This article first appeared in The Edge Malaysia Weekly on October 11, 2021 - October 17, 2021
SIX companies are understood to have submitted bids to supply 18 light combat aircraft (LCA) to the Royal Malaysian Air Force (RMAF) in a tender that closed last week, sources say.
While the details were not readily available, the contract for one squadron (18 planes) of LCA is said to be valued at around RM4 billion, with half of the amount, or RM2 billion, to be paid via counter trade involving crude palm oil or palm oil products.
“Nine companies acquired the tender documents, the RFP (request for proposal) was in July, and six bids were received by the closing date on Oct 6,” says a source, who spoke on condition of anonymity.
He adds that after the order for the first squadron, there is likely to be a second, identical order based on RMAF’s requirements, which makes the contract more attractive and lucrative, as the winner with the initial RM4 billion bid doubles its job scope.
The Edge understands that this is the first time an open tender was called for military aircraft, with previous acquisitions all being undertaken on a government-to-government basis.
The interested bidders are understood to be Korea Aerospace Industries (KAI) partnering with local company Kemalak Systems Sdn Bhd to offer the FA 50 jet fighter; Turkey Aerospace Industries, offering its LCA known as Hürjet; China National Aero-Technology Import & Export Corp (Catic), with its L-15 fighter jet; Italy’s Leonardo, with its M-346 planes; India’s Hindustan Aeronautics Ltd, with its Tejas fighter; and Aerospace Technology Systems Corp Sdn Bhd — which is 71.43%-controlled by Tan Sri Ahmad Johan’s National Aerospace and Defence Industries Sdn Bhd (Nadi), 23% by a company called Russian Aircraft and 4.76% by another Russian outfit Rosoboronexport — offering MIG 35 planes.
Interestingly enough, Pakistan was touted to be a favourite to bag the LCA contract in Malaysia with its JF-17 Thunder fighter jet, but it did not participate in the bid.
It is unclear what transpired, but the initial closing date of the tender of Sept 22 was extended to Oct 6. If all goes well, the winning bidder could be announced as early as late March to early April next year.
RMAF’s requirements include the delivery of the LCA on a staggered basis 36 months after the contract is signed and the LCA having air-to-air refuelling capabilities, beyond visual-range missile capabilities, 30% local content and supersonic capabilities, or the ability to fly faster than the speed of sound.
The Edge understands that a similar tender was floated in 2018 and RMAF had received proposals from some of the current bidders as well, but the tender was called off because of funding issues.
Some of the bidders seem to have an edge over the others. In terms of maintenance repair and overhaul (MRO), for instance, Ahmad Johan’s Nadi also wholly owns local MRO outfit Airod Sdn Bhd, which could make his bid more attractive to RMAF.
It is understood, however, that one of the bidders, Hindustan Aeronautics, is willing to set up an MRO outfit in Malaysia if awarded the contract. It is unclear if the other bidders are also considering doing so.
According to news reports, RMAF recently retired its Russian-made MiG-29 Fulcrum because of the high cost of maintenance. As such, having the MRO done locally would be more palatable.
A check with Companies Commission of Malaysia (SSM) indicates, however, that Airod last made public its financials for FY2018, in which it suffered an after-tax loss of RM209.36 million from RM491.97 million in sales. It is not known if things have since picked up at Airod.
The source says: “There is a likelihood that the bidding will get aggressive soon. For instance, China is likely to come in with a very attractive package in terms of financing, and promises of technology transfer from Catic, to bag this contract.
“There is also the familiarity with other local companies such as Proton (Holdings Bhd) having Chinese partners (Zhejiang Geely Holding Group Co Ltd), and the Chinese having been involved in Malaysia’s infrastructure plans.”
He adds, however, that recent events at end-May — in which 16 Chinese military aircraft encroached into Malaysia’s maritime zone, flying within 110km, or 60 nautical miles, of Sarawak in military formation — could dampen China’s bid.
Foreign Minister Datuk Seri Hishammuddin Hussein’s formal complaint to China was brushed aside with a reply that the aircraft had “strictly abided by the relevant international law”.
Other bids deemed attractive include the ones by KAI, in partnership with Kemalak Systems.
KAI has a presence in the region, having secured contracts in Indonesia, Thailand and the Philippines for its aircraft. Nevertheless, how its regional presence bodes for its bid in Malaysia remains to be seen, as some say the commonality aspect of the aircraft in the region is a selling point, but others say it could work out to be an issue, as other countries know the country’s defence capabilities.
A check with SSM shows that Kemalak Systems is 90%-controlled by Fajakirah Mohd Akil and 10%-controlled by Aimi Sarah Abdullah. For its financial year ended December 2018, Kemelak Systems chalked up after-tax profits of RM3.44 million on the back of RM42.57 million in revenue.
Meanwhile, Hindustan Aeronautics’ Tejas is understood to have met all the requisite specifications of RMAF. If it is successful, Malaysia will be its first external market.
The recent tender for the LCA comes about as RMAF is looking to retire some of its older aircraft such as the BAe Hawk Mk 108 and Mk 208. The new LCA will also support RMAF’s Boeing F/A-18D Hornet and Sukhoi Su-30MKM, which are currently in use.
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