KAI challenges KAL/Lockheed Martin attempt to win contract to upgrade Orions

Korea Aerospace Industries (KAI) has submitted a bid to upgrade eight ex-US Navy Lockheed Martin P-3B Orion maritime patrol aircraft under a project that is testing South Korea's controversial defence contracting policy. South Korea is expected to announce a selection by October between the KAI and L-3 proposal, or a rival bid submitted last May by Korean Air (KAL) and Lockheed Martin.

Lockheed Martin is prime contractor for the latter bid, which seeks to circumvent a South Korean policy that prevents KAL from receiving non-maintenance contracts. Industry sources say KAI is lobbying the government to exclude the KAL/Lockheed Martin bid because it does not comply with national policy, which also favours awarding prime contracts to local companies when possible.

But KAL claims its experience in maintenance and modification work should be considered, because the project includes a structural life extension. KAI believes the project involves more system integration work than maintenance and says it can carry out the structural portion drawing on its experience as a P-3 wing supplier. Mission suites would be supplied by the US partner under both bids and installed in-country, with the same system to possibly be integrated on South Korea's eight KAL-maintained P-3Cs under a second project phase.

KAI's right of refusal on all national defence contracts since its formation in 1999 has prevented KAL's aerospace division from competing in non-maintenance procurements, and has prompted it to seek a majority stake in KAI. KAL entered into talks with Daewoo Heavy Industries and Machinery last August over its 28.1% stake in KAI, under which KAI's other major shareholders, Hyundai and Samsung, were to issue new shares to KAL, giving it a majority stake. But the talks broke down last year after Daewoo and KAI failed to agree a price, and have not resumed.

Industry sources say Daewoo is considering several alternative options, including selling its KAI stake or its entire heavy industries division to companies other than KAL. Hyundai and Samsung also seem hesitant, with Hyundai considering a bid for the Daewoo stake.



Source: Flight International