BAE Systems will shut down a development operation at Alliance Airport and lay off about 190 workers after South Korea canceled a contract to upgrade more than 130 F-16 fighter jets with new electronics.
The announcement marks a stunning reversal for BAE, which launched the Alliance operation just a year ago, in space formerly occupied by Bell Helicopter, after the U.S. government approved it for the work.
The British defense manufacturer had received a $140 million contract for development work in May, and the value of the full contract had been estimated at $1.3 billion.
On Wednesday, BAE was notified by the Pentagon’s Defense Security Cooperation Agency that, at the request of the South Korean government, it would terminate the contract “for initial development and long lead production” of the F-16s. The upgrade would have put new central mission computers, radar, communication, sensors, navigation and weapons targeting systems on the fighters.
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Workers were notified of the layoffs Thursday, BAE spokesman Neil Franz said. The company said it plans to offer severance packages to eligible employees who are regularly scheduled to work more than 20 hours a week.
In a statement, BAE Systems said that it is disappointed by South Korea’s decision and expressed confidence “that we could have performed the remaining work on the program in an efficient and cost-effective manner.”
“BAE Systems was selected by the Republic of Korea in 2012 after a full and open competition, where our solution was deemed the best, most flexible and cost-effective to meet the Republic of Korea’s F-16 upgrade needs,” the statement said.
“We made it clear throughout the government-to-government discussions that we were committed to our firm-fixed-price contract for the overall scope of work agreed upon by both the U.S. Government and Republic of Korea last year,” the company said. “Unfortunately, the program was impacted by Korea’s strict budget limitations and the U.S. Air Force’s conservative approach to the overall program cost.”
According to Reuters, which first reported the cancellation, South Korea backed out after the U.S. government indicated that the program’s cost, being negotiated between the governments, would increase to as much as $2.1 billion to $2.4 billion. That would include expenses and services beyond the BAE work, including infrastructure and training.
“The Republic of Korea requested termination of the contract because it was not satisfied with the increase in estimated cost,” said Lt. Col. Joseph Sowers, a Defense Department spokesman in Washington. He said it was evident that the contract’s cost would have to increase “as there became greater clarity in scope.”
Upgrading the F-16
In 2012, BAE became the first company other than Lockheed Martin, the manufacturer of more than 4,500 Fighting Falcons in west Fort Worth, to win a contract to upgrade older F-16s, signaling new competition in the aerospace industry.
Upgraded F-16s have been considered an attractive alternative for many nations as production delays boosted the cost of Lockheed’s next-generation fighter, the F-35.
During an interview in June, John Bean, a former Lockheed executive who is now vice president and general manager of global fighter programs for BAE, said the company hoped to leverage its work for South Korea into contracts with other foreign nations.
In May, the first two South Korean F-16s had arrived in Fort Worth and were sitting in the BAE hangar near the Alliance Airport control tower to be worked on. The company had hired about 200 workers and expected to have 300 in north Fort Worth by the end of the year.
In September, South Korea reached an agreement to pay about $7 billion for 40 F-35s — the country’s biggest-ever weapons purchase.
On Thursday, BAE said it is “evaluating all current opportunities to upgrade F-16s for international customers to determine, in light of this decision, whether we will pursue these opportunities.”
In a statement, Fort Worth-based Lockheed Martin Aeronautics, which has provided F-16 upgrades for the U.S. Air Force and for other countries, said it “values its relationships with its F-16 customers and stands ready to support their current and future needs.”