South Korea Order Would Drive F-35 Per-Plane Cost Lower

WASHINGTON – South Korea’s plan to buy 40 Lockheed Martin Corp (LMT.N: Quote, Profile, Research, Stock Buzz) F-35 fighter jets will save the U.S. military about $2 billion by driving down the per-plane price of the new plane, and could create up to 10,000 U.S. jobs, according to sources familiar with the program.

Seoul’s decision will also help to offset any move by the U.S. Air Force and Navy to deal with mandatory budget cuts by postponing orders for up to 54 jets over the next five years, according to analysts. Seoul’s decision must still be approved by a committee chaired by its defense minister.

Loren Thompson, chief operating officer of the Virginia-based Lexington Institute, said the South Korean news would provide a significant boost to the F-35 program.

“The sale of F-35s to Japan and South Korea – America’s two leading industrial allies in northeast Asia means the F-35 is now becoming the gold standard for tactical aircraft across the western Pacific,” he said.

He said Singapore would likely follow suit with its own orders, followed by Malaysia and possibly New Zealand.

Top U.S. military officials have vowed to protect funding for the $392 billion F-35 program, one of their top priorities, but they acknowledge some U.S. orders may have to be postponed if Congress fails to reverse additional defense budget cuts.

In a worst-case scenario, the Air Force says it would postpone orders for 24 F-35s over the next five years, while the Navy has said it could defer as many as 30 jet orders.

Given ongoing uncertainty about the U.S. budget, military officials say no final decisions have been made, but they expect a slight drop in the planned ramp up in F-35 production, which had been slated to more than double to around 70 planes in a ninth production batch from 30 a year now.

The F-35 program, the Pentagon’s biggest arms program, has seen repeated delays and a 70 percent increase in costs over initial estimates. The fact foreign buyers are now placing orders for the new warplane underscores growing confidence in the program, U.S. officials say.

Lockheed is developing three models of the new fighter for the U.S. Air Force, Navy and Marine Corps, as well as eight countries that helped fund its development: Britain, Australia, Canada, Denmark, Turkey, Italy, the Netherlands and Norway.

After years of political wrangling, the Netherlands in September became the seventh foreign country to make a firm commitment to buy F-35s, joining Britain, Italy, Australia, Norway, Israel and Japan.

Britain is expected to announce additional orders next month, and Turkey is likely to become the eighth foreign buyer in January when it is expected to place firm orders for two of the 100 jets it plans to buy over time.

Japan and Israel are expected to order more jets next year, the sources said, while Singapore and Belgium are also considering joining the program.

U.S. government and industry officials also cite strong interest in the F-35 in the Gulf region, and say they have begun looking at when to release the jet to the region — probably about five years after Israel gets its first jets in 2016.

Once Seoul – as new buyer – formally notifies the Pentagon about its planned purchases, those jets will be added to the total number of expected purchases by the U.S. military and allies that is used by defense officials to estimate the cost of each airplane.

By 2019, the Pentagon projects the cost of each new F-35 fighter plane will be around $85 million, putting it on a par with the cost of current fighter planes, said Jim McAleese, a Virginia-based defense consultant.

The South Korean order could create 10,000 jobs at Lockheed and its suppliers as they build the components to make the 40 jets.

The sources said the projected savings and job counts were comparable to similar estimates released when Japan announced plans to buy 42 F-35 jets from the U.S. government in December 2011

Reporting by Andrea Shalal-Esa; editing by Andrew Hay