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AIDC Strives to Hang On - February 17, 1999
The Aerospace Industrial Development Corporation (AIDC), formerly known as the Aero Industries Development Center and owned by the ROC Ministry of National Defense, currently stands at the portal of a major transformation, as well as on the edge of surviving privatization. Now officially a state-owned enterprise under the auspices of the Ministry of Economic Affairs (MoEA), AIDC is slated for the first phase of its privatization by early 2000.
The Struggle to Hang On
The AIDC, with less than a year left on its production contract for the F-CK-1 Indigenous Defense Fighter (IDF), is now eagerly looking at new business opportunities to help tide it over the planned transition from a military-operated entity to a nationalized enterprise. More significantly, the change will involve the switch from a mission-orientation to one of bottom-line consciousness. The ROCAF contract to manufacture 130 IDF aircraft has been providing bulk of the US$720-780 million annual revenues reported by AIDC during the past few years. Senior AIDC management believes that the company can probably manage to get by with about US$560 million, given the existing overhead.
As such, the AIDC is in dire need of additional, principally commercial (and profitable) work. Over the past few years, the company has managed to secure a number of manufacturing subcontracts from international (largely US-led) programs. These include the Boeing 717 empenage assembly, nose/cockpit section for the S-92 Helibus consortium led by Sikorsky, and components for the Lockheed Martin/Aeritalia C-27J STOL tactical transport. The company has also solicited work to produce components for Allison gas co-generation equipment (derived from Allison 572 gas turbines) and doors for the Sikorsky S-76 helicopter.
Still, almost none of these jobs would be in full swing for at least another 2-3 years, during which time AIDC is projecting a shortfall in sales of about US$100-125 million. These last figures offer a sobering indication of the kind of losses the newly nationalized aerospace firm is likely to experience between 2000 and 2003.
Tough Short-Term Choices
AIDC had originally pinned its hopes on license production of the ROC Army's planned buy of 98 tactical utility helicopters (essentially shortlisted to Bell 412 and Sikorsky UH-60, with both firms offering substantial offsets tied to in-country manufacture) and maintenance contracts for military aircraft. However, the tactical utility helicopter program was suspended by the General Staff due to the acrimonious nature of that competition, and, even if it were revived in the near future, would not provide enough work in time to provide the necessary short-term cashflow.
AIDC's aim at a lion's share of the military aircraft maintenance market has proven elusive, due to intense competition from other, politically well-connected groups (including Taiwan Aerospace Corporation/Air Asia and Evergreen Aerospace). To make things worse, significant differences over how much military aircraft maintenance work should be allotted AIDC going forward have deadlocked the company's talks with potential investors (such as Singapore Aerospace and Bombardier), hampering the progress of its privatization.
AIDC tried to plead for a 12-month rescheduling of deliveries on the remaining (20 or so) IDF fighter aircraft, so as to stretch out the work (and cash) flow into year 2000. However, the final agreement reached with ROCAF provided for only a 9-month reprieve, with IDF production terminating no later than 12/99.
An even more critical initiative has been to lobby ROCAF for the procurement of 20 austere-version IDF aircraft, to be used as lead-in conversion trainers. This would provide at least another year's worth of work for AIDC, work (and revenues) deemed so important that lobbying for this proposal has been carried up to the highest levels of government as well as military leadership. The Chief-of-General Staff General Tang Fei has agreed to consider, but did not offer a commitment to fund the buy. The chairman of AIDC, General Tsai Chuen-Huei (ROCAF, Retired) also personally briefed President Li Teng-Hui on 7/16/98 on the OCU aircraft proposal and received assurances of assistance from the Executive Branch. Yet, so far there has been no firm decision.
As options of last resort, AIDC management points to either legislative changes to allow the company to contract for short-term R&D/manufacturing work, ie. to generate revenues from sources other than those budgeted by the Ministry of Economic Affairs. Alternatively, the company hopes that the government would render AIDC eligible for emergency loans from the Aerospace Industries Development Fund. Neither option appear politically appealing, to either an aerospace firm of high expectations or the government which had originally touted it as such.
Difficult Intermediate Prospects
Looking beyond the next 24-36 months, AIDC hopes to develop markets other than its traditional ROCAF clientele.
One potential new customer is the ROC Navy, which has been interested in a maritime strike version of the A-3/AT-3B light attack aircraft, a derivative of the AT-3 advanced twin-turbofan trainer used by ROCAF. AIDC senior management had, at one point, projected a ROCN requirement of up to 40 such aircraft, to form the core of naval aviation's anti-ship attack capability. However, budgetary limitations, the fact that ROCN has had very little experience in fixed wing aviation (having only recently inherited the remaining S-2T ASW/MP aircraft from ROCAF), and lack of necessary infrastructure to operate an aircraft type of this level of sophistication, have thus far thwarted any proposals to acquire the A-3/AT-3B.
For the record, the A-3 (No. 30902) and AT-3B (No. 30825) radar-equipped light attack prototypes are currently HF-2-capable. Both aircraft have been equipped with the AN/APG-66(V) fire-control radar and improved cockpit avionics, including multi-function displays. Yet, ROCAF's apparent decision to step up its anti-ship role, by procuring 58 AGM-84 Harpoon missiles for the F-16s and by planning to equip some of its IDF aircraft with MGB-2C (HF-2) missiles, is likely to further chill the prospect of an ROCN order for maritime attack aircraft in the foreseeable future.
Another main thrust is the export of the IDF fighter and/or IDF derivatives, such as a supersonic OCU trainer/light attack aircraft. According to AIDC officials, a supersonic trainer/light attack aircraft derived from the IDF (with down-graded avionics and mission equipment) can potentially be priced in the $10-12 million range and, thus, prove a worthy competitor to the Korean KTX-2. Moreover, AIDC would be able to begin delivery of such an aircraft within a few years, whereas the KTX-2 remains to be developed.
The use of major US-supplied defense equipment (ITEC/Allied Signal TFE-1042-70 turbofans, Bendix flight control system, avionics and various mechanical systems) will subject any such plan to US State Department approval. This initiative was discussed with American officials during a recent trip to Washington, D.C. by a deputy chief-of-general staff (probably General Hsiah Ying-Chou), who only received the response that U.S. would consider such a request. Moreover, AIDC understands that any viable arrangement for exporting IDF-based products must almost certainly involve a partner from the US aerospace sector, most likely Lockheed Martin, which originally provided technical assistance in developing the IDF. In fact, Lockheed Martin Tactical Aircraft (LMTA) had already expressed interest in such a cooperative venture, even though LMTA is also a partner in the KTX-2 program.
Long-Term Possibilities
Assuming that AIDC does manage to survive the lean years just ahead and emerge intact from the planned privatization, its order book is expected to look very different than it does today, in that it would be dominated by commercial business and international participation. However, there continue to be a number of indigenous programs which might offer lucrative business opportunities for the company in the long run.
These include the eventual replacements for the T-34C basic turboprop trainer and the AT-3 advanced jet trainer, as well as the so-called Next Generation Fighter (NGF). The problems here are low priority and the lack of progress in the long-term planning needed to develop these designs, as the ROCAF has been heavily focused on the near simultaneous introduction and absorption of up to 5 new types of front-line operational aircraft (IDF, F-16 Block 20, Mirage 2000-5, RF-5E, E-2T). Resources and decisiveness have been wanting in such an environment.
For example, preliminary concept definition work on the NGF has just recently begun at the Aeronautical Research Laboratory (1st Division, CSIST), nearly 10 years after the IDF was first flown. Progress has been slow and minimally-funded, with the scope of research thus far limited to basic technologies, such as low-observable design. Therefore, industry (ie. AIDC) involvement in the NGF project is likely to be at least several years away, if the program picks up enough political support in the meantime. 
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