Local helicopter manufacturing is expensive flop

Surion multipurpose helicopters were deployed in live missions in May 2013. [JoongAng Ilbo]

An ambitious military project to build a transport helicopter using only indigenous technology has failed because a key component to power the aircraft is still being imported, sources from the government and defense industry told the JoongAng Ilbo.

The Board of Audit and Inspection recently launched an investigation into the failed Surion helicopter project. The government has invested 1.3 trillion won ($1.2 billion) in the project to build the twin-engine, transport utility helicopters.

According to sources from the audit board, the Defense Acquisition Program Administration (DAPA) and the defense industry, the audit board has been investigating France’s Airbus Helicopters, which signed a technology transfer deal. The company had promised to provide the technology to produce the power delivery system for the helicopter in 2006.

Along with rotor blades and an electronic control system, the power delivery mechanism is one of the key technologies in a helicopter.

The government started the Surion project with the aim of building the helicopters with Korea’s own technology. In 2006, Korea Aerospace Industries (KAI), in cooperation with Eurocopter, won a 1.3 trillion won research and development contract from DAPA.

The deal is Korea’s biggest arms contract ever with a non-American company. KAI chose the French company as it promised a technology transfer.

In July 2007, KAI selected S&T Dynamics as a developer of the power delivery system, and Airbus Helicopters and S&T signed a technology transfer deal in December of that year.

The investigation by the Board of Audit and Inspection revealed that the deal covers only 134 out of the 450 components necessary to assemble the power delivery system. Of the 134, technology transfers were completed for only about 80 components for mass production in Korea.

The investigation also showed that imported power delivery systems have been used to build Surions after the helicopter’s development was completed in June 2012. The systems were all from Airbus Helicopters.

Officials from the Defense Acquisition Program Administration, Korea Aerospace Industries and S&T Dynamics were questioned on Dec. 10 and 11, sources said.

The Board of Audit and Inspection is also reviewing a plan to slap a penalty of 10 million euros ($12.2 million) on the developers for breaching the technology transfer contract.

S&T Dynamics blamed Airbus Helicopters for the breach of contract. “We invested 10 billion won for the power delivery system development, but we could not supply a single component,” an official from the company said. “Airbus Helicopters is responsible.”

The French firm rejected its responsibility, claiming it has faithfully implemented the contract, including technology transfers.

Sources said the failure to localize production of the power delivery system for the Surions has caused a 500 billion won loss to the government. Developing an indigenous helicopter was also supposed to lead to a ripple effect economically of 12 trillion won, which is now not expected.

According to industry insiders, 24 Surions were manufactured. DAPA plans to produce a total of 240 helicopters by 2020.

The Surions that were manufactured all use power delivery systems supplied by Airbus Helicopters.

“For each Surion, the power delivery system is priced at 2.1 billion won,” an industry insider said. “Due to the failed localization, about 500 billion won will eventually be paid to Airbus.”

While KAI refused to comment on the reason for the failed localization citing the ongoing audit, S&T Dynamics and Airbus Helicopters blamed each other.

S&T Dynamics said the contract from the beginning was created in a way that made it impossible to localize Surion production.

Under the current deal, Airbus Helicopters is supposed to transfer technology to S&T Dynamics. S&T, then, will develop the components for the power delivery system and supply them to Airbus. Airbus would then supply them to KAI.

“If it were a normal contract, we would supply the components directly to the KAI,” an official from S&T said.

The Board of Audit and Inspection is investigating why the supply contract is so convoluted.

S&T Dynamics said it suspects Airbus Helicopters intentionally delayed the technology transfer.

“It takes more than a year for us to receive a reply for an inquiry,” a company official said. “Design plans were changed frequently and new quality authentication processes were created. The development period, therefore, was prolonged.”

The official said the development of about 80 components was completed so far, and 18 of them were approved by Airbus Helicopters after the Board of Audit and Inspection launched the investigation.

The S&T official, however, said the company cannot supply the components to Airbus yet. “Airbus Helicopters said it won’t accept any supply unless we complete development for all 134 components that were signed in the contract,” he said.

The contract between S&T and Airbus Helicopters does not include standards for mass production of components.

Who will pay the penalty for the failed localization of Surion’s key components is also an issue.

The Board of Audit and Inspection is mulling a penalty of up to 10 million euros and S&T Dynamics said it may become a scapegoat.

“We were told from Airbus Helicopters that we may need to pay 10 billion won,” the S&T official said. “If the Board of Audit and Inspection slaps the penalty on KAI, it will be us who will eventually pay the penalty through Airbus.”

Airbus Helicopters said it has faithfully implemented the Surion deal, including the technology transfers. The French firm’s Singapore branch told the JoongAng Ilbo that it does not want to specifically discuss the cause of the failed localization of the Surion helicopters because of the ongoing investigation.

BY KIM HYUN-YE [myoja@joongang.co.kr]