September 23, 2013 / 9:10 PM / in 6 years

South Korea to decide on $7.7 billion jet tender: Boeing or nothing

SEOUL (Reuters) - Boeing Co (BA.N) is favorite to win one of the world’s biggest defense deals of the year on Tuesday when South Korea names the winner of an 8.3 trillion won ($7.7 billion) fighter jet tender, with its F-15 Silent Eagle the only candidate within budget.

The second production model F-35A Lightning II aircraft flies above the compass rose of Rogers Dry Lakebed at Edwards Air Force Base, California in this May 13, 2011 file image distributed by the U.S. Air Force. REUTERS/Paul Weatherman/Lockheed Martin/US Air Force/Handout via Reuters/Files

Only under-budget bids can be selected, according to South Korean law, leaving Boeing in the box seat unless a new tender is called. There is still a possibility top decision makers including the president can scrap the current auction, but experts say that is a long shot.

Bids by rival Lockheed Martin Corp’s (LMT.N) F-35A and Eurofighter consortium’s Typhoon were both over budget.

Debate has intensified as the tender decision has drawn closer and 15 South Korean former air force chiefs signed a petition in late August opposing the selection of Boeing’s F-15SE, saying it lacked the stealth capabilities of more modern aircraft.

Plagued by multiple delays that pushed back first delivery by three years to 2017, and a total budget fixed without wriggle room, top decision-makers are now keen to buy jets as soon as possible to partially replace ageing F-4 and F-5 fighters and maintain combat capabilities.

“Timing of the deployment is the most important factor... If (first delivery of) this project is delayed to 2019, I believe it could even be a serious matter in relation to North Korea,” Air Force Chief of Staff Sung Il-hwan told a parliamentary hearing earlier this month.

If South Korea delays the decision, the Defense Acquisition Program Administration (DAPA) estimates that by 2019 the South Korean air force could be 100 fighters short of the 430 jets deemed necessary.

And with South Korea facing a 2013 revenue shortfall of up to 8 trillion won ($7.37 billion), experts say there is little chance the finance ministry will change rules to increase the project’s budget.

The F-35A had once been the favorite as it was the only model that met the initial stealth requirements the South Korean air force submitted. But that requirement was relaxed in 2011 to allow for more competitors and bring the bid prices down.

“High-level fighters are needed to not only check North Korea but nearby countries” as Japan acquires F-35s and China develops J-20 stealth fighters, said Shin In-kyun, president of the Korea Defense Network, an alliance of defense experts based in Seoul.

A committee chaired by the defense minister will meet on Tuesday to make a final decision on the tender.

($1 = 1084.0250 Korean won)

Reporting by Joyce Lee and Ju-min Park; Editing by Jeremy Laurence

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