(News Focus) Defense Exhibition Opens Sales Talk for S. Korean Fighter Deal
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Lockheed Martin, Boeing and European aerospace group EADS kick-started a preliminary competition by showcasing their combat jets and simulators during the Seoul International Aerospace and Defense Exhibition (ADEX), which opened Tuesday to run through Sunday at the Korea International Exhibition Center, just north of Seoul.
The three companies, which vied for a 8.3 trillion won (US$7.2 billion) contract for 60 combat jets, are now waiting for the Defense Acquisition Program Administration (DAPA) to announce a new fighter jet program. The move comes as the state procurement agency last month rejected Boeing's Silent Eagle, the only bid that came within the budget, to buy a more advanced, radar-evading jet.
As a task force is currently reviewing various options, including increasing funding, reducing the number of jets, multiphased-purchase program or split purchases, while consulting with the finance ministry to raise the budget cap.
The companies, which all expressed their intention to make another bid, are paying keen attention to the conditions of the new program, including the required operational capability, budget and delivery schedule.
The heightened competition among the world's biggest defense groups comes as they seek to overcome drastic cutbacks in military spending in the U.S. and Europe.
Lockheed Martin, which sees high chances of sales for its F-35 stealth jet, was cautiously awaiting a decision, studying how to adjust its offset offer depending on the number of jets sought by South Korea.
"What we are doing now is supporting the existing offer and waiting to see the direction the FX program proceeds. If there is a change, it will depend upon the type of change that is made," Dave Scott, Lockheed Martin's director of international customer engagement for F-35, told Yonhap News Agency in an interview on the sidelines of Seoul ADEX.
"We'll see the direction the Korean government chooses to proceed. Then we can evaluate whether the offset program can remain intact."
Dave said South Korea will be right behind the "sweet spot" in terms of cost for F-35, which is sold through the U.S. foreign military sale (FMS), as the program will gradually achieve economy of scale with more orders from partner countries and other buyers in the coming years.
"But with this price, you get a much higher level of the fifth-generation capability," Scott said, highlighting its stealth features and other advanced avionics system for future electronic warfare.
Price is an important factor for Lockheed as the costly stealth jet was eliminated from the previous competition due to little room for negotiation on that part. The FMS condition requires a foreign government to pay the amount specified by the U.S. government for the F-35s at the time of payment.
EADS, Europe's biggest aerospace company, stressed that South Korea should take advantage of its offset deal, including the transfer of technology and industrial participation for its indigenous fighter jet project for synergies between the aircraft procurement and development program.
In the past negotiations, EADS sweetened the deal with a $2 billion cash investment package to help Seoul jump-start its own fighter aircraft development and assemble 53 planes at local factories to boost its aerospace industry.
"It includes an open invitation that stands for the Korean aerospace industry to become partners in the regional aircraft program," said Christian Scherer, the chief sales officer and head of International Operations at EADS. "All of these things remain on the table."
EADS, which acknowledged Seoul's growing appetite for stealth jets, bet on chances of split purchases of different jets, saying operating Eurofighter alongside the F-35 fleet can be a good way to take full advantage from the acquisition program.
"There is a unique opportunity to have F-35 to have its stealth capabilities. The other alternative that satisfies the other criteria is Eurofighter Typhoon, with window of opportunity possibly in split deal ... to open a strategic dimension in Europe," Scherer said.
Although South Korea has bought weapons in the past from its close ally the U.S., especially for its Air Force, EADS wants to expand partnership with South Korea down the road, the EADS executive said.
"In terms of technology transfer and industrial benefit, the offer we provided is more attractive than our American competitors can do," Scherer said.
EADS has displayed a full-size mock-up of single-engine Eurofighter Typhoon as well as a simulator to catch eyes of military officials and foreign buyers visiting the high-profile Asian defense exhibition.
Boeing remained passionate to make another bid for the new fighter jet program, known as the F-X, carefully navigating the military requirements currently under review.
"Obviously we are very much interested in hearing the report from the task force team. Specifically, we are very much interested in the requirements capability" as well as budget and schedule issues, said Howard Berry, Boeing F-X Campaign Director.
Berry highlighted the need to promptly replace the aging fleet of F-4s and F-5s to avoid a security vacuum in coming years, saying its F-15 variants will be "affordable and low-risk transition" given the infrastructure in place for its exiting fleet of 60 F-15s. But he did not elaborate on which variant of F-15 Boeing will be propose for the next bid.
Regarding Seoul's decision to reject the F-15 Silent Eagle at the last minute, Berry said he is not disappointed because his company is making various efforts to expand partnership in South Korea, which seeks to raise its profile in the aerospace and defense industry.
"As the Korean industry continues to evolve, I think we have more opportunities to mine and leverage from that for mutual benefit," Berry said. "F-X is just one of the steps of the long road here in Korea. It's not just about winning one campaign or selling one product; for us, Korea is a long road with no end in sight."
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