South Korea has temporarily halted a contract with BAE Systems to upgrade its aging fleet of KF-16 fighters due to cost issues, the state arms procurer said Thursday, denying a report on the deal’s cancellation.
Reuters reported Wednesday that the 1.75 trillion won (US$1.61 billion) South Korea-BAE Systems deal to upgrade the Korean fleet of F-16s has been canceled due to a cost spike, citing a source from the U.S. government, which brokered the transaction.
In December, Seoul agreed with Washington to have the U.S. unit of the British defense firm upgrade the radar and avionics systems of the South Korean fleet.
“After consultations with Washington, Seoul told BAE Systems to suspend the upgrade work, based on an assessment that it would be better not to be continued any longer under the current situation,” said Kim Si-cheol, spokesman of the Defense Acquisition Program Administration (DAPA).
The deal recently ran into trouble after the U.S. government and BAE Systems demanded that South Korea pay more money to cover costs stemming from Seoul’s delay in the implementation of the upgrade deal.
The U.S., together with the defense firm, called for an additional cost of as much as a combined 800 billion won, according to DAPA.
The DAPA spokesman said that South Korea is in negotiations with the U.S. over the cost issues, adding that the government has conveyed to BAE Systems its intention that it will consider the cancellation of the deal if the upgrade work does not proceed as agreed to in the original contract.
“No decision has been made regarding the cancellation of our government’s contract with the U.S. government,” Kim said, adding that Seoul will make a final decision after a thorough review of the costs that have already been spent and other financial issues.
Asked whether South Korea would face a heavy punitive cost upon a cancellation, the official said South Korea needs to consult with the U.S. on the matter.
Meanwhile, Seoul will soon start fresh negotiations with Lockheed Martin Corp., the U.S.-based manufacturer of the F-16 fighter, for the fleet upgrade plan, a military source said.
“The work is now under way to see how much it would cost if it is with Lockheed Martin,” one DAPA source said. “But our best-case scenario is that (Seoul) keeps its original deal with BAE Systems,” the source said. (Yonhap)
