Supporters say the acquisition of new F-16 Vipers is key not just to defending Taiwan’s airspace, but also to integrating the local manufacturing sector into global supply chains.

This August the U.S. government formally offered Taiwan the F-16 fighter jets that it had requested more than a decade ago. It would be the first U.S. sale of military aircraft to Taiwan since that of an earlier version of the F-16 in 1992.

The F-16 Viper offer features advanced radar, guidance, and electronic warfare systems as well as Sidewinder missiles and other munitions, and would be a tremendous boost to Taiwan’s international security. “The F-16 will not only enable greater interoperability with U.S. forces, but will also provide Taiwan with the most up-to-date technology,” says Ross Darrell Feingold, an American political risk analyst based in Taipei.

At the same time, the usefulness of the F-16V must be weighed against the advances China has made in its military tactics and technologies. China’s military budget for 2019 is reportedly US$175.4 billion (about 13 times that of Taiwan), and “Taiwan persistently remains the PLA’s main “strategic direction,” according to a recent U.S. Defense Department report.

China has some 1,500 short-range ballistic missiles trained on Taiwan. It also stations an estimated 250 bombers and 600 fighter-jets in southern and eastern China within range of Taiwan. In the event of an invasion, Taiwan’s critical infrastructure, particularly airports and airforce bases, would undoubtedly be among the early targets.

“Looking at how Chinese capabilities have changed over the past 25 years and the way ballistic missiles have grown dramatically in number and accuracy, by the time Taiwanese airplanes are ready to take off, the runways will have been destroyed,” says Drew Thompson, the Pentagon’s director for China, Taiwan, and Mongolia from 2011 to 2018. Even straight stretches of highway would be targeted in such an attack, predicts Thompson, who is currently a visiting senior research fellow at the Lee Kuan Yew School of Public Policy at the National University of Singapore.

As a preemptive strategy, Taiwan has begun lessening its emphasis on big, costly, and easily targeted weapons such as fighter jets and frigates. Instead, it is moving towards a more “asymmetric” approach – utilizing multitudes of low-cost, mobile defense systems. These include sea and land mines, mobile missile launchers, submarines, and small fast-attack boats.

The Overall Defense Concept, as this strategy is known, was unveiled in 2017 by Admiral Lee Hsi-ming, then Taiwan’s Chief of the General Staff. In remarks to the 2019 U.S.-Taiwan Defense Industry Conference in Maryland on October 7, Vice Minister of National Defense Chang Guan-chung described the approach as adopting affordable, effective defense systems in order to protect military personnel and facilities, defend littoral zones, and counteract beach-landing operations.

Given such a broad shift in strategy, some critics have questioned the need to purchase the expensive F-16Vs, which are set to be paid for with a special budget approved by the Legislative Yuan in September. The US$8.2 billion total cost, which includes long-term logistics, maintenance, and training, is equivalent to nearly 80% of the entire annual national defense budget for 2019.

“The purchase of costly, high-profile systems from the U.S. undermines Taiwan’s defense as they add relatively little in terms of actual defense capabilities, but consume a large portion of the budget,” says Hung Jiu-min, a post-doctoral fellow at the recently formed Institute for National Defense and Security Research (INDSR), a Taipei-based think tank dedicated to researching issues in Taiwan’s defense and security.

Nevertheless, a strong case can be made for the value of new advanced aircraft. Taiwan’s skies need to be patrolled even in peacetime, and a modern air force is a powerful deterrent against aggression. Perhaps even more importantly, the sale “is a visible reminder of U.S. support for Taiwan,” says former Pentagon official Thompson. “It’s a signal that the U.S. is not cowed by Chinese retaliation, which is exceptional because most countries do defer to China.”

Moreover, many in Taiwan’s government and industry see the acquisition as the ticket to greater integration of Taiwan’s defense and aerospace industries into American – and therefore global – defense-industry supply chains.

Taiwan’s indigenous defense

Taiwan has an impressive track record in developing its own weapons systems, including the Hsiung Feng III supersonic anti-ship missile, TC-2 Air-to-Air missile, and Ray-Ting 2000 mobile rocket launcher. Now, under its 5+2 Innovative Industry plan, the Tsai administration has set the ambitious goal of transforming the defense industry into one of Taiwan’s economic drivers. It has earmarked billions of U.S. dollars for investment in the development of new weapons systems.

The National Chung Shan Institute of Science and Technology (NCSIST) has been tasked with developing two high-profile weapons systems: the T5 Indigenous Defense Fighter/Trainer (in conjunction with the Aerospace Industrial Development Corp.) and the Indigenous Defense Submarine (with state-affiliated shipbuilder CSBC Corp.). The T5 project is expected to cost the equivalent of US$2.2 billion and the submarine project an estimated US$16.4 billion. NCSIST is also working on a range of missiles, drones, smart sea mines, and other weapons systems deemed crucial to the island’s defense.

Such investment is expected to help generate jobs and stimulate economic growth in Taiwan. The country faces a number of significant challenges beyond the threat of invasion by China, among them a rapidly aging population, stagnant wages, and a brain drain. The development of a highly capable – and hopefully profitable – indigenous defense industry is regarded as a way to help mitigate these challenges.

In a recent paper, Hung of the INDSR predicts that every dollar invested in Taiwan’s indigenous defense will see more than double the returns in terms of economic output.

The spillover of technology and industrial capacity into civilian sectors is also anticipated. “Indigenous military programs could transform key military technologies into civilian technologies and provide a stimulus to spur the growth of new industries and new applications, particularly in the area of aerospace, electronics, and information technology,” says Hung. 

National Tsing Hua University estimates that the indigenous defense sector will create as many as 59,000 new jobs by 2025. Leu Tzong-shyng, head of the aeronautics and astronautics department at National Cheng Kung University, says that job growth directly linked to the T5 project is already apparent in Taiwan’s aerospace sector. “Aerospace job openings have reached their highest point recently,” Leu notes. “Aerospace students with expertise in certain critical areas are being recruited by defense-related R&D centers and companies.”

Pushing for global integration

While the 5+2 investment will act as a useful economic stimulus, development of Taiwan’s defense R&D sector is still hampered by limited market size. Taiwan plans to produce only 66 T5 fighter/trainers, and only six to eight submarines, not nearly enough to achieve economies of scale.

The only way to overcome this obstacle is to access global markets – a considerable challenge for the diplomatically isolated island. Taiwan’s diminishing international space and Chinese pressure would likely give other countries pause in purchasing Taiwanese defense systems.

Although as much as 82% of the world’s defense markets is dominated by U.S., Russian, and European companies, Taiwan is hoping that the global nature of the F-16 market will provide opportunities for domestic enterprises to become integrated into the supply chain. Big customers of weapons systems have long been empowered to demand “offsets,” which the U.S. Department of Commerce describes as “a range of industrial compensation arrangements required by foreign governments as a condition of the purchase of defense articles and services from a non-domestic source.”

Offsets can be provided in the form of direct compensation or technology transfer, investment in local industry, or even tourism promotion. “The obligation that comes with the sale of military equipment can be shaped into supply chain access if the two parties observed feel that the accrued benefit works,” Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council, explained in an email to Taiwan Business TOPICS.

The F-16 first entered service in 1979. According to the manufacturer, Lockheed Martin, 4,588 units have been delivered over the years, with over 3,000 still in service in at least 25 nations. Taiwan’s air force has 142 F-16A/B aircraft currently in operation, making it one of the larger fleets of F-16s.

Lockheed Martin calls the F-16 the “world’s largest fighter aircraft ecosystem,” noting that there are 3,900 suppliers around the world of needed parts, components, and services. Taiwan hopes that the new F-16Vs will give it an opportunity to join that ecosystem as a first step into the global market.

At the recent U.S.-Taiwan Defense Industry Conference, Deputy Defense Minister Chang suggested that “U.S. industry take a step further to work with Taiwan companies in building depot-level maintenance capacity in Taiwan.” He cited the lower maintenance costs, higher maintenance efficiency, and better operational sustainability as reasons for this integration.

Hung Jiu-min of the INDSR agrees with this assessment, citing Taiwan’s well-developed aerospace industry and experience manufacturing the T5 Indigenous Defense Fighter/Trainer. “With the F-16 or any fighter jet, the story is not finished when you buy it, and the maintenance and repairs cost a lot of money,” says Hung.

He notes that implementation of Chang’s suggestion could enable Taiwan to provide maintenance and repair services to other countries with F-16 fleets as well. With proper certification, Taiwanese companies potentially could also begin manufacturing spare parts.

In 2011, the Obama administration approved a US$5.3 billion program to upgrade Taiwan’s existing fleet of F-16A/B aircraft to the F-16V standard. The program, dubbed “Rising Phoenix,” is being managed by the AIDC and could enable Taiwan to “export the technology to other customers that use the F-16 now,” says NCKU’s Professor Leu. “The Taiwanese aerospace industry could take this opportunity to be part of the supply chain for operations and maintenance and spare parts manufacturing for the global F-16 fleet.”

Although Phoenix Rising encountered substantial delays this year, attributed to a shortage of personnel at AIDC, the company reports that after the recent hiring of 200 engineers, the program is back on track. The Ministry of National Defense announced that it expects the upgrade of 20 aircraft to be completed in 2019, with the entire fleet upgraded by 2022.

Persistent doubts

Despite Taiwan’s aspirations, U.S. government and industry insiders feel that greater integration of Taiwan into the supply chain for the F-16 – or any other current weapons systems – is unlikely.

A major reason is that the U.S. authorities have their own domestic economic priorities. “This is a U.S. jobs program from their perspective, which creates a disincentive to transfer some of the technology to Taiwan,” says Thompson. Taiwan needs to manage its expectations regarding entrance into the F-16 ecosystem, because part of the U.S. rationale for the sale was to support the Lockheed Martin factory in Greenville, South Carolina, he notes.

Orders for the F-16 reportedly had declined since 2012. Taiwan’s order of 66 units of the aircraft is by far the biggest in years and is expected to keep the Greenville factory and its subcontractors busy until at least 2027. Still, Taiwan presumably would have some space to demand an offset. 

Despite Taiwan’s diplomatic isolation, industry insiders do not see politics as necessarily precluding the chance for it to sell parts and components for military systems to other countries. There will be other challenges, however. 

“It’s going to be based on price, it’s going to be based on terms, it’s going to be based on commercial factors,” says Thompson. AIDC may have some private shareholders, but it and NCSIST “are still run like government entities,” he notes. “So the question is, can they actually be competitive in an international market?”

Hammond-Chambers of the U.S.-Taiwan Business Council suggests that in order to boost that competitiveness, Taiwanese firms should “partner with the leading global defense contractors as they assess potential global programs in major markets like the U.S. – and become part of the bidding teams for specific programs.” This approach would require that Taiwanese become involved in the bidding process two to four years ahead of the contract award.

Such participation in the global defense market would entail heavy investment not only in industrial capacity, but also global marketing. There is “legitimate concern over whether [Taiwanese firms] have the marketing ability to sell systems in, say, South America or Europe,” says political-risk analyst Feingold. “Are they willing to master the language, pay for the translation? Do they want to go to the trade shows, to put in the effort?”

Thompson adds that Taiwanese defense firms are going to hear a lot of “noes” before they hear any “yes.”