Bidders sweeten 'offset' deals

From left are Lockheed Martin’s F-35 Joint Strike Fighter, EADS’s Eurofighter Tranche 3 Typhoon and Boeing’s F-15 Silent Eagle. / Yonhap

By Kang Seung-woo

Ahead of the procurement office’s announcement of a winner for the Korean Air Force program to acquire 60 advanced fighter aircraft, the three bidding rivals in the F-X III program have offered “sweetened” offset packages in last-ditch efforts to win the deal.

Offsets refer to industrial compensation practices that foreign governments or companies require contractors to enter into as a condition of purchase and they include mandatory co-production, licensed and subcontractor production, technology transfer, and foreign investment.

Currently, Lockheed Martin’s F-35 Joint Strike Fighter, Boeing’s F-15 Silent Eagle and the European Aerospace Defense and Space Company’s (EADS) Eurofighter Tranche 3 Typhoon are vying to secure the 8.3 trillion-won ($7.5 billion) project, aimed at replacing the Air Force’s aging fleet of F-4s and F-5s from 2017.

In January last year, the Defense Acquisition Program Administration (DAPA) requested the three bidders to submit their offset proposals for offering technology support and other measures to develop the local aerospace industry and they all met the given requirements ― hovering over a bottom line 50 percent in terms of estimated value to the procurement price.

“The estimated value of each offset program from the three companies accounts for around 60 percent of the F-X project’s overall budget,” a DAPA official said, Monday.

EADS, adopting the most aggressive stance of late, has promised to assemble 53 of the 60 Eurofighters locally, which DAPA expects will create employment.

It also offered to provide the source code for its fighter jets ― the key to the plane’s electronic brains ― and purchase Korean-made parts. In addition to the offset package, the four-nation consortium, led by Cassidian Spain, has offered to invest $2 billion in the nation’s indigenous fighter plane program.

Boeing proposed to purchase parts from Korean companies and establish live virtual constructive (LVC) simulation to train Korean pilots. Separately, it will establish an avionics maintenance, repair and overhaul facility in Yeongcheon, North Gyeongsang Province, which will be its first in Asia.

Lockheed, whose F-35 is seen as a front-runner in the bidding, has proposed to support the Korean military's plan to develop its own communications satellite, along with the LVC system.

Along with the each player’s distinctive proposals, all three bidders will be open to technology transfer and willing to make strong and solid commitments to help Korea’s indigenous fighter program, code-named KF-X, according to DAPA.

“With the competition heating up, each company has offered competitive offset programs,” DAPA said in a statement. “Whichever firm wins the bid, it will help Korea develop the local aerospace industry.”