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KAI loses U.S. training jet contract to Boeing

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Sept 29,2018
Korea Aerospace Industries (KAI) and Lockheed Martin lost a bid to build training jets for the United States Air Force, with the Air Force choosing a partnership between Boeing and Swedish aerospace company Saab.

The Boeing-Saab bid was $9.2 billion, although the Air Force originally expected the project to cost $19.7 billion.

The Air Force said Thursday it will ultimately purchase 351 new pilot trainers to replace its 57-year-old fleet of T-38 trainers along with 46 simulators and associated ground equipment. It hopes to put the new system into full operation by 2034.

Boeing and Saab were awarded an initial $813 million from the Air Force for engineering and manufacturing development of the first five aircraft and seven simulators.

Lockheed and KAI offered to build T-50A trainers, a version of KAI’s T-50 which is used by the Korean Air Force and militaries in Indonesia, the Philippines, Thailand and Iraq, while Boeing and Saab competed with an aircraft designed specifically for the U.S. Air Force. The competition was considered tight until the announcement.

KAI expressed regret Friday and said that Boeing won mainly due to its low-ball bid.

“We made a strategic bid with Lockheed Martin, but lost due to a big price-gap compared to Boeing’s offer,” a KAI spokesperson said.

The failure is a blow to the Korean company, which hoped that winning the deal would help it rebound from a corruption scandal that forced its chief executive to resign last year.

Nine executives, including CEO Ha Sung-yong, were charged by prosecutors for accounting fraud and negligence in several supply deals. They are currently on trial.

Kim Jo-won became chief executive last October and tried to restore the company’s image. However, a fatal crash of a KAI-developed helicopter during a test run by the Korean Marine Corps in July brought new woes to the company.

“Losing the deal isn’t just about losing a mega contract,” said Lee Sang-woo, an analyst from Eugene Investment & Securities. “The failure will hamper KAI from winning trainer deals in other markets as well.”

Lee explained that a training jet chosen by the U.S. Air Force will have an advantage in other markets, making it harder for KAI to compete against.

Investors reacted sharply. KAI’s share price on Korea’s main bourse, the Kospi, plunged by 29.8 percent on Friday to 35,100 won ($31.60).

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]


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