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South Korea dumps Boeing fighter jet tender, Lockheed soars back

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

By Joyce Lee and Ju-min Park

SEOUL (Reuters) - South Korea's government bowed to public pressure on Tuesday and voted down a bid by Boeing to supply 60 warplanes, saying it would restart the multi-billion tender process to get a more advanced, radar-evading fighter.

Lockheed Martin's F-35A, previously considered too expensive, has shot to the front of the line in the race for the contract after the defence ministry singled out a fifth-generation fighter as the preferred option.

The fifth generation F-35A, complete with its hi-tech stealth capability, has already been ordered by the United States and seven other countries, including Japan and Israel.

Boeing's F-15 Silent Eagle, the only bid within budget, had been poised to win the 8.3 trillion won ($7.7 billion) tender. But former military top brass and ruling party lawmakers had criticised the plane for lacking stealth capabilities.

"Our air force thinks that we need combat capabilities in response to the latest trend of aerospace technology development centered around the fifth generation fighter jets and to provocations from North Korea," defence ministry spokesman Kim Min-seok told reporters.

Experts said the phrasing of that statement meant Boeing had a slim chance in the next round. While the F-15 Silent Eagle offered passive stealth, its electronic warfare equipment left it visible to adversaries.

A third bid by the Eurofighter consortium's Typhoon was also ruled out for going over the finance ministry's budget. Under South Korean law, only bids under budget are eligible to win defence contracts.

Experts said a deal with Boeing or Lockheed Martin was most likely because of South Korea's close military alliance with the United States against the belligerent North.

The South Korean government and air force will map out a fresh tender process and consider a new budget, possibly reducing the number of planes sought to 40 or 50.

The defence ministry said it could take around one year to complete the new tender round.

"DAPA...will swiftly pursue the program again in order to minimize the vacuum in combat capabilities," South Korea's Defense Acquisition Program Administration (DAPA), which led the assessment of the fighters, said in a statement.

FRESH START FOR LOCKHEED

The collapse of the deal means a fresh start to Lockheed Martin, which has recently taken a new order from the Netherlands for the F-35. Britain, Australia, Italy, Norway, Israel and Japan have also placed orders.

Lockheed has set its sights on additional orders from Norway, Britain and Turkey before year's end.

Increased production of the F-35 aircraft could allow the U.S. government and Lockheed to lower the tender bid. A U.S. Air Force general vowed this month to keep lowering the cost to build and operate the F-35.

"We will continue to support the U.S. government in its offer of the F-35A to Korea," Lockheed Martin's South Korean representative said after the decision.

In Washington, the Pentagon's F-35 program office said it had not been officially notified of South Korea's decision, but was ready to support Seoul's efforts to buy a fighter jet.

U.S. military officials say the biggest strength of the F-35, in addition to radar-evading coatings and configuration, is its ability to fuse data from other aircraft and sensors. This allows it to help identify targets for other fighters, and essentially command the battlefield.

Richard Aboulafia with the Virginia-based Teal Group said the decision was bad news for Boeing, which is bracing for slowing production of other aircraft, including its C-17 transport plane and F/A-18 Super Hornet fighter.

He said there was still a small chance that South Korea could decide to buy an additional squadron of F-15K fighters.

Boeing said in a statement it was deeply disappointed by the decision. The company has spent significant sums to develop the Silent Eagle variant of the F-15 and has cultivated strong ties to South Korean industry.

"We await details from DAPA on its basis for the delay while evaluating our next options," Boeing said.

A DAPA official said South Korea had followed the rules in the bidding process, but declined to comment on possible legal action by Boeing.

A local representative of the Eurofighter consortium said it would participate when the project restarted.

The DAPA had estimated that any delay in the tender process could leave the South Korean air force 100 fighters short of the 430 jets deemed necessary by 2019.

Last month, 15 South Korean former air force chiefs signed a petition opposing selection of the F-15, saying it lacked stealth capabilities of more modern aircraft.

($1 = 1073.9500 Korean won)

(Additional reporting by Andrea Shalal-Esa in Washington; Editing by Jeremy Laurence and David Gregorio)

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