Taiwan Remains Irked Despite F-16 Upgrade Deal

TAIPEI — The $3.7 billion deal between Taiwan and the U.S. Air Force to upgrade the island nation’s 146 F-16 fighters ends two years of often painful negotiations but remains controversial in Taipei, officials and analysts said.

Under the deal inked July 13 in Washington, the U.S. Air Force will pick the upgrade package Taiwan will have to live with — and pay for — and will exacerbate the country’s fighter shortfall for a dozen years starting in 2016 as Block 20 A/B aircraft are pulled from frontline duty for modernization. The first upgraded jets will be delivered starting in 2021.

BAE Systems, Lockheed Martin, Raytheon and Northrop Grumman are competing for segments of the upgrade program, with the winner to be picked by the Air Force. Lockheed has emerged as the frontrunner, however, after striking an exclusive deal with Taiwan’s leading aerospace contractor, Aerospace Industrial Development Corp. (AIDC).

Taiwanese officials and analysts said they are concerned about the deal for three reasons.

• The upgrade is not a replacement for the upcoming retirement of 56 Mirage 2000 and 45 F-5 fighters, which will slash Taiwan’s fighter fleet from 373 to 272. By 2020, the Air Force will be composed of 146 F-16A/B fighters and 126 Indigenous Defense Fighters (IDF).

The upgrade program will pull 24 F-16A/B aircraft from front-line service at a time, compounding Taiwan’s fighter aircraft shortage and posing a “grave” risk to security as China continues to modernize its air, missile and naval forces, said Rupert Hammond-Chambers, president of the U.S.-Taiwan Business Council.

“With 16 fighters permanently allocated for training at Luke Air Force Base, and with an operational rate of 70 percent, Taiwan will then have as few as 73 F-16A/Bs operational at any one time — half of its existing fleet,” Hammond-Chambers said. Taiwan will have only 232 fighters (126 IDFs and 106 F-16A/Bs), not factoring in the operational rate, during the five-year upgrade phase for 12 years beginning in 2016.

Due in part to fierce lobbying by China, since 2006 the U.S. has repeatedly denied Taiwan’s request for 66 new F-16C/D Block 50/52 fighters but authorized the upgrade of all 146 existing aircraft. Despite the denial of new fighters, the Bush and Obama administrations have cleared some $18 billion in arms sales to Taiwan, including AH-64 Apache attack helicopters, P-3C Orion maritime patrol planes and Patriot Advanced Capability-3 air defense systems.

While some Taiwanese National Defense Ministry officials hope someday to buy the F-35 Joint Strike Fighter, cost and Beijing’s continued pressure make such a deal unlikely, sources said.

• A more significant irritant, local sources said, is that the letter of offer and acceptance (LOA) doesn’t allow Taiwan to recoup the non-recurring engineering (NRE) costs of the installation of the new radar to replace the mechanically scanned APG-66 system.

Northrop Grumman and Raytheon will fight over the active electronically scanned array (AESA) radar contract, with Northrop offering the Scalable Agile Beam Radar (SABR) against Raytheon’s Advanced Combat Radar (RACR). A winner will be selected in 2013 or 2014.

Local defense industry sources said the LOA provides some reimbursement for future foreign military sales orders for these systems by other countries, notably an upgrade for South Korea’s 135 KF-16C/D Block 52 fighters, and a possible AESA competition for Singapore’s F-16 upgrade.

No NRE costs would be recouped if the U.S. Air Force selects the same radar for the upcoming upgrade of its own F-16s, officials and sources said.

To add suspicion to the deal, local sources said, the LOA does not allow Taiwan to select the AESA. Instead, the U.S. Air Force reserved the right to make the selection for Taiwan.

“I can’t believe the Taiwanese are allowing the U.S. Air Force to make the decision for them,” said one U.S. defense executive involved in the competition, expressing a widespread Taiwanese viewpoint.

Sources here have said the U.S. Air Force favors the SABR over the RACR for its own F-16 upgrades, thus saving a significant amount of money. U.S. Air Force officials say the competition is ongoing.

• The final irritant is that BAE’s bid for the upgrade contract — which has earned support in Taipei — appears to have failed.

Local industry sources said Lockheed has locked down the deal for offset agreements for the upgrade with Taiwan’s state-run AIDC. AIDC and Lockheed signed a memorandum of understanding (MoU) July 11 to form a strategic partnership to facilitate the F-16 upgrade.

Butch Hsu, AIDC president, and Ana Wugofski, Lockheed’s vice president of international business development, signed the MoU at the Farnborough International Airshow in England.

“We are impressed with AIDC’s capability, and we are looking forward to the opportunity to expand this relationship as we begin to implement the Taiwan F-16 upgrade program,” said Laura Siebert, Lockheed’s F-16 spokeswoman.

For its part, BAE feels abandoned by both Taiwan and the U.S. government.

“BAE Systems was not part of the decision process in Taiwan that recommended selection of a sole source, nor was BAE Systems offered the opportunity to compete or be evaluated for this program,” said Floyd McConnell, vice president, Integrated Aviation Solutions at BAE Systems. “We respect Taiwan’s decision. However, we believe the lack of competition does not ultimately provide the needed flexibility to cost-effectively solve the unique problems faced by the end user. If asked, BAE Systems would welcome the opportunity to provide a competitive bid.”