The U.S. Defense Security Cooperation Agency notified Congress Monday of plans to sell the Republic of Korea a package of "Phase 1" upgrades for that nation's 134 KF-16C/D Block 52 aircraft. These fighters were built by the ROK between 1994 and 2004 under a $5.5 billion technology licensing agreement with Lockheed Martin (NYSE: LMT). The South Koreans now want to upgrade the fleet in two phases.
In phase 1, the U.S. government and principal contractor BAE Systems (NASDAQOTH: BAESY) (LSE: BA) will develop plans for upgrading the fighters, build an avionics systems integration facility and testing stations, begin acquiring long-lead items needed to conduct the upgrades, and perform similar preparatory work. DSCA values this package of products and services at $200 million.
In theory, this phase 1 would later be followed by a phase 2 in which the fighters' radar systems and avionics would be upgraded with more modern technology. Such a phase 2 would be notified separately by DSCA and would involve an additional cost for the South Koreans.
According to DSCA, these upgrades are designed to "provide the ROK with a design and development plan to improve the capabilities of its KF-16 fleet in order to continue to deter regional threats and strengthen its homeland defense. If phase 2 of the upgrade program is implemented, the upgraded KF-16 will contribute to the ROK's goal to develop a more capable defense force and enhance interoperability with U.S. forces."
DSCA assured Congress that the proposed sales "will not alter the basic military balance in the region." Nor will they have any "adverse impact on U.S. defense readiness."