The US Government has cancelled a contract with BAE Systems to upgrade the Republic of Korea Air Force’s ageing fleet of F-16 Fighting Falcon aircraft.

In a statement, the US Defense Security Cooperation Agency said BAE Systems Technology Solutions & Service was notified at the request of the South Korean Government, regarding termination of a contract for initial development and long lead production in support of KF-16 fighter modernisation.

"This contract was the first of a two-phase foreign military sales (FMS) procurement for the upgrade of 134 KF-16s," the statement added.

The move now enables South Korea to negotiate a similar upgrade contract with F-16 manufacturer, Lockheed Martin, as reported by Reuters.

Signed in December 2013, the deal covered upgrade of 134 KF-16s at a cost of KRW1.75tn ($1.7bn).

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By GlobalData

However, the contract ran into trouble last month after the US Air Force added on significant risk ‘reserves’ to proposed costs and warned that the projected cost could rise by KRW800bn ($753m).

Unnamed US officials told the news agency that the cost estimate rose significantly after US Government determined the sensitivity of the equipment involved, which prohibited BAE from negotiating the contract with South Korea as a direct commercial sale.

The contract had to be handled as a government-to-government foreign arms sale.

The Seoul government was reportedly informed two years ago of a substantial risk that the projected cost would increase as a result of the decision to offer ‘a total package approach.’

"This contract was the first of a two-phase foreign military sales procurement for the upgrade of 134 KF-16s."

According to the officials, South Korea now faces ‘sizeable’ termination fees for cancelling the contract.

Meanwhile, BAE spokesman Brian Roehrkasse said the company remained committed to a firm, fixed-price contract initially agreed, and could have done the work ‘in an efficient and cost-effective manner’.

"Unfortunately, the programme was impacted by Korea’s strict budget limitations and the US Air Force’s conservative approach to the overall programme cost," Roehrkasse said.

In June, BAE started the first phase of upgrades on two KF-16C/D Block 52 fighters at its facility in Fort Worth, Texas, US.

Image: BAE was supposed to upgrade 134 South Korean KF-16 fighters at a cost of $1.7bn. Photo: courtesy of BAE Systems.

Defence Technology