Exclusive: BAE Systems says U.S. halted its work on F-16 upgrades for South Korea

Tue Oct 28, 2014 10:05pm EDT
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By Andrea Shalal

WASHINGTON (Reuters) - The U.S. unit of Britain's BAE Systems Plc on Tuesday said the U.S. Air Force has halted some of the company's initial work on a project to upgrade South Korea's F-16 fighter jets amid ongoing talks about the second phase of the project.

“We remain concerned about the lack of progress in the negotiations between the Republic of Korea and the U.S. Air Force on the KF-16 upgrade program that has now resulted in a partial stop work order," said BAE spokesman Brian Roehrkasse.

South Korea last week said it could cancel the overall project to upgrade 134 F-16 fighter jets and seek a different contractor, after the U.S. Air Force told Seoul the projected cost of 1.75 trillion won ($1.7 billion) could rise by 800 billion won.

The U.S. unit of BAE Systems beat out Lockheed Martin Corp, which built the jets, to win the South Korean upgrade contract in 2012, the first non-original equipment maker to win a competition for F-16 upgrades.

The company has several hundred employees working on an initial $140 million development contract for the upgrades, and had hoped that U.S. and South Korean officials would reach agreement about the second phase of the work by year end.

But the deal ran into trouble after the U.S. Air Force, which is managing the arms sale for the U.S. government, added significant "risk reserves" to proposed costs, according to sources familiar with the matter.

Roehrkasse said BAE remained committed to the terms of the firm fixed-price contract initially discussed despite the dispute between the Air Force and South Korea over the cost.

"We have made it clear throughout this process that we remain committed to the firm-fixed price contract for the scope of work defined by the U.S. government and the Republic of Korea last year,” Roehrkasse said in a statement to Reuters.   Continued...

A South Korean Air Force F-16 fighter jet fires flares during events to commemorate the 65th anniversary of Armed Forces Day, at a military airport in Seongnam, south of Seoul, October 1, 2013.   REUTERS/Kim Hong-Ji