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BAE Systems battles Lockheed for $10 billion F-16 upgrade work

By Sarah Young and Andrea Shalal

FARNBOROUGH England (Reuters) - Europe's largest defense contractor BAE Systems expects to win more than half of the $10 billion market to modernize F-16 fighter jets, saying its cost-effective offering could give it an edge in the battle with Lockheed Martin .

In 2012, BAE was selected to upgrade over 130 South Korean F-16s, beating Lockheed Martin, the plane's maker, for a contract worth up to $1.3 billion.

Tighter military budgets in the United States and Europe have resulted in a dearth of orders for new jets, forcing weapon makers like BAE and Lockheed to battle it out for upgrade work.

The global market for similar upgrades on F-16 jets is estimated at about $10 billion over the next ten years, according to BAE System's vice president for global fighter programs John Bean.

Bean was optimistic that BAE's "cost effective" proposition would help it win a large share of that market.

"A majority of it is our expectation," Bean said, when asked how much of the total F-16 upgrade work BAE thought it could win.

BAE's strategy of operating without the need for the large, expensive infrastructure of the equipment maker itself, would help it win business, he explained.

"It's the way we structure the business that allows us to be more cost effective," he said.

SINGAPORE, GREECE

Singapore and Greece are amongst the future F-16 modernization opportunities for both companies, while BAE said it had also received interest from Turkey and Chile, plus three to four other countries which Bean said had not gone public.

Bill McHenry, head of business development for Lockheed’s F-16 program, said his company was standing ready to support Singapore's upgrade plans, but could not say when a possible order could be finalised.

McHenry also said that with economic conditions improving in Greece, that country, with a long-standing interest in a revamp, was once again in talks with possible providers. Greece could firm up its plans in the next six months to a year, he said.

Lockheed suffered a blow this year when the U.S. Air Force canceled planned upgrades for a number of F-16s due to budget constraints, but McHenry said the Air Force was now pursuing more modest and limited upgrades to its F-16s that would include a mission computer upgrade and new cockpit avionics.

Lockheed remained on track to complete similar work for Taiwan, McHenry said. "That program is on schedule," he told Reuters in an interview at the Royal International Air Tattoo last week.

BAE's Bean said South Korea's F-16s would be fitted with new weapons systems, e-scan radar and new mission avionics, adding that BAE's improvement capability offered higher resolution screens and higher speed technologies compared with its rivals.

Up to 3,000 F-16s could eventually need upgrades, Bean said, with interest from countries including Egypt and Morocco a future possibility.

BAE has established a team of 165 in Fort Worth, Texas, to do the work and plans to add another 150 engineers to the team.

(Editing by Mark Potter)

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