ST. LOUIS – A recent deal between Boeing Co. and South Korea would create about 30 times more jobs in South Korea than at the company’s military division in Missouri, the St. Louis Post-Dispatch reported Wednesday.
Last month Boeing won a $4.2 billion contract to make 40 F-15K fighter jets for South Korea. The sale is expected to save about 1,000 jobs in the St. Louis area through 2008.
Provisions granted by Boeing to win the contract will create more than 30,000 new jobs in South Korea through subcontracting, the newspaper reported.
St. Louis workers will do final assembly of the planes, but many components will be made by South Koreans. Using such industrial offsets to sweeten a deal in the competitive business of selling military equipment overseas is not unusual.
The unusual part, analysts say, is an agreement that if Boeing sells F-15s to other countries, South Korean workers will build the same parts for the new customers.
That could hinder future sales to other countries because Boeing could not offer a similar incentive.
“It could be an impediment to working, say, in Singapore, because they do have an aerospace industry,” said Richard Aboulafia, a senior aerospace analyst with the Teal Group Corp. of Fairfax, Va.
In April, Boeing’s F-15K beat out the Rafale made by the French firm Dassault in a competition to build a new jet fleet for the South Korean air force by 2009.
In subsequent negotiations, Boeing agreed to cut the price from $4.467 billion to $4.228 billion and to raise the value of the industrial offsets to $3.6 billion from an earlier offer of $2.8 billion, South Korean officials said. The contract is expected to be signed in June.
The contract is a boon for Chicago-based Boeing, which last year lost the largest U.S. defense contract in history – the $200 billion Joint Strike Fighter project – to rival Lockheed Martin Corp.
The agreement on South Korea’s role in future F-15 production surprised Rick Smith, president of Machinists’ union District Lodge 837, which represents Boeing’s St. Louis-area workers.
Not only could it deter potential customers, he said, but even if a deal were made, St. Louis would be denied the work done by the South Koreans.
“I didn’t know it. It’s very upsetting,” Smith said. “We understand offset agreements, but to continue the offsets for future sales to other countries, we don’t understand that and we definitely don’t agree with that.”
Boeing spokesman Todd Blecher said some work on future planes would have to be done by any new customers, because it’s “country specific,” such as support services. Different types of offset programs could be offered to countries interested in buying the F-15, he added.
St. Louis and South Korea both gain from the deal because they get work on a major aerospace project, Blecher said.
“We certainly have no problem working with the industries in the countries with which we are partners,” he said. “That is the nature of this business.”
Loren Thompson, chief operating officer at the Lexington Institute, a military think tank in Arlington, Va., said Boeing probably had no choice but to make this type of deal in an increasingly competitive international environment.
“The simple reality is that without the offset Boeing wouldn’t have made the sale,” Thompson said.
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