Rivals vie for S. Korea's jet procurement with sweeteners

The three companies vying for South Korea's next-generation fighter jet project have proposed aggressive offset programs to sweeten their bids, ranging from technology transfers to promises of purchasing Korean-made parts, an official said Monday.

Seoul plans to buy 60 advanced jets worth of 8.3 trillion won ($7.3 billion) to replace its aging fleet of F-4 and F-5 jets starting from 2017. It is the single priciest arms purchase project from a foreign country.

Jets competing for the contract are Boeing's F-15 Silent Eagle; Lockheed Martin's F-35 stealth jet; and the Eurofighter Tranche 3 Typhoon from the European Aerospace Defense and Space Company (EADS).

The Defense Acquisition and Procurement Administration (DAPA) has requested the three bidders submit their offset proposals for offering technology support and other measures to develop the local aerospace industry, with their total value of offset programs amounting for half of the procurement price. 

With negotiations that have nearly ended, the three companies have reportedly offered an offset program with estimated values reaching nearly 60 percent of the total budget, a senior DAPA official said, requesting anonymity due to company policy.

Defense offset agreements are trade practices connected to weapons trade, including industrial and regional benefits that give additional advantages for the purchasing country besides investing in military equipment.

The official said the heated competition has led three firms to provide competitive offset packages, including technology support for Seoul's indigenous fighter jet projects.

"All three firms proposed to transfer key technology of their combat jets for fighter jet design and they are known to have accomplished the goal of meeting the offset requirements," he said, noting expected values of their offer are similar to each other, reaching about US$2 billion.

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. It also offered to provide the source code its fighter jets -- the key to the plane's electronic brains -- and purchase Korean-made parts.

Boeing promised to buy billions of parts from Korean companies and establish live virtual constructive (LVC) to train Korean pilots.

Lockheed proposed to establish the LVC system for pilot training and offered to support the Korean military's plan to develop its own communications satellite in last-minute negotiations.

As negotiations have nearly ended, South Korea is set to start the bidding process next week, officials said. But the date has not yet been confirmed.

Once the bidding ends, the DAPA will sign a preliminary deal with one of the bidders and conduct an assessment of the jet before officially announcing a winner. (Yonhap News)