Lockheed Martin Corp. moved a step closer to a deal to sell 40
of its F-35 Joint Strike Fighters to South Korea, which suggested
the jet was the sole qualifying bid for a multibillion-dollar order
due next year.
South Korea's Defense Ministry on Friday revised plans to
replace part of its aging jet fleet, saying it will now do an
initial order of 40 radar-evading fighters next year, with a
follow-on deal for another 20 aircraft that could be split between
suppliers. The ministry didn't explicitly select the F-35 for the
initial 40-jet buy, but the requirement for stealth capability
implied the Lockheed jet was the only contender, ministry spokesman
Kim Min-seok said.
South Korea's military leaders have championed buying the F-35
during a protracted contest that initially excluded the jet as
being too expensive. The Lockheed plane later prevailed as defense
officials pushed for its radar-evading stealth capabilities to
tackle threats from North Korea and keep pace with jets being
developed or acquired by neighboring China and Japan.
The potential deal would be a crucial win for Lockheed, which is
targeting around half of F-35 sales over the next few years going
to overseas buyers at a time when Pentagon budget cuts threaten to
delay the number of purchases of the advanced new jet by the U.S.
military.
The F-35 now accounts for 15% of Lockheed's total revenue.
Analysts forecast annual sales of between 50 and 60 jets over the
next four years. Canada has reopened a contest to supply up to 65
new fighters, having initially indicated it would buy F-35s, and
Italy is also reviewing how many F-35s it might buy. Turkey and
Singapore are among other countries considering the F-35.
The latest twist in the South Korean fighter contest deals a
blow to Boeing Co. and the European consortium that produces the
Eurofighter. Boeing's F-15SE jet and the Eurofighter have both
struggled to find new customers to sustain production.
Lockheed and its partners on the F-35--which include BAE Systems
PLC, Northrop Grumman Corp. and United Technologies Corp.--have
signaled in recent months that the delayed and over-budget program
is turning around.
The partners have started to repair relations with the Pentagon
over cost overruns and technical problems, and are preparing to
more than double annual production over the next two years from the
29 jets made in fiscal 2013, rising to as many as 100 in 2018.
U.S. budget pressures continue to threaten orders from the
Pentagon, and the loss of orders at home or overseas would put
upward pressure on the unit cost of each plane, just after Lockheed
managed to bring down the average airframe price in the latest
batch sold to the Pentagon to below $100 million.
South Korea initially had planned to make a 60-jet purchase, but
the plan collapsed in September when the only bid that met the
government's roughly $7.8 billion budget cap--Boeing's F-15SE--was
ruled inadequate for its lesser stealth capability.
South Korea's Defense Ministry said deliveries of the initial 40
jets are expected to begin in 2018. The second batch of 20 jets it
plans to order are for deliveries starting in 2023, with the
possibility that more than one type of fighter will be
included.
Lockheed and the Pentagon maintain the first F-35 is on track to
enter combat service with the U.S. Marine Corp in late 2015, with
the U.S. Air Force following in 2016.
The F-35 program is partly funded by a number of overseas
partners. The U.K. received its first F-35 last year, joined this
year by the Netherlands, which in September agreed to buy an
additional 37 in a deal valued at EUR4.5 billion ($6.1
billion).
Australia is set next year to become the first Asia-Pacific
nation to receive the F-35, with Japan following in 2016 in a deal
that entails assembling most of the 42 jets on order at a factory
in Nagoya as part of a so-called offset program common in
large-scale military sales.
Lockheed's bid in the South Korean fighter contest--which is
made via the U.S. government--included technology support for a
proposed new jet for the country and the construction of a military
satellite.
A senior official at South Korea's procurement agency told
reporters a new budget would be set, and denied that the prospect
of a split order reflected financial constraints.
South Korean air-force officials have consistently indicated
their preference for the F-35, saying the radar-evading jets will
be an effective deterrent to North Korea's nuclear threats.
Lockheed said following the announcement that it is committed to
the bid and is able to deliver from 2018, as planned by the South
Korean air force.
Boeing didn't concede defeat Friday, saying in a statement
released after the ministry briefing that it would continue to
participate in the bidding.
The Eurofighter consortium, which includes European Aeronautic
Defence & Space Co. and BAE Systems, couldn't be reached for
comment.
Write to Jeyup S. Kwaak at jeyup.kwaak@wsj.com and Doug Cameron
at doug.cameron@wsj.com
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