Amid South China Sea tension, defense exporters flock to Indonesia

JAKARTA (Reuters) - From rescue helicopters to air surveillance equipment, defense manufacturers jostled in Jakarta this week to claim one of the region’s biggest prizes: a slice of Indonesia’s shopping list as the country updates its aging air and sea security capability.

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While it is not part of the dispute over claims in the South China Sea, Indonesia objects to China’s claim to waters around the Natuna Islands and has been ramping up military exercises and patrols in the region.

At this year’s annual defense gathering, just weeks after the largest Indonesian exercise to date off the Natuna archipelago, corridors were jammed and industry executives reported one of their busiest years at a time of high interest across the region after a lull of over five years.

Indonesia, which faced a U.S. arms embargo until just over a decade ago, has yet to nail down a winner for the highest profile item on its wish list - a squadron of jets to replace its aging Northrop F-5 fighters, as talks continue with Russia to buy Sukhoi Su-35 jets.

Rival contenders for the deal include the Saab Gripen combat jet, the Eurofighter Typhoon and Lockheed Martin’s F-16s, according to industry stakeholders. Most offers include the jets and industrial cooperation.

“The situation here is obviously concentrating people’s minds,” said Robert Hewson, spokesman for Saab.

“So we have found a lot of interest in people talking to us about our radar products, our airborne surveillance products, because they need to be able to extend their horizons.”

Indonesian President Joko Widodo had promised to double the country’s defense budget, clean up procurement and modernize its aging military equipment. Since he took office, the country’s total defense spending has jumped around 26 percent - though next year should actually see a slight dip to 108 trillion rupiah ($8.3 billion).

Much of the effort, as with other countries in the region, includes a push to bring skills to Indonesia through joint ventures and partnerships, like a deal with South Korea which analysts initially said could cost up to $8 billion, to develop a mid-level fighter jet program.

Korea Aerospace Industries said this week it is working with Indonesia’s state-owned aerospace company Dirgantara Indonesia (PTDI) on joint marketing efforts, as well as a drone development program for surveillance.

French defense firm Thales said it was getting interest in its air defense offerings, after selling to Malaysia last year, as other countries consider how to upgrade existing technology with lasers to improve accuracy.

Indonesia will also seek to upgrade its heavy-lift helicopters, and the annual show saw Boeing promoting additional Apache helicopters and its Chinook.

Indonesia has already ordered eight AH-64E Apache helicopters.

“Maritime surveillance, and reconnaissance capabilities are moving to the forefront around the world and we certainly see that in Southeast Asia,” a Boeing spokeswoman said.

Reporting by Fergus Jensen in Jakarta; Additional reporting by Kanupriya Kapoor, Agustinus Beo Da Costa and Eveline Danubrata; Writing by Clara Ferreira Marques; Editing by Stephen Powell