South Korea will benefit from economies of scale when production of the F-35 stealth jet goes into full swing in the next five years if it signs a contract for 40 aircraft for delivery starting from 2018, a senior Lockheed Martin official was quoted as saying by Yonhap News Agency.
"Seoul is set to confirm a plan to buy 40 F-35As through the U.S. foreign military sales (FMS) program without open bidding, while the Defense Acquisition Program Administration (DAPA) and the finance ministry are currently deliberating the total budget", according to the report.
Gary North, vice president for customer requirements for Lockheed Martin, suggested South Korea is in a good position to profit from economies of scale as his company is expected to start full-scale production between 2017 and 2018.
"As the number of the airplanes goes up over the years, the cost is coming down. Once it reaches the full rate production, the cost will flatten out as a function of the economics," North told Korean reporters during their visit to the F-35 production line in Fort Worth, Texas.
South Korea had initially planned to buy 60 advanced jets to replace the aging fleet of F-4s and F-5s, but it reduced the number after rejecting Boeing's F-15 Silent Eagle, the only aircraft that met the previous competition's budget of 8.3 trillion won (US$7.2 billion), leaving open the possibility of 20 more jets in the future.
Lockheed Martin fell short of providing an estimated budget for the South Korean deal as the FMS conditions require a foreign government to pay the amount specified by the U.S. government. Instead, North pointed to a recent cost projection by the Pentagon's F-35 program chief.
Lt. Gen. Chris Bogdan said during a visit to Australia last week that the cost of the F-35B conventional take-off and landing (CTOL) variant will fall to US$80-85 million, the report added.
"Lockheed Martin agrees with Lt. Gen. Bogdan's assessment that the cost of the F-35 is on a downward path that will lead to a Unit Recurring Flyaway (URF) cost for an F-35A of between $80-85 million," said Randy Howard, the director of F-35 Korea business development.
"This projected price includes the aircraft, avionics and mission systems, and the engine" as well as logistics support and a flight simulator, he said.
But Korean acquisition officials, who grappled with budget issues in the past program, warned the company's projection may be too rosy, the report added.
"It seems like the most optimistic price estimation made under the premise that international sales of 3,200 F-35s will go ahead as planned," a senior DAPA official told Yonhap, asking for anonymity. "There is a gap between the estimated cost and the real contract price as the F-35 is sold through the FMS program for all purchasers."