Boeing to learn fate of South Korean F-15 deal on Tuesday
St. Louis Post-Dispatch
ST. LOUIS — In the wee hours of Tuesday morning here, a room full of military officials half a world away will make a decision that could affect thousands of jobs in the St. Louis area.
That’s when the South Korean Defense Ministry is set to decide on a contract for their Air Force to buy 60 new fighter jets, with Boeing Co.’s locally-built F-15 widely regarded as the front-runner in a three-way competition with Lockheed Martin and Eurofighter.
The deal, worth an estimated $7.6 billion, would be a boon to manufacturing here, extending production at one of the region’s iconic assembly lines and providing work for countless suppliers well into the next decade.
It would also highlight the growing reliance on international sales at Boeing’s Hazelwood-based defense unit. The region’s second-largest employer has long prided itself on arming the nation. Now it’s arming the world.
The South Korea deal would be the latest in a string of big-dollar foreign sales for Boeing Defense, Space and Security. In recent years they’ve sold C-17s to India and Qatar, F-15s to Singapore and Saudi Arabia, F/A-18 Super Hornets to Australia and, soon, the company hopes, to Brazil as well.
All the deals have helped extend production lines that would otherwise be dwindling as the Pentagon pulls back on new plane orders and focuses its efforts on Lockheed Martin’s F-35 Joint Strike Fighter. And they help Boeing’s bottom line.
While overall revenue at Boeing’s defense unit has been flat at around $32 billion over the last five years, the share of that money that comes from overseas customers has doubled, to 24 percent in 2012. That’s likely to grow even more; at the start of this year 41 percent of Boeing’s pending military orders came from international customers.
“We continue to see strong demand for our offerings, particularly in the Middle East, Brazil and the Asia Pacific region,” Chief Executive Jim McNerney told analysts earlier this year.
But international sales, come with their drawbacks, too, experts say.
As last week’s announcement that Boeing would shutter its C-17 plant in California highlights, foreign orders can be too few and far between to sustain complex production lines built around long-term U.S. military contracts. Boeing delivered the last of its giant cargo jets to the U.S. Air Force earlier this month, and has built two dozen more for international customers. But it couldn’t string together enough foreign deals to keep the line running smoothly.
“Foreign sales can be a wonderful add-on to a stable domestic production line,” said Loren Thompson, a defense analyst with the Lexington Institute, a Washington-area think-tank. “But as a standalone, without a domestic component, it becomes a roller coaster.”
Then there are geopolitical complications.
Pentagon weapons-buying gets competitive enough among big U.S. defense contractors, but for overseas sales Boeing often finds itself up against planemakers from France, Russia, Sweden and elsewhere. And given the dollars involved and the prestige associated with high-end military hardware, considerations often involve more than just the capabilities of the respective aircraft, Thompson notes.
“The culture for selling arms overseas often is very different from the standards that prevail in the U.S.,” he said. “That can make it hard for U.S. companies to compete.”
Sometimes, deals can be lost over things that have nothing to do with fighter jets at all. Some analysts worry Boeing’s bid to sell F/A-18s to Brazil could lose out after that country’s president last week cancelled a U.S. visit in October amid leaks about National Security Agency snooping on the Brazilian government. The visit was to have included talks about the fighter deal. Now it may not happen, creating a window for foreign competitors.
South Korea’s F-15 purchase, however, is the odds-on favorite to go through.
It is the only one of the three bids that met the country’s budget, and with South Korea facing a $7.4 billion budget shortfall this year, military officials there insist they won’t spend more than planned. And, while some retired generals have urged South Korea to buy a more-advanced jet, the Air Force there already flies about 60 F-15s, minimizing disruption or expense integrating the new planes, which will replace older F-4 and F-5s. But no decision is required Tuesday; the Koreans could put the contract out for a new round of bids.
In a statement, Boeing said it has received no word yet on Korea’s plans, but was confident in its proposal.
“We await word on the next steps in the selection process and will continue to work closely with the Republic of Korea in meeting their defense requirements,” the company said. “Boeing has offered an extremely capable, low-risk and price-com petitive Silent Eagle F-X solution that can be delivered on a schedule that meets Korean requirements.”
Should the Koreans agree, the 60-plane order would extend F-15 production — which is all for foreign customers at this point — well into the 2020s. The company wouldn’t say how many jobs that means in St. Louis, but in late 2011, about 2,000 people worked on the program at Boeing here, plus many more at suppliers including GKN Aerospace, which employs 1,500 at its plant in Hazelwood.
Gordon King, president of the International Association of Machinists District 837, which represents assembly line workers at Boeing and GKN, says foreign F-15 sales have been “a savior” for his membership. And he was looking forward to more good news Tuesday morning.
“Now we’ve got to start working on foreign sales for the F-18,” he said.