Dogfight over Korea’s jet deal

Ahead of the final step on price bidding, the contest to win Korea’s largest-ever procurement deal heated up as three competitors presented expensive offset packages.

Last year, Korea launched the next-generation fighter jet project, code-named F-X III, to purchase 60 jets. Three global builders are competing to win the 8.3 trillion won ($7.36 billion) deal.

The contenders are the F-15 Silent Eagle by Boeing, the F-35 Lightning II by Lockheed Martin and the Eurofighter Typhoon of the European Aeronautic Defence and Space Company (EADS).

All three bidders offered offset packages each equivalent to about 60 percent of the contract value, a military source said. “The Defense Acquisition Program Administration reviewed the three bidders’ proposals for offset packages,” he said. “And they are each worth around 60 percent of the estimated total for the procurement deal.”

He said the budget for the project is set at 8.3 trillion won, but the ratio of the offset packages was calculated case-by-case based on a different contract value for each bidder. Depending on who wins the deal, the total contract value will change, the source said.

The Defense Acquisition Program Administration required a bidder to present an offset package worth at least 50 percent of the total contract value. According to the source, all three bidders satisfied the requirement.

Based on the criteria for the evaluation, life cycle cost will be considered 30 percent, suitability for the role 33.61 percent and operational compatibility 17.98 percent.

The offset factors would account for the remaining 18.41 percent.

“As the competition heated up, the companies increasingly presented attractive offers at the last moment,” the source said.

All three bidders offered to transfer key technology in fighter jet design, and the factor is evaluated as being worth about $2 billion.

In addition, the three companies each presented different proposals. The EADS offered to assemble 53 out of the 60 fighter jets in Korea in addition to more technology transfer, including aviation electronics software. The company originally proposed to build 40 out of the 60 units in Korea, but increased the number in order to win the bid.

Although not formally included in the offset package, the European bidder also said in May that if it wins the deal it will make a $2 billion investment in Korea’s program to develop its own advanced fighter jets.

Lockheed Martin proposed to support the Korean military’s communication satellite project and to establish the Live, Virtual and Constructive (LVC) training technology for the Korean Air Force.

The technology will allow the Korean forces to train in war simulation in relation to the military’s current operational system.

Boeing also offered to build the LVC training system and proposed to make a multibillion-dollar purchase of components from the Korean aviation industry.

As the bidders wrapped up their presentation of offset packages and price negotiations, the Defense Acquisition Program Administration will begin the final price bidding next week.

During the price negotiations, the procurement agency and bidders talked about the price tags for specific parts of the fighter jets such as fuselage, engine, arms and radar.

BY SER MYO-JA [myoja@joongang.co.kr]