD 33 million per
plane. While the details of the proposed order are not yet
clear, a modest average cost of USD 30-35 million would mean
USD 500 million for the entire fleet. The request was placed
by the Air Force's Director of Aeronautics during a U.S.
visit currently under way. The order appears to have been
placed without internal coordination with either the
headquarters of the Indonesian Armed Forces (TNI) or the
Ministry of Defense (DEPHAN),although DEPHAN approval will
almost certainly be needed for eventual completion. This way
of doing business continues to be a pattern of individual
service operation. The deal shows the Indonesian Air Force's
preference for U.S. equipment. All of the six new FMS cases
that Indonesia has opened since the lifting of U.S.
restrictions in November 2005 have been placed by the Air
Force, for a total of USD 47 million, while the Indonesian
Navy and Army have yet to approach us.


4. (C) DEAL NO. 2: COMMERCIAL SALE: The second deal, which
is being prepared by DEPHAN, involves the refurbishment and
upgrading of ten older non-flyable and four flyable F-16
models already in Indonesia's fleet, plus the purchase and
upgrading of six additional planes from either Belgium or
Holland. All would require mid-life upgrades (MLU) in
Indonesia, bringing the total current F-16 fleet to twenty.
The deal, which is still being negotiated with a private
company, would involve the establishment of a Maintenance and
Repair Organization (MRO) which would eventually be
transferred to DEPHAN, at a cost of USD 18-20 million. The
estimated cost of each upgrade of the 20 planes is USD 9-11
million, excluding the cost of purchasing the six foreign
planes. The deal, which is estimated to total USD 200
million, would be financed by an international consortium,
with GOI guarantees, would involve repayment over several
years at an interest rate at or near the EXIM Bank rate.


5. (C) IMPLICATIONS FOR U.S.-INDONESIA MILITARY RELATIONS:
The commercial deal is likely to be finalized first, possibly

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by the end of 2007, while the FMS deal could well take until

2008. Neither is a certainty at this time, but each sale
would be a huge boost to our overall defense engagement with
the Indonesian military. The commercial deal will require an
export license and end-user certificate. Over the past two
years since sanctions were lifted, U.S. arms purchases by
Indonesia have remained modest. With these two deals, the
Indonesian Air Force is signaling its desire to engage more
broadly and for the longer term. While multiple factors,
including Indonesian progress on accountability, enter into
the calculus, Mission strongly supports both sales as an
appropriate manifestation of our expanding military
relationship.
HEFFERN