The world's largest standalone defense contractor,
Lockheed Martin Corp.
), finally clinched a sizeable contract from South Korea for 40
of its F-35 Joint Strike Fighters. The company is set to win more
foreign military sales contracts (FMS) in response to Pentagon
budget cuts and delays in buying new jets.
The Republic of Korea has selected the Lockheed Martin F-35
Lightning II aircraft for its F-X fighter acquisition program to
beef up its stealth capability in response to North Korea's
growing nuclear threat.
As per media reports, the Defense Acquisition Program
Administration (DAPA) - Seoul's arms procurement agency -
reported an anticipated budget of about 7.34 trillion won or
$6.79 billion to procure the F-35s.
The Republic of Korea is the third foreign country to procure the
F-35, following Israel and Japan which selected the F-35A in 2010
and 2011, respectively. The Korean F-35 deal is expected to be
finalized in the third quarter of 2014, with first delivery
scheduled for 2018.
Earlier, South Korea had opted for
The Boeing Co.
) more economical F-15 Silent Eagle (F-15SE). Lockheed Martin's
F-35 and Eurofighter's Typhoon missed the eligibility mark as
they were over-budget.
However, the pressure to invest in more advanced fighter planes
has compelled the South Korean government to reconsider the case.
In Sep 2013, Boeing's F-15 Silent Eagle was finally rejected on
grounds of not having enough stealth capabilities.
The F-35 Lightning II Joint Strike Fighter is the 5th Generation
Stealth fighter comprising radar evading stealth, supersonic
speed and extreme agility with the most powerful and wide-ranging
integrated sensor package of any fighter aircraft in history.
Apart from the U.S., the plane has also been ordered by
Australia, Britain, Israel, Turkey, Italy, Japan, the Netherlands
The defense prime's F-35 fighter jet engines are made by U.S.
based Pratt & Whitney and U.K.'s BAE Systems as its main
international partner. It also includes
Northrop Grumman Corp.
United Technologies Corp.
) as partners on the F-35.
This program, which accounted for 16% of Lockheed's total
revenues in 2013, faced years of delays due to technical setbacks
and cost overruns. This has led some of its cash-strapped
customers, including the governments of U.K. and Canada, to cut
or reconsider their orders. The F-35 program is expected to cost
around $391.2 billion.
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The recent announcement came as good news for Lockheed Martin as
the program has repeatedly run up against technical delays and
cost flare ups. Recently, the U.S. Government Accountability
Office announced that technical problems have led to software
testing delays for the F-35. Again, Italy will also likely
cut its plans to buy 90 F-35s.
In response to the rising cost for the F-35, the Pentagon and
Lockheed Martin are already looking to lower the cost of building
and operating each aircraft by boosting production.
So far, FMS contracts are expected to provide some shield to
defense budget cuts and sequestration.
Lockheed Martin currently carries a Zacks Rank #2 (Buy).