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S. Korea's Jet Program Could Be Delayed

Jul. 9, 2013 - 02:45PM   |  
By AARON MEHTA   |   Comments
Competition Heats Up: Despite the heated haggling over pricing with the three competing companies, South Korea still expects to pick a replacement for its F-4E Phantom aircraft by the end of the summer.
Competition Heats Up: Despite the heated haggling over pricing with the three competing companies, South Korea still expects to pick a replacement for its F-4E Phantom aircraft by the end of the summer. (US Air Force)
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WASHINGTON — South Korea’s Defense Acquisition Program Administration (DAPA) finished price negotiations for its next-generation fighter July 5 without any of the competitors meeting the country’s budgetary requirements, potentially delaying a selection for the F-X program.

From June 18 to June 28, DAPA went through 30 rounds of bidding, according to an industry source familiar with the negotiations, yet the three competitors failed to meet budget requirements set by the South Korean government.

DAPA restarted negotiations July 2, with companies going through an additional 25 rounds of negotiations, but competitors once again failed to come in under budget, the source said. As a result, DAPA will likely push final selection from this summer into early fall.

Because of how tight the competition has been, the role of offsets appears to be particularly important, with the industry source saying the final packages will “likely” be the tipping point for program selection.

The F-X program aims to replace South Korea’s fleet of F-4 Phantoms with 60 new fighters. Given Seoul’s strategic importance, as well as the program’s US $7.3 billion price tag, the competition has attracted significant attention from industry.

The three competitors are the conventional version of Lockheed Martin’s F-35, which will be widely used by the US Air Force; Boeing’s F-15 “Silent Eagle,” a low-observable variant of the popular warplane; and the Eurofighter Typhoon, a twin-engine fighter.

Due to the close military ties between South Korea and the US, the American companies are heavily favored over Eurofighter, according to Richard Aboulafia, an analyst with the Teal Group, Fairfax, Va..

The winner is “going to be an American, but it’s 50-50,” Aboulafia said. “It’s a real horse race, with strong arguments for both.

“In terms of long-term capabilities, I’m sure they will get the F-35, eventually,” he said. “But given the nature of the threat, something like the F-15, which can carry an awful lot of ordnance, has its charms.”

The Eurofighter consortium has offered to establish a final assembly line in South Korea, along with technology transfer and development assistance that it said could amount to $2 billion.

“We believe that no other company has offered, or can offer, such a comprehensive package with such a high level of partnership,” Francisco Salido, a Eurofighter spokesman, wrote in an email.

Boeing, which has invested heavily in South Korea to support a previous purchase of F-15s, has promised $1.4 billion in offsets for parts manufacturing and development costs, as well as technology transfer.

The company has proposed “a competitive offset program that builds on Boeing’s well-established relationship with Korean industry and addresses all priority areas,” Amy Horton, Boeing spokeswoman, wrote.

Lockheed’s offer has been more complex. Because of the program’s status as an international partnership, much of the F-35’s production has already been doled out to member countries.

Additionally, the potential transfer of technology is complicated by security concerns about the fifth-generation fighter’s stealth capabilities.

While the F-35’s well-documented program delays seem to be stabilizing, the cost of the single-engine plane is still a major hurdle for South Korean officials. The US Defense Security Cooperation Agency (DSCA) put the cost of 60 planes, along with assorted support equipment, at $10.8 billion, a 30 percent increase on DAPA’s budget.

Instead of a traditional offset program, Lockheed has proposed what company spokesman Eric Schnaible called “more of a strategic partnership program.”

Included in that deal are a top-of-the-line simulation system to assist pilots in their training and technical support from the company. But the real prize is the inclusion of a military communications satellite, fully developed and launched on Lockheed’s dime.

“If the F-35 is selected for the F-X III program, Lockheed Martin commits to build, launch and provide to Korea a new military communications satellite,” Schnaible said. “The specific plan for the construction and launch of the satellite will depend on when the F-X program is placed under contract. Lockheed Martin will have overall responsibility for fulfilling this commitment.”

Schnaible declined to go into details about the satellite, but Lockheed has a number of designs being developed for the US government. Those include the Mobile User Objective System (MUOS), which will provide communications for US Navy operations, and the Advanced Extremely High Frequency (AEHF) military communications system.

AEHF may have the most potential, as the system has partners with the UK, Canada and the Netherlands.

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