South Korea cancels BAE Systems’ KF-16 modernization contract

The Government of the Republic of Korea officially requested yesterday to cancel the KF-16 upgrading contract with BAE Systems Technology Solutions & Service of the USA.

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An F-16D from Chilean Air Force Group 3 (FACh). Photo: Cruzex V, Natal

The Government of the Republic of Korea officially requested yesterday to cancel the KF-16 upgrading contract with BAE Systems Technology Solutions & Service of the USA. The contract worth $138 million was the lead part in a longer upgrading program covering the modernization of 134 Republic of Korea Air Force KF-16s. The contract was managed by the US Air Force under the U.S. Foreign Military Sales (FMS) procurement.

The reasons for the Korean decision was provided in the official statement announced by the US Defense Security Cooperation Agency (DSCA), but in recent weeks Seoul became highly critical about the program, as DAPA announced the contract could be cancelled, given BAE Systems demand for higher cost, above the agreed amount.

Apparently, unexpected cost increases were caused by excessive fees the U.S. Air Force would charge for engineering packages needed for the project, which was done in competition to the Original Equipment Manufacturer (OEM) Lockheed Martin. Although the aircraft was developed for the Air Force, with USAF funding, the provision of engineering packages acquired by the Air Force were estimated to cost some 600 million above the original estimates. BAE itself under estimated its engineering costs for the upgrade by more than $193 million.

A BAE spokesman said in a statement the company was “disappointed“ by the decision, and emphasized the work already being completed under Phase 1 of the contract.

Lockheed Martin, which initially lost the contract to BAE, said it is ready to support its F-16 customers, including South Korea.