August 19, 2013 / 11:31 AM / 6 years ago

Boeing undercuts rivals in South Korea fighter contest: sources

SEOUL (Reuters) - Boeing’s (BA.N) bid in the 8.3 trillion won ($7.4 billion) tender to supply South Korea with 60 fighter aircraft was the only one below the price ceiling set by the country’s arms procurement agency, sources close to the process said on Monday.

The Boeing logo is seen at their headquarters in Chicago, April 24, 2013. REUTERS/Jim Young

A final decision was not expected until mid-September, the sources said, but the price submitted by the U.S. company appears to be a significant step toward winning the contract.

Boeing is pitching the latest variant of its F-15 fighter, dubbed the F-15 Silent Eagle, against the Eurofighter consortium’s Typhoon and Lockheed Martin’s (LMT.N) F-35 stealth jet.

South Korea’s Defense Acquisition Program Administration (DAPA), which led the assessment of the fighters, said on Friday that at least one bid, which it did not identify, came within its overall budget.

The decision on one of the world’s most closely watched military tenders will be made by a committee chaired by South Korea’s defense minister after DAPA submits its final evaluation of the three fighters next month.

DAPA will score the bids on a fixed set of criteria, although Korean law prevents the government from signing a contract that exceeds the allotted budget.

“We will conduct a comprehensive evaluation on all three models,” DAPA spokesman Baek Youn-hyeong said. “But ... only parties with under-budget bids will be subject for final selection.”


A Seoul-based Boeing spokesman declined to comment, but on Sunday a spokesman in the United States said: “We believe our F-15 proposal can affordably meet the Republic of Korea’s requirements. We await their decision and stand ready to deliver on our commitments.”

DAPA said on Sunday that an unnamed bidder submitted a price that fell within budget “by arbitrarily changing conditions that were previously agreed upon” on the last of the 13 rounds of bidding August 13-16. This bid will be considered as having “exceeded the budget,” it added.

The sources close to the process said this was the bid submitted by the Eurofighter consortium, in which EADS EAD.PA is an investor.

EADS maintains that the Eurofighter remains in the race.

“We are open for any constructive discussion with DAPA,” Christian Scherer, head of sales and international operations at EADS Cassidian, said in a statement on Monday.

The sources also said that the Lockheed Martin bid was over-budget, though the company responded on Sunday by saying that it had not received any official notification regarding the latest bidding results.

Lockheed said reports that it had been eliminated from the competition were not accurate, and it continued to work with the U.S. government on its offer of the F-35 fighter for South Korea. It said the South Korean competition had multiple phases.

One industry source said that the capabilities of the new fighters, rather than cost, would be a key factor in Seoul’s decision.

“It’s not going to be decided on cost alone,” said the source, who is not authorized to speak publicly, adding that the cost of the aircraft represents only 15 percent of the decision-making process.

Additional reporting by Ju-min Park in Seoul, Andrea Shalal-Esa in Washington and Julien Ponthus in Paris; Editing by Siva Govindasamy, David Goodman and Maureen Bavdek

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