WON By Default: Korea’s E-737 AWACS

ROKAF E-737
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Other countries have criticized the USA’s ITAR policy for being as much about unfair trade competition as it is about genuine security. August 2006 events in Korea would certainly appear to strengthen their case… and a Nov 8/06 KOIS report put the final nail in by announcing a $1.6 billion contract “win” for 4 Boeing E-737 early-warning aircraft. Yet Boeing was always the ROK’s second choice, and its “win” came about by default.

A pair of December 2005 articles covered the $1.8 billion competition for South Korea’s E-X airborne early warning & control (AEW&C) aircraft, designed to detect incursions into ROK airspace and act as a sort of air traffic control for the air war. At the time, South Korea had no AWACS assets, relying solely on its allies; by 2012, it wanted at least 4 aircraft. In response, there were 2 main competitors…

The (Rail) Road to a Deal

G550 CAEW
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Boeing’s E-737 “Wedgetail” AEW&C was matched up against an American-Israeli consortium of General Dynamics Gulfstream, L-3, & IAI Elta, offering a G550 CAEW platform based on the Gulfstream 550 long range business jet. It sold for about $400-500 million less overall, and was reportedly favored, but the need for US permission under ITAR to incorporate certain technologies was holding up the sale.

The items on the interference list hardly constitute unusual technologies, and are exported all the time:

* Data Links (Link 11 and Link 16/MIDS capabilities) for automatic data exchange with other aircraft, ground stations, air defense units, etc.;
* IFF (Identification Friend or Foe);
* The Satellite communications module;
* The UHF/VHF Have Quick Radio;
* GPS P(Y) code technology.

Eight months after the December 2005 articles, Boeing’s E-737 was selected. By default. After an announced competition delay in December 2005, an August 2006 news report noted that:

“Elta, a subsidiary of Israel Aircraft Industries, was dropped off as it failed to guarantee obtaining required export licenses from the U.S. government regarding key items to be installed on its product for the sealing of the contract, a DAPA [South Korea’s Defense Acquisition Program Administration] spokesman said.”

Industrial Team

E-737 Cutaway
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Price negotiations followed, with a formal announcement taking place in November 2006. The ROKAF’s E-737s are based on the 737-700, and carry a flight crew of 2 and a mission crew of 6-10 people. Maximum range is listed as 3,800 nautical miles, with 9 hours time on station at an altitude of 30,000 – 41,000 feet.

Northrop Grumman Electronic Systems provides the Multi-role Electronically Scanned Array (MESA) L-band radar. It’s able to track around 1,000 airborne and maritime targets simultaneously, and can help the mission crew direct fighter aircraft while continuously scanning the operational area. It’s more advanced than the radars that equip current American AWACS planes, and the electronically steered beams mean that it doesn’t need the iconic rotating dome up top. Instead, the radar is fixed in a more aerodynamic housing that looks like a top hat.

Korean Aerospace Industries (KAI) will perform aircraft modification and mission equipment modification and checkout. Modification of the 1st aircraft took place at a Boeing facility, but KAI modified the remaining 3 aircraft in Saechon, Korea, and provides ongoing technical services, spares supply, and related parts-handling. Other Korean companies that made key contributions to the AEW&C program include:

* LIG Nex1: networking and training
* Samsung Thales: mission crew training.
* Boeing Training Services Korea: flight crew training
* Huneed Technologies: ground-based datalinks communications system.

Contracts & Key Events

ROKAF “Peace Eye”
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October 11/16: South Korea is looking to add two more Boeing 737 AEW&C aircraft to their current fleet of four in order to boost operational capabilities. The increased number will also allow Seoul to use the aircraft as a deterrent against North Korea. However any acquisition will take time with a ministry source saying it could take up to five years for the necessary budget needed to start the project.

Oct 15/14: 2 more? China’s unilateral November 2013 declaration of an Air Defense Identification Zone, which includes some Korean territory, is pushing the ROK to upgrade its high end armed forces. At sea, they’re contemplating 3 more cruiser-sized AEGIS BMD ships. In the air, South Korea will buy aerial tankers to extend patrol and strike ranges, and…

“For surveillance over the KADIZ, we are seeking to secure two more such [Peace Eye] planes over the long term,” said an official at the Air Force, asking not to be named.”

Sources: Korean Herald, “Air Force mulls buying additional early warning aircraft”.

March 27/14: Support. Boeing has reportedly asked for WON 290 billion / $270 million to support the ROKAF’s E737 “Peace Eye” fleet from 2015 – 2018, which about double what the government had budgeted:

“We have requested that Boeing submit details of the technology support programs,” a ministry official said. “The ministry plans to sign a deal in August after cutting the price through negotiations.”

They may. On the other hand, the ROKAF has bought the planes, and they fulfill a very strategic role. It isn’t like they can afford not to come to an agreement. Sources: Yonhap, “U.S. demands sharp rise in price of F-15K’s sensor parts”.

May 16/12: #3 delivered. Boeing delivers South Korea’s 3rd Peace Eye 737 AEW&C aircraft to ROKAF Base Gimhae, the main operating base for the Peace Eye fleet. This is the 2nd aircraft in the fleet to be modified into an AEW&C configuration by Korea Aerospace Industries (KAI) at its facility in Sacheon. Boeing.

Dec 13/11: #2 delivered. South Korea’s 2nd E-737, and the 1st modified by KAI, is delivered ahead of schedule to ROKAF Base Gimhae. Boeing Peace Eye program manager had high praise for KAI’s quality and technical expertise. KAI will modify 2 more planes in Sacheon, for delivery to the ROKAF in 2012. Boeing.

Feb 4/10: Boeing delivers the first 737 AEW&C aircraft to South Korea for modification. The 737 lands at the Korea Aerospace Industries (KAI) facility in Sacheon, some 430 km southeast of Seoul, where it will be fitted with the electronics and equipment its role requires. Final ROKAF handover is expected in 2011. Defense News.

Dec 17/07: Sub-contractors. BAE Systems announces a $37 million contract from Boeing to provide mission computer system suites for the E-X program’s 4 E-737s, along with 3 software development labs to support development, integration, and training of the new mission computer system.

The mission computer suite consists of a computer processor with embedded map server and flight-deck tactical display. The suite’s architecture is derived from the telecommunications industry, and provides all central mission computing, mass data storage, and high-speed local-area network capability. It also features a communications control processor that provides interfaces to all aircraft sensor and communication subsystems. BAE believes that using a telecom architecture offers lower weight and cost, while offering increased processing capability and a path for future technology insertion.

In its release, BAE Systems also claims that this development of telecom computer architecture for military use is among the first military applications of this technology.

Op Ed/ Analysis (August 2006)

Security restrictions on military technology transfers, and even political restrictions, are not uncommon for Western countries. The breadth of US global interests, and the importance of interoperability with allies, place the USA in a unique position. The demands of that position require careful balancing and the appearance of scrupulous fairness, however, or the result will be a series of “wins” that actually erode both the USA’s allied interoperability and its global clout over the long term.

Two other items in our Aug 4/06 coverage offer excellent illustrations of these imperatives in action.

We’ll begin with the F-35 Lightning II Joint Strike Fighter, one of the largest military programs in the world with estimates as high as $279 billion. A recent deal between the USA and Britain forestalled an impasse that could have led to the unraveling of much of the international consortium, increased costs per aircraft, and left a serious cloud over the export potential that’s essential to the F-35’s long term business case. Note that one of the key issues was the ability to create third-party add-ons. Integration of foreign equipment without requiring US say-so was another. The fact that those were 2 of the 3 major issues is telling in and of itself.

Fortunately, high-level diplomacy conducted in a spirit of fairness appears to have headed a major dispute off at the pass.

Next, note our coverage of the (canceled) Venezuela deal for 12 EADS-CASA transport aircraft from Spain. Regardless of whether or not one agrees with the restriction or its rationale, there can be no question that the lost sales will be keenly felt on a political level due to lost jobs in Spain, even though EADS’ corporate parent may see it as an acceptable trade for access to the US market. A major and separate deal from Brazil for its Super Tucano aircraft was also blocked – this time, with no offsetting consolation either economically or politically.

The result must inevitably be resentment, in both locations. The fact that the USA has a consistently expressed security concern with the country in question will be a mitigating factor, because at least the decision is not seen as utterly capricious. To some extent, the USA must simply pay this price as part of the policy cost of working to make Venezuela’s arms build-up more difficult – though our Feb 14/06 “Love on the Rocks” article did note that the US had options that would have both furthered its own global objectives and cushioned the blow in Brazil.

It may eventually wish that it had pursued those options. While EADS is now tied to the US market by golden handcuffs, Embraer and many European companies who lack such ties may well be thinking hard about minimizing future US technology inputs in their products. This may be an acceptable cost if the USA considers its Venezuelan policy goal important enough, but it will chip away at the edges of future US influence in such sales by providing it with fewer opportunities to invoke ITAR export restrictions. As a mitigating factor, crossing the USA on issues it considers highly important is always understood to have costs. Unless one plans in advance to sell to rogue regimes, therefore, the Venezuelan example is unlikely to fuel a big “buy any except American” dynamic because of the effort, expense, and possible cost to buyer appeal of going with substitutes.

Which brings us to the Korean E-X competition. Whether or not ITAR was in fact deliberately used to hinder a competitor that included non-US firms, that is certainly the appearance. This, we submit, is the most damaging possible message – especially because it confirms a widespread but quiet suspicion within the international defense industry.

If the issue is simply that one should hesitate before crossing the USA on major foreign policy issues (Venezuela), or that pressure is required to make the USA do the right thing (F-35), that is one thing. If the issue is that using American technologies will cut one’s export potential across the board because it will be used against you in competitions, that’s a very different kettle of fish. That perception would be material enough to affect the calculus for major items like engines and electronics when developing new platforms. If it does, the result is fewer ITAR levers for the USA, less compatibility with foreign designs, and a long-term loss of work in its defense sector to offset the more visible short-term wins.

Note also the technologies that became sticking points in the E-X sale: GPS. Link 11 and Link 16/MIDS. IFF. Minor technologies all, which became broad and important allied standards under US/NATO leadership.

As the EU prepares its own rapid deployment forces as a clear parallel force to NATO, and pursues global projects like the Galileo GPS satellite constellation, they are already likely to push for more “made in Europe” interoperability standards, as opposed to US/NATO specifications. They will be built for interoperability with American equipment, of course, or at least trumpeted as such – but they will also be built to allow solo operation.

It will be much easier to get countries and firms to go along with independent standards, if they see them as a hedge against unfair American export competition. In addition, the creation of a market for such technologies is likely to create a production base of minor players who can step in as substitutes for other components down the chain, without worrying about the potential effect on their own (nonexistent) US exports.

Countries, and companies, understand security concerns. They also understand the requirements of geopolitics. So long as their opinion of one’s geopolitics is that it lives within the realm of reason, geopolitical effects on production decisions will be minimal. The appearance of undue advantage or exploitation of those security concerns as a front, however, will not be understood or accepted. If that view becomes prevalent, the result will be a long-term set of changes in the market that make any short term wins a pyrrhic victory indeed.

In our opinion, the USA needs to take a hard look at its ITAR processes, and the way they are being handled. Other countries and firms around the world are already doing so – and their gaze is not friendly.

Additional Readings

* Boeing – 737 Airborne Early Warning And Control. Currently based on the 737-700.

* Lexington Institute (Oct 3/12) – Modernizing the Air Force’s Electronic Aircraft Fleet [PDF]. Advocates replacing all current USAF E-3s with E-737 AEW&C planes, restoring the fleet while saving maintenance costs.

Export Control Issues

* DID – USA Moves to Improve Arms Export Regulation Process. Better late than never, but the problem described here goes deeper.

* DID (July 31/07) – US Industry Associations Pushing to Reform Export Controls. But for whose benefit?

* Aviation Week’s Ares (June 5/07) – US Technology? No Thanks!

“The only way to resolve technology access and U.S. government export restrictions imposed by ITAR is by “not including any U.S.-sourced technology into our products,” [Dassault CEO Charles Edelstenne] the President of the Aerospace and Defense Industries Association of Europe (ASD) said yesterday… In the context of space programs, steps are already being made towards completely excluding U.S. input in order to stay clear of the ITAR restrictions, adds Francois Gayet, the permanent Secretary-General of the ASD…”

* DID (Feb 14/06) – Love on the Rocks: CASA’s $600M Venezuelan Plane Sale In Heavy Turbulence. A good example of export controls at work – but even when the security concerns are legitimate, they can generate unwanted backlash unless they’re handled carefully. This case illustrates both sides of that coin.