Bloomberg News

Lockheed Martin Wins Japan Order for 42 F-35 Fighter Planes

December 20, 2011

Dec. 20 (Bloomberg) -- Lockheed Martin Corp. won a contract from Japan to supply F-35 Joint Strike Fighters, the aircraft’s first win in a competitive tender.

The U.S. contractor will build 42 of the planes for Japan, Defense Minister Yasuo Ichikawa told reporters in Tokyo today. The F-35 was shortlisted against Boeing Co.’s F-18 Super Hornet and Eurofighter GmbH’s Typhoon.

The deal comes as the death of North Korean dictator Kim Jong Il spurs uncertainty about stability on the Korean peninsula, where 1.7 million troops from North Korea, South Korea and the U.S. are stationed. Japan, which has the world’s sixth-largest defense budget, has been upgrading air defenses as North Korea improves its ballistic missiles and nuclear weapons program, and as both Russia and China develop stealth fighters.

“From now on, we really have to think about distances and air force strength in Northeast Asia,” said Hideshi Takesada, a professor of international relations at Seoul’s Yonsei University. “This decision reflects the need for stealth and long-distance combat capabilities.”

The timing of the announcement wasn’t related to Kim’s death, Takesada said.

The U.S. said yesterday it is consulting with South Korea and Japan following Kim’s death, and Japan said it was strengthening coast-guard patrols. North Korea conducted a short-range missile test over its east coast yesterday, Yonhap News reported, citing South Korean officials.

Boeing F-4s

Japan’s F-35s will replace Boeing F-4s, which were last assembled in the country in 1981. Japan had a total of 362 fighter jets as of March 31, according to the defense ministry’s website.

The initial contract with Lockheed is for four jets in the fiscal year beginning April 1, the Bethesda, Maryland-based contractor said today in a statement. The company will begin delivering jets to Japan in 2016, Steve O’Bryan, Lockheed’s vice president for business development, said on a conference call.

Japan will pay 8.9 billion yen ($114 million) for each of the first four jets, according to Masaki Fukasawa, director of aircraft division at the defense ministry. The nation’s total cost for the purchase, operation and maintenance of the 42 fighters is estimated at 1.6 trillion yen over 20 years, Fukasawa said.

The decision bolsters the F-35 as delays and government austerity measures imperil orders in the U.K., Australia and other countries that helped develop it. The U.S. is the plane’s largest customer with more than 2,440 orders in a $382 billion plan that forms the Pentagon’s biggest weapons program.

‘Big Boost’

“It is a big boost for the program politically,” said James Hardy, a London-based analyst at IHS Jane’s DS Forecast. “Many partner nations have committed to buying the F-35, but to have it win an external competition will certainly help take the pressure off.”

Japan follows three U.S. military service branches and Israel in choosing the F-35 to modernize their fighter fleets, O’Bryan said. Lockheed has about 700 F-35 orders from the program’s eight overseas partner nations, which also include Italy, Holland, Turkey, Norway, Denmark and Canada. Israel and Singapore also have lower-level involvement in the plane.

“We expect more countries to follow suit,” O’Bryan said.

South Korea plans to call for bids for as many as 60 jet fighters in the first quarter of 2012, and Singapore is likely to follow in the near future, he said. The plane is the only jet with production expected to last beyond 2035, he said.

U.S. Delays

The F-35 probably won the Japan contest because of its stealth technology and the nation’s traditional reliance on U.S. military hardware, said Hardy at Jane’s. Eurofighter is a venture between BAE Systems Plc, Finmeccanica SpA and European Aeronautic, Defence & Space Co.

Japan also considered the amount of production work that could be undertaken locally as it seeks to develop its domestic defense industry. Japanese companies will do final assembly as well as work on components, O’Bryan said.

The work “will transform Japanese industry,” O’Bryan said. “They get advanced composite work, automated machining with tight tolerances associated with a stealth airplane.”

Mitsubishi Heavy Industries Ltd. will be involved in work on aircraft bodies, IHI Corp. on engines, and Mitsubishi Electric Corp. on mission-related avionics, according to defense ministry documents.

Behind Schedule

Defense Minister Ichikawa said the F-35 was selected primarily for its capabilities and also based on costs, participation by Japanese companies, and logistical support.

In the U.S., the F-35 program is five years behind schedule and 64 percent over cost estimates. At least some orders may also be endangered by a congressional supercommittee’s failure to agree on ways to reduce the federal deficit as this could trigger mandatory cuts in the Defense Department’s budget.

A Pentagon report also last month advocated a slowdown in procurement of F-35s because the aircraft’s design had proven more unstable during testing than anticipated. Defense Secretary Leon Panetta remains committed to program, his spokesman said Dec. 8.

India is also due to make a decision soon on a contract for 126 fighters. It has shortlisted Eurofighter’s Typhoon and Dassault Aviation SA’s Rafale, after eliminating planes including Lockheed’s F-16 and Boeing’s F-18 Super Hornet.

--With assistance from Kiyotaka Matsuda and Terje Langeland in Tokyo. Editors: Terje Langeland, Vipin Nair

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Sachiko Sakamaki in Tokyo at ssakamaki1@bloomberg.net; Gopal Ratnam in Washington at gratnam1@bloomberg.net

To contact the editor responsible for this story: Vipin Nair at vnair12@bloomberg.net


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