February 2019 Letter

Dear Fellow Obscure Island Dispute Watchers,

Fighter jets are geopolitics with wings. If I’ve stolen this line from someone, apologies – there were no Google hits. Recent global political trends are having a big impact on the fighter market. My last letter discussed how change in China and Saudi Arabia are impacting aviation; if that was too cheerful for you,perhaps this one will do the trick.

First, big news in Japan over the last few months, with two unexpected moves. One, the country increased its planned F-35 buy from 42 aircraft to 147, including 42 B models. Two, it decided to stop buying these planes off the domestic Final Assembly and Check Out (FACO) line at Mitsubishi. The FACO will close in FY 2022, after around 24 jets have been delivered. F-35s delivered after that will come directly from Ft. Worth.

A bit of context: Since World War Two, all Japanese fighter jets have been built in-country – F-86s, F-104s, F-4s, F-15s. Occasional forays into local fighter design (the lightweight F-1 and the F-2, a heavily modified F-16) were not terribly successful, but the general feeling was that eventually Japan would have its own fighter. For the past decade or so local industry had been promoting a stealth fighter demonstrator concept, known as X-2 or ATD-X. This was expected to lead to an F-3 production program.

Therefore, the new off-the-shelf F-35 acquisition plan is a radical departure. It effectively derails hopes for a Japanese national fighter. And it ends a 60-year pattern of national fighter production. It might spell the death of Japan’s national combat aircraft industry. As Japan’s latest five-year defense plan, released in December, put it, the objective is to “acquire high-performance equipment at the most affordable prices possible” and “review or discontinue projects of low cost-effectiveness.”

Why is this happening? Much of it is economic; localizing fighter production boosts unit costs by 30-50%, so as a budget-cutting measure an off-the-shelf acquisition makes sense. But to observers like me it’s been an article of faith that this would never happen in Japan (see my March 2003 letter, for example), and it isn’t like the rest of Japan’s economy is being reformed at a breakneck pace.

But economics doesn’t exist in a vacuum. Geopolitics are in the driver’s seat here. Japan has an aging fighter fleet, and the government seems to think the risk of a conflict is rising, particularly with uncertainty about the US’s regional role and China’s growing assertiveness. They think more fighters are needed, and quickly. And even with higher defense budgets, the best way for Japan to buy more fighters faster is to cut unit costs. That accounts for the off-the-shelf decision.

This shift towards less expensive off-the-shelf fighters is in tandem with another big change. Those 42 F-35Bs mark a departure too: they’re for carrier operations (on Izumo-class “helicopter destroyers”) and for forward deployment on random (sometimes disputed) islands. Japan is returning to naval fixed wing aircraft operations for the first time since 1945. This too argues against national combat aircraft; nobody thinks the country can afford to design and build its own STOVL jet.

Meanwhile, across the Sea of Japan/Korean East Sea, they’re headed in the exact opposite direction. South Korea, which I visited in January, is playing a long game. Despite the failure of the Trump-Kim summit, North Korea is not viewed as an imminent threat. Rather, the view is that one day Korea will be unified, but positioned in the middle of large adversaries, as the country has always been.

Thus, the South Korean geopolitical outlook argues for the gradual buildup of indigenous defense capabilities, a long process of technology and industry development. Inevitably, this includes a fighter jet. Despite the T-50’s loss in the USAF T-X competition, the KF-X fighter, a medium/heavy twinjet design in the Super Hornet class, is going ahead. So are multiple helicopter programs and many non-aero systems.

Meanwhile, in January, Korea Aerospace Industries announced that it was conducting a feasibility study for a future regional aircraft. That has happened before, and on its own means nothing. But according to KAI, the case for an aircraft in this class depends on “inter-Korean economic cooperation.” In other words, this plane would be justified by the opening of air transport links between North and South Korea.

This too speaks to a long-term geopolitical view, one that’s driving Korea’s aerospace industry in the opposite direction of Japan’s. Korea’s aggressive aerospace plans could change – after all, Japan’s did – but for now this is a growing emerging producer.

As for takeaways, Japan just provided a very big boost to the F-35 program, but those orders might be needed to replace Turkey’s, which might go away for geopolitical reasons too (the S-400 order). Japan will also seek to buy whatever Sixth Generation fighter the US builds, and if that plane (or those planes) gets delayed, it will buy more F-35s. The idea of a Japanese fighter just died, and Japan needs to rethink its national aerospace industry. And lastly, our fighter forecast now includes the KF-X, entering service later in the 2020s.

As a final big picture thought, thanks to China and the delayed US pivot to Asia, Asia is now the biggest single regional driver of US defense spending, replacing the Mideast. The implications for the defense budget are very big, with Procurement spending headed above $160 billion in FY2020, up from about $100 billion per year in FY2013-2015. By FY 2022 it will likely approach $200 billion. After all, nobody in Washington cares about budget deficits anymore.

This means a very healthy F-35 domestic procurement program, plus more F/A-18E/Fs for the Navy, and, as long as the Trump administration is in charge, F-15Xs for the Air Force. And as we wait for the vaunted FY 2020 budget, have a great month.

Yours, ‘Til Kim Jong-un Replaces His Armored Train With A VIP CR929,
Richard Aboulafia