The South Korean Government is likely to cancel a contract with BAE Systems for modernisation of the national air force’s KF-16C/D Block 52 fighter aircraft fleet.
In December 2013, BAE received a foreign military sales contract from the US to upgrade the Republic of Korea Air Force’s ageing fleet of 134 KF-16 fighters in two phases at a cost of KRW1.75tn ($1.7bn).
Two US-based sources were quoted by Reuters as saying that the deal ran into rough weather after the US Air Force (USAF) added on significant risk ‘reserves’ to proposed costs.
One source with the knowledge of matter said BAE has been on cost and on-schedule with an initial $140m development contract for the KF-16 upgrades, but the US Government said that the projected cost could rise by KRW800bn ($753m).
The cost increase could force South Korea to reopen the competition as the existing rules allow for only a 20% cost rise in weapons programmes, the source added.
South Korean Defense Acquisition Program Administration spokesman Baek Youn-hyeong said: "We are currently in official talks with BAE.
"If the negotiations proceed smoothly, we will go ahead as planned. If they break down, we will consider changing the contractor for the upgrades.
"We hope to remain committed to the existing contract."
BAE spokesman Brian Roehrkasse said the company is committed to the terms of the firm-fixed price contract initially negotiated, despite disagreements between the USAF and South Korea about the overall cost.
"Negotiations continue on the overall programme, and we are hopeful that a resolution will soon be reached," Roeherkasse said.
The US Defense Security Cooperation Agency director vice-admiral Joe Rixey is set to meet with South Korean officials to discuss the issue this week.
Meanwhile, Lockheed Martin, which initially lost the contract to BAE, said it is ready to support its F-16 customers.
Lockheed spokesman Mark Johnson said the company believed it was "uniquely qualified as the original equipment manufacturer and design authority to provide best value to our F-16 operators."
Image: Two Republic of Korea Air Force F-16C fighters over Kunsan air base, South Korea. Photo: courtesy of US Air Force photo by Master Sgt. Jack Braden.