REUTERS SUMMIT-Boeing confident on South Korea's biggest defense deal

Wed Sep 4, 2013 1:27am EDT

By Andrea Shalal-Esa and Joyce Lee

WASHINGTON/SEOUL, Sept 4 (Reuters) - Boeing Co is confident of winning South Korea's biggest defense deal, company executives said, although defense sources said many in Seoul's military establishment prefer rival Lockheed Martin Corp's costlier stealth fighters.

Boeing's defense division president and chief executive Dennis Muilenburg told the Reuters Aerospace and Defense Summit in Washington on Tuesday that the U.S. company expects its F-15 Silent Eagle will help it clinch the $7.4 billion fighter contract, with a decision expected within weeks.

"We're confident in the bid that we've provided. It's an affordable bid and also a very capable bid," he said, noting that the process still had to run its course.

As South Korea's biggest-ever defence program and one of the world's largest military tenders this year, the fighter contract is key not only to defense manufacturers like Boeing, Lockheed and the Eurofighter consortium, it is also crucial to South Korea's deterrence capabilities against the nuclear-armed North.

The new jets will allow the U.S. ally to partially replace some 150 ageing F-4 and F-5 jets that South Korea plans to retire starting in 2015, keeping pace with fighter upgrades being undertaken by neighbors China and Japan.

Boeing's bid was the only one of three submitted that came in below the price ceiling set by South Korea's arms procurement agency, sources close to the process told Reuters last month.

South Korean officials involved in the process confirmed that a final decision was expected this month after a comprehensive assessment of all the bids. Only under-budget bids can be selected, so unless a new tender is called Boeing is in the box seat at this stage.

Even so, some in the South Korean defense establishment are still rooting for Lockheed's F-35 and its stealth capabilities, over Boeing's Silent Eagle and the Eurofighter consortium's Typhoon.

Two South Korean air force sources said the F-35 had strong backing within the force, although they would not say so publicly out of deference to the Defense Acquisition Program Administration (DAPA) which is leading the decision on the competing bids.

The sources declined to be identified as they were not authorized to speak to the media.

"Japan has signed on to acquire F-35s, while China is expected to place J-20 stealth fighters on the front lines in 2016," said Hahn Sung-chu, a retired air force major-general.

"Considering South Korea already has some 230 older-generation jets ... stealth is clearly a necessary feature for anyone that has studied strategy."

If the jet program is delayed further to allow for a new tender process, DAPA estimates that by 2019 the South Korean air force will be 100 fighters short of the 430 jets deemed necessary for it to maintain its combat capabilities.

"Many problems are foreseen if the program was restarted without a clear reason, including a growing vacuum in combat capability, restrictions on starting other projects due to the delay of a large project, and the undermining of government credibility," it said last week.

The deciding committee includes the minister of defense and head of resources management, military leaders, independent experts and lawmakers. Decisions are made by majority vote.

Members with army and navy backgrounds outnumber those aligned with the air force, another factor that experts like Hahn say could work in Boeing's favour.

President Park Geun-hye is expected to be briefed on DAPA's review of the bids before the committee makes its final decision.

Park leans more heavily on advisers with army backgrounds than air force ones when it comes to military decisions.

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