S. Korean fighter jet project stuck over pricing
Published : Jul 8, 2013 - 15:08
Updated : Jul 8, 2013 - 15:08
South Korea's plan to buy 60 fighter jets has been temporarily put on ice as three competitors have failed to offer prices within Seoul's 8.3 trillion won ($7.2 billion) budget, further delaying the replacement of its aging fleet.

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) participated in the bidding sessions from June 18 to July 5 to win Seoul's largest arms import deal.

The Defense Acquisition Program Administration (DAPA) had received 55 separate price bids over the three-week period from the aerospace giants, but it temporarily suspended the procedure due to their expensive price tags.

"We have had difficulties in making the firms offer prices within our budget. So, we gave them more time to have more internal discussions," DAPA spokesman Baek Yoon-hyeong said in a briefing on Monday.

The DAPA will officially announce whether it will go ahead with additional bids or stop the bidding altogether later this week, Baek said.

The state procurement agency had initially planned to pick a bidder as early as June.

The drawn-out bidding session 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 DAPA has officially said it is looking for affordable yet highly capable aircraft, but it had been widely expected that the potential suppliers would propose prices that exceed Seoul's budget and adopt a wait-and-see approach during the sessions.

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 portion 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.

"From the beginning, the DAPA had set the budget at 8.3 trillion (for 60 jets), and we believe the firms had submitted their proposals based on it. That means that each firm would have evaluated that it could win the project within the budget," the spokesman said.

With scores of biddings coming nowhere close to an end, some raised the possibilities of either reducing the number of jets or increasing the state budget for the project. The DAPA flatly denied speculations, saying such changes in the ongoing project would require the procurement agency to restart the project from scratch and gain approval from the Ministry of Strategy and Finance, which handles state budget allocations.

Unlike the two other companies that offer aircraft through direct commercial sales, Lockheed Martin, which sells the F-35 through the foreign military sales program by the U.S. government, did not submit either a fixed price or a maximum price during the bidding, according to multiple sources with knowledge of the biddings. The DAPA refused to confirm this, citing the ongoing process.

If the F-35 is selected, experts say the South Korean government will have to pay prices equivalent to those offered to the U.S. Air Force each year from 2017 to 2021, sparking speculation that the price for the stealth jet, which has been plagued with cost overruns, may rise.

Military officials expressed concerns over the further delay of 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.

"Putting a stop to the ongoing project and opening a new one would require much more time, and it is uncertain that the project can go smoothly," an Air Force lieutenant colonel said, asking for anonymity. "The government should find a middle ground with the bidders as early as possible for pilots in need of new combat jets."

Seoul had initially picked a bidder last October with the goal of receiving the first delivery in December 2016, but it has recently decided to delay the schedule to get the first batch in August 2017 in accordance with the change in the negotiation procedure. (Yonhap News)