Another Nail In ….

The M102 105mm howitzer presented to Sultan of Selangor by the Army for presentation at the Istana Alam Shah, Klang on November 27, 2021. Tentera Darat picture

SHAH ALAM: Another nail in the coffin. According to the Defence Minister DS Hishammuddin Hussein last December, the ministry was finalising the National Defence and Security Industry blueprint (DIPKN) which will be published this year.

The DIPKN was among the initiatives put forward by the Defence White Paper 2019 which was unanimously approved by Parliament and is effective for the next 10 years.

Personnel from 41 Battery RAD conducting a test firing at the Sungei Buloh camp in 2016. Tentera Darat picture

It is interesting to note that while the ministry was preparing the blueprint for the local defence and security industry, one has to wonder what will happened to the SME Ordnance Sdn Bhd (SMEO), the original local defence player. As I had posted previously, it is looking more and more that SMEO is being left on the wayside though I must admit it is mostly self inflicted.
Soldiers of 41 Battery RAD conducting a test firing in full regalia in 2016. Tentera Darat

The latest blow to SMEO is the publication of the latest MTO tender involving the shipping of blank 105mm cartridges. The cartridges will be shipped from the Karachi port, which most likely meant that it was procured from the Pakistani Ordnance Factory. SMEO was previously the sole supplier of HE and blank 105mm cartridges for the Army. The tender to supply 2,000 blank 105mm cartridges was published in August, 2020 and awarded to Betamat Sdn Bhd with the Letter of Award price of RM2.7 million. Another tender published in August, 2020, for 3,000 105mm high explosive ammunition was awarded to Traumland Sdn Bhd with an LOA of RM12.3 million.
An Army 105mm Pack Howitzer firing a blank cartridge in a demonstration in Port Dickson in 2020. Tentera Darat

The blank 105mm ammo is mostly used by the 41st Battery of the Royal Artillery Regiment for occasions involving the King, from investitures, opening of Parliament and even state funerals.
Getting ready to load a live 105mm round into the Oto Melara 105 pack howitzer in 2020. BTDM

The 41 Battery of the RAD used the US made M102 105mm guns for ceremonial firings and even the same gun carriage has been modified to carry the coffins of royalties to the cemeteries.The Army also uses the blank 105mm ammo for firing using the 105mm Pack Howitzer for non-live firing demonstrations.
Firing the Nexter 105mm guns. BTDM

It is clear that if the DIPKN blueprint is published without a way forward on SMEO and Airod, it is simply not worth the paper it is printed. It must be noted that both companies were fully state owned companies until the early 80s when they were was partly privatised. Despite the privatisation, both companies remained partially owned by the government which clearly called for a solution in the near future.

— Malaysian Defence

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Shah Alam

27 Comments

  1. On the contrary, I think a plan that does not involve handing out tongkats to troubled entities is a great plan!

    Either fully privatised them (for Airod case) or quietly close down (for SMEO), but a plan moving forward that does not involve dragging them along is a plan free of such legacy issues. Why should we have local industries mucking it all up with their petty demands for handouts to survive and cable-cronyism? Not just them but Sapura, who lost a bid to supply radios recently, and many others that took Govt patronage for granted, expecting repeat orders will come forever, and never innovate or expand.

    I am hoping continue open tenders be made throughout and those that cannot compete & survive, let them die.

  2. Marhalim – ” it is simply not worth the paper it is printed”

    Indeed but it will be another politically driven exercise which on paper will look good and give the impression will improve things but it will not. The problem is we won’t admit where and how we’ve gone so badly wrong; there is no political desire to admit that our longstanding defence policy is highly flawed or to adopt the needed prerequistes It’s aimed at benefiting national interests; not the interests of the end user or the taxpayer. Pakatan’s Deputy Defence Minister got it right when he said that deep fundamental changes are needed; including the role vendors and local companies go. I’m not a DAP fan but he said something which no other politicians have the courage to say.

    Until we can reach a stage where we buy in bulk there is no way that SME can be price competitive. It will be cheaper and faster to buy from abroad. though some delusional souls will still harp on and propagate the ”self sufficiency” myth.

  3. Yup, like Proton…so dependent on local market and government subsidy. The policy creates rent seekers and jaguh kampung mentality. Finally, customers also fed up.

  4. Well on paper the reasoning was sound. Establish a local company which in due course could supply the needs of the MAF. Not only do we establish an indigenous capability but cash is spent locally and jobs created. The problem is the local company never made the transition from producing ammo and related stuff to conducting R&D on stuff which could really be called ‘local’. To be fair SME can’t keep its prices down because there is no economics of scale and because almost everything needed for the production of ammo, charges, fuzes and explosives has to be imported and paid for in foreign currency. We’ve long reached the stage where it’s cheaper and faster to buy from abroad.

  5. “Then why have a local defence and security industry policy then?”
    The same reason why we have a national car policy, only to sell off Proton to Geely later, meanwhile P2 is merely a facade for rebadged Daihatsus.
    The idea behind both policies were unfeasible in the long run but pushed ahead by a certain long ruling PM (yes, we already had some local defence industry going before him but he took it to new levels of “localisation” & cronyism). This in the backdrop of peace in our time meant defence expenditure stagnated vis a vis our neighbours.

  6. Why is there a need for R&D? Their job was supposed to fill the ammo needs of the government agencies ie police and military. Across the region, state owned arsenals are almost doing the same things with similar resulst but they kept on it. Do we really need to have our own state owned ordnance company make a profit?

  7. Yes but the government continue to give preferential treatment to Proton and Perodua even though they are profitable. Should’nt Proton and Perodua be let loose then?

  8. If thats the case, should’nt the government do the same for MAS, KMTB and other GLCs which are not able to be profitable? Why is the defence industry companies be allowed to die on its own then when other companies also lose more money than them?

  9. It wasnt too many moons ago lots of sceptics about the unsuitability of the LWS in near future warfare. But seems like the development and deployment of LWS in some countries is moving quite fast. Israel will deploy a laser wall to counter rockets, uav n missiles in a year. All the big names in military power have them. Even Turkey got its own LWS.
    Hope our defence players have another look at the new weapon system, whether you wanna buy it outright from others or locally develop n produce it, doesnt matter.

  10. “Proton and Perodua be let loose”
    Proton and Perodua shouldn’t have existed in the first place. We lost out to Thailand & Indonesia and upcoming is Vietnam because of our folly with such national projects.
    Lets be honest with our national projects. If its for R&D, and own products, and that we can export to others… it is all BS. If its simply for job creation and the economy spinoff from the workforce, then Im all for it but we must be selective with what we do, ie multi-year production assemblies of ships & vehicles. Purely assembly only, no redesign or local adaptation without approval from the principal nonsense. Also no shortterm small qty assembly ie 1 year project to assemble just 18 units of LG1 arty is BS. It does not have to be profitable, but it does not have to be a continuous loss making venture, and that all losses must be valid and accountable. Once its done, close books and move on.

    That brings us to those other troubled GLCs, should the Govt rescue them? It depends. Those dealing with crucial public services ie KTMB, Rapid, MRT, state & national museums, yes. They are necessary and at same time had to keep impact to public low, so losses are unavoidable. Proton, MAS, MISC, taxi operators, no. These are not crucial and in their place, others would fill in the gaps, ie without taxis we still have ride hailing. The decrepit local defence industry is one of them. If they cannot survive, we can source abroad and unlikely the chances we are in danger of being embargoed or such.

  11. Marhalim – ”Why is the defence industry companies be allowed to die on its own then when other companies also lose more money than them?”

    Because the average citizen/voter couldn’t care less about local defence companies. In contrast; he/she although not being particularly familiar with MAS, KMTB and other GLCs; will be aware of them the role they play; it resonates more. Another reason is that MAS, KTMB and GLCS have much bigger revenues and contribute more to the coffers, as opposed to a small defence company with 75 staff with a modest annual turnover and which has long started to lose money.

  12. ”Their job was supposed to fill the ammo needs of the government agencies ie police and military. ”

    Its first job was to assemble the HK-33s at Batu Cantonment. It would have been nice if SME could have provided some added value in addition to just producing/assembling ammo/charges/fuzes and explosives. Take the AUG; we manufactured it for more than a decade and not a single modification was done in order to improve it.

  13. Marhalim – ”Then why have a local defence and security industry policy then?”

    Some things we can produce locally; some we can’t. We need a realistic appraisal of what we can achieve and what we can’t. Our longstandi9ng policy of ostensibly improving local capabilities has not led to any tangible results; decades later. look at the number of local companies sprouting out of nowhere just to fulfill specific contracts; in an already limited but saturated and highly competitive market.

    To be fair some local companies have been innovative and delivered; problem is most of the rest are merely ”middle men” and don’t have the incentive to transition to anything else.

    -Marhalim – ‘-recent comments showed him as just another politician”’

    Because he is a politician and by the very nature of being in politics he wants to stay in power. Having said that; a number of things he said; on ”jointness’ the local industry, the need to evolve, inter service rivalry; etc, are things never spoken about by any politician.

  14. Supporting the local defence industry is akin to the following.

    Let’s build a fleet of Next Generation Patrol Vessels. These warships would be among the most advanced multi-role warships…. Except they ended up becoming glorified gunboats.

    But its ok, we should still support the local defence industry.

    Let’s spend RM9 billion to build 6 even more advanced warships. By the way the foreign contractor was willing to make the ships at lower cost. But its ok, let’s inflate the cost by custom designing a bigger ship and let’s own the blueprints for it. Why? No one really knows.

    Where are we now in 2022? If we’re lucky we get 2 ships from 2025.

    That’s 14 years since program commencement, 10 years after contract sign off, 6 years after the first ship is supposed to be delivered. So instead of advanced multi-role warship, it is 2 generations outdated “new” warship.

    Its ok to support local defense companies if they prove themselves capable of delivering. Otherwise, there is no need to encourage or create national champions. Let the market decide.

    By the way, my suspicion on why the sudden interest in cutting of the middleman, maybe possibly influenced by what happened in the recent Melaka state election.

  15. The problem with SME and Airod is that they are owned by the same people (NADI) that is now seems like a pariah in malaysian defence industry.

    Take NADI out of the picture, transfer the ownership of SME and Airod over to any proper GLC and it will solve the problem.

    IMO malaysian defence industries has 2 main issues

    1) onwership of those companies and working capitals

    2) no long term plans to continuously buy from them.

    To add new capitals, a reshuffling of ownership needs to be done. Firstly to get boustead out of shipbuilding and pump in capital into naval dockyard to clean up all the mess. Boustead to sell ND to MMHE to bring both shipyard under 1 management (MMHE and to the extent Petronas). Then Boustead to buy Airod and consolidate both Boustead aerospace (now servicing EC725 for TUDM) with Airod. SME IMO to be frank should be placed directly under Kementah, like most US Army ammunition plants in USA.

  16. MAS has lost more money during the pandemic (and much more during the last 10 years) than SMEO has had its long history. I understand the resonance but again ….

  17. MAS loses were mainly due to unprofitable “perkhidmatan rakyat” 2/3 times a day daily flights to East MY and frequent flights to other hinter states with barely half the plane filled other than once in 5 years General or State elections. Then ticket prices were so low that it is a joke if you understand that air travel is never supposed to be cheap. Not to say that they don’t have other internal issues (Management & union), but their main problem are inflicted by higher ups forced to do National Service. MAS should have been privatised and certain sacrifices be made and accepted.

    “things never spoken”
    Talk is one thing, do is another. Action speaks louder than words, if people are honestly wanting to do something and not just talk about it.

  18. MAS was privatised in 1990s, the debts got so worse, the government had to assume all the debts, and end up buying the new jets including the Airbus A380 so a couple of local aerospace companies could get some contracts. And now the A380s are being sold off, likely to be scrapped really. The country lost a couple billions RM for that deal, which is basically higher than any of the local defence industries ever lost really.

  19. Just about every reputable airline were buying A380s, not just us, so I don’t believe it was to support our local companies but more for prestige, which is what flagships are for. The problem is, A380 users did not find the volumes that had previously justified regular use of Jumbo Jets. AFAIK only Emirates Airways could turn these into their main workhorses while nearly all others became white elephants. Even before Covid, many others were getting rid of their A380s including SG & Thai Airlines. To add on many other national carriers, not just ours, went bust or were/are in trouble, Alitalia turn ITA comes to mind most recently.

    But ultimately there were many many others deals made that went bust, mainly due to that certain leader, many which are costlier than either MAS or the local defence industry, so are we to continue bailing out these legacy shackles of that past leader or should we take a bold leap forward as with Proton? Many doubted the Proton-Geely deal, but look where they are now or ponder what they might ended up if we backed out?

    Our local defence industry is now at the same crossroad as did Proton, staring doom if they continue, so can the defence industry also take a bold leap forward?

  20. Our local defence industry is now at the same crossroad as did Proton, staring doom if they continue, so can the defence industry also take a bold leap forward?

    It was the point I was making in the post, what is the use of making a plan for the local defence industry if they do not solve the SMEO and AIROD issue?

  21. ”what is the use of making a plan for the local defence industry if they do not solve the SMEO and AIROD issue”

    They first have to come up with a realistic and achievable policy, one based on an actual assessment of what we want to achieve and what we can’t, based on our limitations and requirements. Issues faced by SME and AIROD are a reflection of a much bigger problem we have.

    Let’s start with SME. Ammo, explosives and charges it produces are more expensive than buying from abroad because of small numbers and all the raw materials have to be imported and paid in foreign currency, then where does it go from here?

    After we failed to export AUGs, M4s and AV8s [lets not mention LCSs] will we still insist on local.production and IP rights for certain things things?

    If all Deftech is able to do is locally assemble IFVs without offering any added value like conducting its own feasibility studies on upgrades or improvements, then why on earth should we even bother assembling IFVs locally?

  22. For me, one of the local sucesess was the company which produces the IR resistemt paint used on our vehicles. It actually took the time and effort to.conduct its own R&D. It has sold to various NATO and ASEAN countries yet we don’t hear anything about it. It also doesn’t have large booths at DSA and LIMA.

  23. “they do not solve the SMEO and AIROD issue”
    What are the SMEO & Airod issue? If SMEO, the reason is straightforward; we cannot buy enough ammo to keep them in constant operations, and that is because we cannot consume the amount of ammo making capacity that they could do. Its all in the volume.
    So what can we do to consume that ammo volume capacity? Do monthly live fire exercises and go crazy at it? Donate to other countries as if like Covid vaccine? Dig a hole & bury them? Go to war?

    OTOH if we cannot justify keeping them afloat, then why should they be given life support?

    Airod. Im not sure what is Airod issue but it must have been something really unforgivable for them to be persona non grata. But Airod being LM certified MRO, they have a better chance to survive as long they know how to grab service & mod contracts.

    Either way, their problem should not be the rakyat’s burden ie Proton.

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