Boeing, EADS lower bid prices to meet fighter budget threshold

In a last-ditch effort to win South Korea’s fighter jet project, two of the three bidders ― Boeing and EADS ― offered proposals below the state budget of 8.3 trillion won ($7.2 billion) during the final bidding on Friday, government officials and industry sources said.

The third company, Lockheed Martin, selling its F-35 stealth jets through the foreign military sales program, offered a price higher than Seoul’s budget, according to sources, effectively being eliminated from the race to win the country’s largest arms procurement deal.

As the bidding process ended, the Defense Acquisition Program Administration will conduct a comprehensive assessment of the jets and officially announce the winner next month.

“As there were companies that offered price within the program budget, we will proceed to the next step,” DAPA spokesman Baek Yoon-hyung said in a press briefing, without elaborating the names citing the ongoing procedure.

“Although all jets will be evaluated, aircraft exceeding the budget will not be qualified for the contract,” Baek said.

This week’s final rounds of biddings were held following a six-week suspension due to all previous sessions ending in a failure when all three aerospace giants offered prices above the 8.3 trillion won budget approved by parliament.

The bidding war illustrated the heightened competition among the world’s biggest defense groups as they seek to overcome drastic cutbacks in military spending in the U.S. and Europe.

The cheaper proposals by the two companies came after the DAPA announced that another failure in the bidding may lead to restarting the project from the beginning.

It had said that all options will be considered, such as reducing the number of jets to be bought, buying the jets in installments and increasing the state budget, which could be more beneficial to F-35s, whose biggest hindrance is their high cost.

Initially, Lockheed Martin’s F-35s, which are in development for the U.S. military, were seen as a favorite given South Korean Air Force’s long pursuit of stealth fighter jets that can pass through North Korea’s complex web of radars and given the close relations between the two allies.

However, there was less room for price negotiations as F-35s are sold through the foreign military sales program by the U.S. government.

Unlike the other two that make direct commercial sales, Lockheed Martin has offered a bid whose combined prices for each year from 2017 to 2022 exceeded Seoul’s budget, according to sources familiar with the matter.

The government-to-government 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.

Seoul had initially picked a bidder last October with the goal of receiving the first delivery in December 2016, but it postponed the schedule to get the first batch in August 2017 in accordance with the change in the negotiation procedure.

Military officials have expressed concerns over the further delay in the project to replace the aging fleet of F-4 and F-5 jets, with some of them introduced to the country over 40 years ago.

The DAPA has faced criticism for the delay by conducting biddings for a mix of direct commercial sales and the

government-to-government deal.

The agency said it will conduct a comprehensive evaluation with value-added analysis on price conditions, without elaborating details of the assessment criteria.

The price factor accounts for 30 percent of the total score, while the pure procurement cost, excluding life-cycle maintenance and operation costs, occupies a smaller proportion of the selection process. However, the DAPA held its ground that meeting the budget limit is one of the most important requirements for the deal.

The final decision will be made in a meeting of experts and government officials slated for in mid-September. No specific date has been confirmed.

In its bid, Boeing has stressed the interoperability of the F-15 SE with other models purchased in the first two stages of the fighter modernization programs. Seoul has purchased 60 Boeing F-15 fighter jets since 2002.

It doesn’t offer the same radar signature reduction as an F-35 and is only optimized for air-to-air combat stealth. What it does offer is greatly improved radar stealth over the F-15K and internal weapons.

While EADS’ twin-engine Eurofighter is not equipped with stealth, EADS says measures were taken to reduce the Typhoon’s radar cross section, especially from the frontal aspect.

EADS offered an investment of $2 billion in Seoul’s plan to build its own fighter aircraft and assemble 53 planes in South Korea to boost its aerospace industry.

If Eurofighter is selected, it will be the first European combat jet deployed by South Korean Air Force. (Yonhap News)