South Korea picks GE to supply engines for homegrown fighter jets

SEOUL (Reuters) - South Korea has picked General Electric Co GE.N to supply engines for its homegrown KF-X fighter jet project, preferring the U.S. giant over a European consortium in a deal that could be worth an estimated $3.5 billion.

The logo of General Electric is pictured at the 26th World Gas Conference in Paris, France, June 2, 2015. REUTERS/Benoit Tessier

The decision, announced on Thursday by the country’s arms procurement agency marks the latest step in Seoul’s multi-billion dollar plans to develop its own fighter jets to reduce its heavy reliance on the U.S. military for air defense.

The move gives GE preferred bidder status, with a contract expected to be finalised and signed in June. Financial details weren’t disclosed, but South Korean media have estimated the deal could be worth about 4.08 trillion won.

Last year, South Korea's Defense Acquisition Program Administration picked Korea Aerospace Industries Ltd (KAI) 047810.KS, which partners with Lockheed Martin Corp LMT.N, to develop the 8.7 trillion won ($7.4 billion) KF-X jet project.

North and South Korea, in a technical state of war since their 1950-1953 conflict ended in a truce, not a peace treaty, are separated by the world’s most heavily militarized border.

KAI plans to develop and produce 170 twin-engined jets initially, with 50 destined for export to Indonesia, a person with knowledge of the matter told Reuters, speaking on condition of anonymity because the situation was confidential.

More engines are expected to be sold if KAI successfully exports the KF-X to other countries seeking a relatively cheaper replacement for their U.S.-supplied jets.

To power the aircraft, KAI has opted for F414-GE-400 engines, produced by GE Aviation, over a rival bid to supply Eurojet EJ200 engines, made by a consortium that includes Rolls-Royce Holdings PLC RR.L and MTU Aero Engines AG MTXGn.DE.

GE Aviation scored better results than Eurojet in all four main criteria for the contract, the DAPA said in a statement: technology, costs, localization and management.

South Korea plans to localize production of parts of the KF-X engines by 2022, according to the DAPA.

Reporting by Hyunjoo Jin in SEOUL and Siva Govindasamy in SINGAPORE; Editing by Biju Dwarakanath and Kenneth Maxwell