What looked like a small acquisition five years ago has helped BAE Systems break Lockheed Martin's monopoly on F-16 upgrades—a market that has grown as the U.S. Air Force and other users confront delays and possible lower production rates for the Joint Strike Fighter, and seek to extend their F-16s' service lives and improve their effectiveness against evolving threats.

Until now, Lockheed Martin has ruled the market. In April the USAF identified Lockheed Martin as the sole source for a major upgrade of 300-350 F-16s, intended to render them “viable in the threat environment beyond 2025.” The company has signed an agreement with Taiwan's AIDC covering the modernization of 146 F-16A/B Block 20s, and has been awarded contracts for smaller batches in Indonesia and Thailand.

That winning streak ended late in July, when South Korea announced the choice of BAE Systems as prime contractor for the upgrade of 134 KF-16C/D Block 50/52 fighters.

South Korea's Defense Acquisition Program Agency (DAPA) chose BAE to upgrade the fighters because its quoted price—$750 million—was lower than that of rival Lockheed Martin, which asked for more than $1 billion, according to the Segye (World) newspaper.

This is the first upgrade of any modern U.S. fighter that is not being led by the original equipment manufacturer. Companies such as Elbit have upgraded older U.S. aircraft, such as F-5s, Russian designs and some older European types. Aircraft like late-block F-16s are a different matter, having complex integrated avionics systems. The OEMs' experience with software integration and the development and release of operational flight program (OFP) revisions normally constitutes a high barrier to entry.

BAE Systems, however, performed a quiet side-entry into the F-16 business in 2007 by acquiring Dayton, Ohio-based MTC Technologies. The company had been selected by the USAF's Ogden Air Logistics Center two years earlier to provide a replacement for the obsolete fire-control computer fitted to older F-16 Block 25/30/32 fighters flown by the Air National Guard and Reserve. The Commercial Fire Control Computer (CFCC), the basis for the South Korea offering, acts as an ethernet hub for the other systems on the aircraft. BAE now says its CFCC experience and the hardware itself are key to its ability to compete with Lockheed Martin.

Adding equipment and engineering to be supplied by equipment makers, plus local installation work, the Korean upgrade program will reportedly cost 1.80 trillion won ($1.60 billion), of which 673 billion won appears to be allocated to the radar.

Korea Aerospace Industries (KAI) or Korean Airlines Aerospace will presumably install the equipment. KAI and its predecessor company, Samsung Aerospace, built the F-16s from 1997 to 2004.

The South Korean defense ministry aims to sign a contract with BAE this year and have all 134 fighters upgraded by 2021. The last will leave service in 2038, local media report. The project is to be completed by BAE Systems' U.S. electronics unit.

The most important element of the Korean upgrade is an active, electronically scanned array (AESA) radar. This is to be selected separately by DAPA, between the Raytheon Advanced Combat Radar (Racr) and Northrop Grumman's Scalable Agile Beam Radar (Sabr). It will also incorporate a Link 16 datalink, new GPS-inertial navigation system and improved cockpit displays. South Korea plans to arm the upgraded aircraft with the Raytheon AIM-120C and AIM-9X air-to-air missiles, and the Textron Defense CBU-105 anti-armor weapon.

Lockheed Martin still leads the market due to its sole-source status on the USAF's Combat Avionics Programmed Extension Suite (Capes) program. This is closely linked to the F-16 service life extension program (Slep), intended to increase the F-16's lifetime from 8,000 to 10,000 equivalent flight hours. The first of about 350 Slep aircraft, modified from Block 40/50 aircraft, is due to enter service in 2017 and the first Capes aircraft in the following year, with “a substantial portion” of the Slep aircraft to be modified.

Capes includes AESA, Terma's ALQ-213 electronic warfare management system (already installed on many F-16s, but not on USAF aircraft), a center-pedestal display (making better use of the F-16's limited panel area, given the aircraft's dimensions and the pilot's knee position) and an integrated broadcast service receiver for joint force intelligence.

Also joining the fray is Boeing, which has said this year that it will consider participating in the market, based on its experience of modifying F-16s into target drones. According to some estimates, more than 800 F-16s could be suitable update candidates.