Asian military spending looks to be less of a windfall than some defense companies hoped

January 11, 2013
January 11, 2013

It looks like there will be no quick salvation for US and European defense companies who were hoping to make up for falling domestic military spending with new sales to Asian allies feeling menaced by China or North Korea.

Japanese Prime Minister Shinzo Abe may yet see through his campaign promise to raise defense spending in response to China’s aggressive moves to assert claims to the uninhabited East China Sea isles known as the Diaoyu or Senkaku islands. But the ¥10.3 trillion ($14.6 billion) supplementary spending plan for the current fiscal year unveiled today barely mentions defense, despite new sparring over the islands and a defense ministry request for ¥212 billion to buy more of Lockheed Martin’s PAC-3 missile interceptors and to upgrade four F-15J fighter jets and three anti-submarine patrol helicopters.

Even the Japanese defense ministry plans discussed earlier this week for raising the budget for the new fiscal year starting April 1 amount to only around $1 billion over existing plans, that’s hardly much for western defense companies to play for given about three-quarters of spending usually goes to domestic companies such as Mitsubishi.

North Korea’s latest missile launches and the election of Park Geun-hye, daughter of a former military leader, as president had spurred expectations South Korea would soon put through an order for advanced Global Hawk spy drones, made by Northrop Grumman, or settle on plans for new fighter jets from Lockheed, Boeing or Eurofighter.

But Park’s promises to expand social welfare programs took precedence when parliament passed a compromise budget plan in the wee hours of Jan. 1 for the new fiscal year that started that day. Parliament cut more than 400 billion won ($379 million) from planned spending on procurement and improving defense capabilities to help fund 1.4 trillion won in expanded childcare subsidies.

The cuts included 130 billion won from the fighter jet refleeting plan, which appears likely to push back the arrival of the planes, as well as funds for attack and anti-submarine helicopters, air-to-suface missiles and tanks. Complained Defense Minister Kim Kwan-jin:

It’s not right to slash the defense budget in order to use the financial resources for other purposes at this critical time when national security has emerged as a big issue… If there were any people out there who were aware of the significance of national security, I assume that such a cut would never have happened.

An unnamed official from the presidential Blue House put the point in more concrete terms:

It costs about 500 billion won to develop a system to destroy more than 90% of the North’s long-range artillery systems… With another 500 billion won, we could also have mid-air interception systems to protect all key targets in Seoul.

In India, thanks to a widening budget deficit for the fiscal year ending in March, the government even moved last week to cut previously budgeted defense spending by 100 billion rupees ($1.8 billion), or about 5%, despite pleas for an increase from Defense Minister AK Antony. These cuts too are set to affect India plans to finalize the purchase of a new fleet of fighter jets from France’s Rafale before the end of the fiscal year as well as well as purchase anti-tank missiles and other systems.

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