Discounts drop Boeing jet price to $4.23 billion

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Discounts drop Boeing jet price to $4.23 billion

South Korea has bargained down the final price of its "F-X" project, the purchase of next-generation fighter jets, to $4.23 billion, getting a $239 million discount from the U.S. aerospace company Boeing, the National Defense Ministry announced Monday.

Boeing, selected on April 19 to build 40 F-15ks for Seoul's procurement program, agreed to give $203 million in price cuts and shaved another $36 million in the adjustment of contract items with South Korea's Air Force, the ministry said. At the time of its selection, Boeing's price was $4.47 billion, while its French competitor Dassault was offering to build 40 Rafales for $4.27 billion.

The U.S. aerospace giant and the ministry also negotiated on the value of the offset orders to be given to subcontractors here, since Boeing's offer on the provisional contract had failed to meet Seoul's specifications. Seoul required an offset package equivalent to at least 70 percent of the contract value; Boeing's offer was only 65 percent, or $2.89 billion.

With the price cut and additional work to be performed by local subcontractors, the offset trade package will be worth $3.56 billion, or 84 percent of the procurement price.

Boeing also agreed to guarantee a continuing supply of replacement components, since the service life of the U.S. Air Force's F-15Es, the base unit of South Korea's F-15Ks, will end by 2030. The U.S. Department of Defense will send a letter of a guarantee, but Seoul still plans to specify relevant terms in the formal contract since the letter will not be legally binding.

"We will obtain approvals from the National Assembly and the president before the end of May and sign a formal contract with Boeing in June," Choi Dong-jin, the defense ministry's procurement bureau chief, said.

Despite the price cuts negotiated with Boeing, the fighter project will cost Seoul more than estimated. In 2001, the National Defense Ministry planned to spend 4.3 trillion won, or $3.9 billion based on the foreign exchange rate at that time. The ministry will raise the additional funds by reprioritizing the pending procurement programs in the 2003 defense budget planning and the long-term budget drafts, said Bae Myeong-wu of the National Defense Ministry.

The deal is seen as a green light for Boeing, since South Korea's order will keep its plants busy until 2009. The U.S. firm is seeking to sell 100 F-15Ks to Australia, 24 to Singapore, another 24 to Saudi Arabia and 8 to Israel, the defense ministry said.

by Ser Myo-ja

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