South Korea's planned purchase of eight Indonesia-built IPTN CN-235 tactical transport aircraft is running into problems because of the recent economic difficulties experienced by the two Asian countries.

According to sources within IPTN, the South Korean Ministry of National Defence (MND) has fallen behind schedule in beginning initial progress payments. As a result of the country's financial crisis, the South Korean military is bracing itself for major cuts in expenditure once South Korea's newly elected government is inaugurated in March.

The $140 million deal concluded in late 1997 calls for the transaction to be funded primarily through barter trade, with South Korea supplying Indonesia with locally built military vehicles in exchange for the eight twin-engine transports.

The sale also included a small amount of cash up front, say officials familiar with the contract. Local South Korean media reports quoting MND sources, however, pin the blame for the stalled deal on the Indonesian manufacturer, which it accuses of failing to open a letter of credit account into which progress payments could be deposited.

Both the Indonesian rupiah and South Korean won have suffered a massive devaluation against the US dollar, which is likely to have had an impact on the deal.

IPTN is also experiencing problems with an earlier CN-235 barter deal with the Malaysian air force. Delivery of the six aircraft is on hold until IPTN can secure airworthiness certification of the new -220 version of the turboprop, not expected until later in the year.

Source: Flight International