Coproduction and Codevelopment

The terms coproduction and codevelopment are sometimes used inter­changeably. For the purposes of this paper, coproduction refers to a contract where the supplying country sells the purchaser the right to produce copies of a com­plete aircraft or key components. Coproduction deals can range from assembly of imported complete knock-down (CKD) kits with all necessary components to transfer of blueprints, machines, technical assistance, and relevant production technologies that give the purchaser an independent capability to build complete aircraft from scratch. Codevelopment refers to cooperation in the design stage of aircraft development where two or more countries work as partners.

Technology transfer and how expensive research and development costs are allocated are the principal issues in coproduction or codevelopment projects. The country with the more advanced industry has the motivation to withhold technical details from partners to protect its competitive advantage; the country with the less developed aviation industry typically has to agree to pay a premium price in order to gain access to relevant production (in the case of coproduction) or design/systems integration expertise (in the case of codevelopment).

Developing countries often seek coproduction arrangements as a means of starting an aviation industry or improving the technological capacity of their existing industry. The developing country typically seeks the maximum pos­sible transfer of design information and production technology to allow fully independent production. Unless suppliers have a strategic reason for wanting to build up the recipient country’s defense industry, they typically seek to retain control over key design information and production technology and prefer to supply components for assembly rather than give the purchasing country an independent production capability. The exact nature of the deal is often a func­tion of the relative bargaining power of the parties involved. Coproduction usually involves a licensing agreement stipulating the number of systems the producer country can build at an agreed upon cost.

As a technology procurement strategy, coproduction is basically a combi­nation of “buy” and “build.” The developing country typically assembles aircraft from imported parts (often in the form of a complete knockdown kit) rather than producing them from scratch, at least initially. Contracts sometimes allow replac­ing imported components with indigenously produced components as the pur­chasing country’s aviation industry gains the ability to successfully produce them.

Developing countries sometimes evade contractual restrictions by using knowl­edge gained in the production process to design compatible subsystems or com­ponents that can either be integrated into an existing aircraft or that can be part of an improved variant of an existing aircraft. Because the supplier often provides knowledge about how to assemble the aircraft rather than complete design infor­mation, the buyer country still has a fair amount of work to do if the goal is to reverse engineer an exact clone or to develop an improved variant incorporating indigenous subsystems.

The nature of defense cooperation between countries is a good indi­cator of the overall political relationship. Coproduction agreements imply a basic level of political trust between partner countries. A supplier country will not enter into an agreement to sell a developing country the rights to build a fighter aircraft if there is a fundamental divergence of strategic interests or if the purchasing country poses a significant security threat. Coproduction is less of a risk than codevelopment to the supplier country from a technology pro­curement perspective because it does not usually grant the purchaser access to state-of-the-art aircraft or subsystems. As the next section will detail, China relied on coproduction with the Soviet Union in the 1950s to launch its mili­tary aviation industry and on coproduction deals with Russia in the 1990s to improve its capability to build advanced fighter aircraft.

Codevelopment in aircraft design implies that both partners possess a relatively well developed aviation industry. The partners typically share the costs of R&D efforts; partners with less advanced aviation industries typically pay a premium price or commit to purchase significant quantities of the fin­ished aircraft in order to gain access to advanced technologies, design pro­cesses, and systems integration expertise. In some cases, codevelopment will produce new technologies and intellectual property that will be shared by the partners.

A good recent example of codevelopment involves the joint venture between Russia’s United Aircraft Corporation (UAC) and India’s Hindustan Aeronautics Limited (HAL) to develop a fifth-generation fighter.13 The work is split on a 75-25 percent basis, with Russia contributing the larger share.14 “Codevelopment” is also sometimes used to describe projects where parties contribute to development costs without participating in the actual work. From a technology procurement standpoint, this is much closer to the “buy” avenue than to coproduction or codevelopment.

The F-35 Joint Strike Fighter program is an example of an unequal codevelopment partnership where a number of countries contributed finan­cial support and committed to purchasing the aircraft without any involve­ment in development work.15 The United States and Britain have carried out the vast majority of technical development work, with Italy making minor con­tributions.16 The other six partners (Netherlands, Turkey, Australia, Canada, Denmark, and Norway) have bought into the project by contributing develop­ment funds and agreeing to purchase a specific number of F-35s. True code­velopment implies not just cost-sharing, but shared ownership of the intellec­tual property generated by the project.

The decision to codevelop a fighter aircraft can be motivated by differ­ent circumstances, but the logic in forming joint partnerships is the same: both countries benefit more through codevelopment than they would by working alone. Defense industries can share the substantial burden of R&D costs while bringing their technological comparative advantages to the fore. Perceived eco­nomic, political, and strategic benefits drive the decisionmaking process, with the relative importance of each depending on the relationship, political situa­tion, and threat perceptions of the partner countries.

The UAC/HAL joint venture between Russia and India illustrates the complex economic and geopolitical pressures that drive defense technology decisionmaking. India was an end user and coproducer of Soviet military aircraft since a cooperative defense relationship was established in the early 1960s.17 The relationship persisted throughout the Cold War, and after the Soviet Union dissolved, India helped Russia’s defense industry stay afloat in the 1990s.18 The plan to codevelop a fifth-generation fighter was hatched at a time (2000) when the dire Russian economic situation gave India a significant degree of bargaining power.19 If not for economic necessity, Russia might never have proposed a codevelopment deal given the major step forward it provides the Indian aerospace industry.20 Some Russian defense industry experts have been skeptical about the value India will bring to the project, citing Russia’s half century of experience designing award-winning fighter aircraft.21 Indian media reports have highlighted HAL’s potential contributions in aircraft body design through its work on composites gained during the design of its indig­enous Tejas Light Combat Aircraft (LCA).22 Russia has designed mostly metal aircraft and thus lacks experience with composites. HAL will also design the mission computer, navigation, and countermeasure dispensing systems, and critical software.