Boeing had offered its F-15 Silent Eagle, but South Korean critics have said the warplane lacks state-of-the-art stealth capabilities and cannot effectively cope with North Korea's increasing nuclear threats.
Defense Ministry spokesman Kim Min-seok said officials decided at a meeting Tuesday to delay naming a winning bidder for the $7.7 billion purchase, and would restart the bidding process at an early date.
He said South Korea must have better air power in line with an international trend to develop "fifth generation" fighters, and said the rejection of Boeing's bid was made in consideration of North Korea's nuclear weapons program and other factors. Ministry officials said he was referring to a warplane with cutting-edge radar-evading stealth functions which Boeing's plane does not have.
Boeing said in a statement that it was "deeply disappointed" by Tuesday's decision, adding it "rigorously" followed the South Korean arms procurement agency's instructions throughout the entire process.
Lockheed Martin's F-35 Joint Strike Fighter and EADS' Eurofighter Typhoon earlier competed in the bidding process but were eliminated for exceeding Seoul's budget cap.
The F-35 jet, which has been plagued by schedule delays and cost overruns, is widely regarded as a much more advanced and capable aircraft than its predecessors.
Japan announced in 2011 that it would buy 42 F-35 jets in a deal expected to cost more than $5 billion. Japan hopes to receive its first F-35s in 2016, at a cost of about $120 million per plane. But last year it threatened to cancel the multibillion-dollar deal if prices continue to rise or delays threaten the delivery date.
South Korea has traditionally favored importing fighter jets and other weapons from the U.S., which stations 28,500 troops in the country as deterrence against potential aggression from North Korea.
This spring, tensions on the Korean peninsula rose sharply, with Pyongyang threatening nuclear wars to protest toughened U.N. sanctions after its third nuclear test in February. The U.S. took the unusual step of sending its most powerful warplanes -- B-2 stealth bombers, F-22 stealth fighters and B-52 bombers -- to drills with South Korea in a show of force. B-2 and B-52 bombers are capable of delivering nuclear weapons.
In recent days, South Korean media, retired generals and weapons experts had pressed the government not to pick the F-15 Silent Eagle, arguing better stealth capabilities were needed.
"Only with stealth capabilities can (warplanes) covertly infiltrate North Korea and get rid of its nuclear threats," a group of 15 former air force chiefs of staff said in a recent letter addressed to President Park Geun-hye.
The rivals Koreas have hundreds of thousands of combat-ready troops along a heavily armed border as the 1950-53 Korean War ended in a truce, not a peace treaty. North Korea's air force is relatively old and ill-prepared, but has a large number of aircraft that could be a factor if a conflict were to break out.
Associated Press Eric Talmadge in Tokyo contributed to this report.
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