BAE to Upgrade South Korean F-16 Fighters

by: Matthew Potter
August 7, 2012

Category: BAE Systems, Business Line, Companies, Contract Awards, Countries, Department of Defense, Events, FMS, Lockheed Martin, logistics, Military Aviation, production program, Services, South Korea | RSS 2.0

The defense industry is becoming more competitive internationally. As the U.S. and European governments begin to spend less on their domestic military the large defense contractors will compete more for deals with foreign customers. The recent award to BAE Systems (BAE:LSE) of a contract by South Korea for fighter upgrades illustrates this.

South Korea operates over 130 Lockheed Martin (LMT) F-16 fighters. The F-16 was sold to many U.S. allies and like the current F-35 program was designed to share production among those buying it. Parts were made across the globe and the aircraft was assembled in different places such as South Korea and the Netherlands. This not only increased the investment by those involved but also lowered risk and allowed greater production in a shorter time.

This also meant that those countries assembling the aircraft did not necessarily have to rely on the U.S. or Lockheed for components or support once the F-16 were delivered.

The contract which could be worth over a $1 billion will have BAE install new electronics into the aircraft. Most of the work will be done in America even though it is a U.K. company.

Interestingly this contract is not a direct sale to South Korea but was done through the U.S. Foreign Military Sales (FMS) program. This allows foreign customers to utilize U.S. contracts to purchase hardware and support rather then negotiating their own contract.

BAE is already working on existing U.S. and Turkish F-16.

Normally one would have expected this type of contract to go to the OEM for the aircraft but the fact that BAE is doing the work shows the U.S. owns some of the necessary technical data and one hopes competition is lowering the cost of the effort.

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