With the U.S. Air Force expected to drop plans to upgrade 300 late-model F-16s, the market for modernizing the Lockheed Martin fighter—already disrupted by BAE Systems' win in South Korea—could become even more contentious. Boeing might join the fray and, along with BAE, is eyeing $8 billion in opportunities in Singapore and Taiwan.

The planned upgrades—with cost estimates above $30 million per aircraft in some cases—include active, electronically scanned array (AESA) radar, new cockpit displays and a new mission computer. Options include improved electronic warfare systems, analog device replacement and communications gear.

It has also become clear that a factor in BAE's success was that the company convinced the Pentagon to challenge Lockheed Martin's long-defended monopoly of F-16 technology, giving the BAE team access to design data that had been created by Lockheed Martin under government-funded programs. That could be an important precedent for future upgrade programs involving modern, highly integrated weapon systems.

Taiwan's 146-aircraft upgrade program is planned to be based on the Air Force effort, the Lockheed Martin-led Combat Avionics Programmed Extension Suite (Capes) upgrade. The U.S. Defense and Security Cooperation Agency notified Congress in January of Singapore's interest in a 60-unit upgrade package, but the notification (unusually) did not specify a prime contractor.

Multiple reports, including a recent interview given by Gen. Mike Hostage, commander of the U.S. Air Force Air Combat Command, have suggested that Capes could be axed as a U.S. procurement program. Meanwhile, BAE's 134-aircraft upgrade for South Korea, including the Raytheon Air Combat Radar, went on contract in December. It is the only fully funded program, the first third-party upgrade for the F-16 and the first F-16 configuration with a radar from a supplier other than Northrop Grumman.

According to industry sources, BAE Systems beat Lockheed Martin on price. BAE and Boeing now suggest that Singapore might hold a competition for its upgrade, looking for a lower price, and that Taiwan—fearful of being left as the only Capes user—might follow Singapore's lead.

Lockheed Martin plays down these concerns, arguing that the Taiwanese upgrade is closely related to Capes but not dependent on the U.S. Air Force going ahead with its program. For Taiwan, “the price has already been agreed by the U.S. government,” says the F-16 business development director, Bill McHenry, who adds that the future of Capes will not affect Lockheed Martin's prices for future customers.

One reason for that must be Northrop Grumman's commitment to provide its Scalable Agile Beam Radar to Lockheed Martin at a fixed price regardless of quantity. Northrop also expects the future of Capes to have no impact on Taiwan.

Moreover, while South Korea is paying for development of the BAE Systems package, the Taiwanese order could pay for Lockheed Martin's. The Capes program has already paid part of the bill, since work on Capes is underway, having passed its preliminary design review in January. Lockheed Martin says laboratory test equipment should be delivered late this year and the program is on track for delivery of the first upgrade kits in mid-2017—if the program survives.

One potential competitor, however, characterizes Lockheed Martin's reassurances as “damage control,” adding that “the Air Force cares a lot about its reputation and has made a commitment to Taiwan.” An executive from another F-16 supplier is more blunt, saying that Lockheed Martin is “telling the Taiwanese to come off the ledge,” and suggests that the possibility of sharing through-life costs and support with one or two Asian neighbors could be tempting for a nation with immediate security concerns and a constrained budget. Moreover, a major selling point for Capes has been commonality of support and training with a large U.S. fleet.

Boeing may propose an F-16 package if Singapore opens a competition, a senior company executive said in Singapore last week. “Should they go that route, we'd be interested,” said Chris Raymond, Boeing Defense, Space & Security vice-president for business development and strategy.

Boeing has gained F-16 experience through the QF-16 target UAV system. Raymond says other third-party upgrades, including the C-130 Avionics Modernization Program and the re-winging of A-10s, have built credibility for the company. “Any time you go on to another platform like that, you have to ask whether you have the tools and the access to intellectual property, whether you can manage or rebuild the supply chain,” Raymond notes. “We can be credible.”

BAE is progressing as planned on the South Korean program, says Vice President for Global Fighter Programs John Bean. “I now have 1,800 man-years of F-16 experience on the program and we're only one-third of the way there” in hiring, he says. The new unit, based near Fort Worth at Alliance Airport, will hold a job fair in St. Louis in the coming weeks and plans to build to 300 people by year-end.

Two South Korean air force F-16s are expected to arrive within three months to start the modification process, with flight tests beginning late next year, and BAE Systems has acquired a Gulfstream business jet to act as a flying testbed. The South Korean program also includes Raytheon's ALR-69A radar warning receiver, and Exelis is offering its ALQ-214 internal jammer to replace the 1980s-technology ALQ-165.

One key to making the program work is “not over-promising,” Bean says. “We've hit a few speed bumps, but we are over them, out of the gates and gathering speed.”

Until now, Lockheed Martin has performed or controlled almost all upgrade work on the F-16 by virtue of asserting rights to proprietary technical information, the software in the central mission computer, and other data—the “walled garden” approach that is associated with Apple Inc. Bean says, however, that “I have every piece of data I need. I know where to get it and how to use it.”

According to an industry source, BAE Systems made the case to senior Pentagon leaders that the U.S. government had either unlimited or “government-purpose” rights to that information, that, a foreign military sale would count as a “government purpose,” and that a second source of F-16 upgrades would be beneficial. “They broached the garden wall,” the executive says.

South Korea, Singapore and Taiwan represent about one-third of the addressable market: BAE estimates that 1,000 F-16s worldwide—including 830 Block 50/52s outside the U.S.—are upgrade candidates.

The market is very important to the radar manufacturers, but they are taking different approaches,

Raytheon vice president for international strategy and business development Jim Hvizd says the company will work with any prime contractor, while BAE Systems will work with either radar supplier and can leave the choice to the customer if that is what the buyer wants. (South Korea made a separate source selection for the radar.) But Jeff Leavitt, vice president of combat avionics systems at Northrop Grumman, says his company has no plan to partner with BAE or Boeing. The U.S. Air Force delegated the choice of radar to Lockheed Martin, which selected Sabr.

Northrop Grumman says that the U.S. radar replacement could go ahead without Capes. Other participants say that would make little sense—upgraded computers and displays are needed to take advantage of AESA technology—and suggest that Northrop Grumman is fretting about its commitment to a fixed price based on capturing most of the market.