Global defense budgets are forecast to expand 9.3 percent to $1.65 trillion by 2021, according to analysts at IHS Janes. Meanwhile, defense contractors — especially Boeing (NYSE:BA) — are working to meet demand. In particular, budgets in the Asia Pacific region are expected to outstrip those in North America by 2021, increasing by as much as 35 percent from 2013 levels to $501 billion.
In South Korea, Boeing is pitching the latest model of its F-15 fighter, known as the Silent Eagle, against the Eurofighter consortium’s Typhoon and Lockheed Martin’s (NYSE:LMTF) F-35 stealth jet to secure a 8.3 trillion won ($7.4 billion) contract to supply the country with 60 fighter aircraft. A final decision is not expected until mid-September, sources told Reuters, but the price Boeing quoted was the only one of the three bids that fell below the ceiling set by the country’s arms procurement agency and that will likely put the company close to winning the contract.
As for the official announcement, a spokesman for the government’s Defense Acquisition Program Administration, DAPA, said at a Friday briefing that at least one bid came in on target and a comprehensive evaluation would soon begin. The $7.4 billion purchase represents South Korea’s largest defense import program ever – its aim is to replace the country’s aging fleet of F-4 and F-5 jets that are schedule to retire beginning in 2015. However, because last year’s presidential election and criticism that the government had rushed the project, the replacement process is behind schedule, and analysts say that it is unlikely the government will be able to have the first plan delivered as planned in 2017.
“We will conduct a comprehensive evaluation on all three models,” DAPA spokesman Baek Youn-hyeong told Reuters. “But only parties with under-budget bids will be subject for final selection.” While a Seoul-based Boeing spokesman declined to give the publication comment, a United States spokesman said on Sunday that, “We believe our F-15 proposal can affordably meet the Republic of Korea’s requirements. We await their decision and stand ready to deliver on our commitments.”
The United States government handles all foreign military sales on a government-to-government basis, leaving companies to provide details on price and specifications. Bidding for the project only resumed last week after suspending the project temporarily in July because all the bids were too high.
The DAPA also said on Sunday that one unnamed bidder had submitted a price that came under budget “by arbitrarily changing conditions that were previously agreed upon” during the most recent bout of bidding that took place between August 13 and 16. Therefore, that bid will be considered to have “exceeded the budget,” the agency told Reuters. A source told the publication that this was the bid made by the Eurofighter consortium in which the European Aeronautic Defence and Space Company, EADS, is an investor. But EADS maintains that the Eurofighter bid is not out of consideration.
As for Lockheed Martin, sources told Reuters that the bid it submitted was over-budget, although the company said on Sunday that it had not received any notification to that effect. The F-X source selection process has multiple phases and we will continue to work closely with the U.S. government as they offer the F-35 to Korea,” Lockheed said in a statement.
But, “it’s not going to be decided on cost alone,” a source, who was not authorized to speak publicly, told Reuters, adding that the cost of the aircraft represents only 15 percent of the decision-making process. Other factors, like the capabilities of the new fighters, will also by a key factor in the South Korean government’s decision.
South Korea is also beginning to manufacture its own fighter jets with the intention of exporting aircraft to cashing in on the increasing demand for military weapons. The country’s first home-build light fighter jet, the FA-50, will roll off assembly lines at a plant in the southern city of Sacheon on Tuesday. This effort will set South Korea’s fighters against U.S., European, Chinese, and Russian companies in a growing market.
Follow Meghan on Twitter @MFoley_WSCS