Lockheed Martin builds military telecommunications satellites, such as the Advanced EHF satellite shown here, for the U.S. government and is not in the habit of purchasing competitors’ satellites to meet Lockheed customer requirements.  And yet that is what has occurred in South Korea. After encountering difficulties in building the KMilSatCom satellite for the contracted price, Lockheed sought out Airbus of Europe. Airbus is now under contract to Lockheed to delver KMilSatCom in 2019. Credit: Lockheed Martin

PARIS — Lockheed Martin has hired Airbus Defense and Space to build a military telecommunications satellite that will be owned and operated by South Korea, industry officials said.

The unusual contract, signed in 2016, follows an apparently difficult relationship between Lockheed and South Korea’s Defense Acquisition Program Administration (DAPA), which is managing Korea’s purchase of 40 F-35 combat aircraft from Lockheed.

The KMilSatcom telecommunications satellite was inserted into the F-35 sale as part of an offset package that included a Lockheed-built satellite and an agreement to train Korean personnel in military satellite operations and production.

A $7-billion contract to sell Joint Strike Fighters is big enough to view a military telecommunications satellite as a Coke-and-peanuts throw-in once the customer has confirmed the big-ticket purchase. It is not the first time that a military-hardware deal has included a satellite as an add-on.

But in this case, for reasons that are not clear, Lockheed Martin had trouble meeting the terms of the deal, which was concluded in 2014.

In a Feb. 9 interview, DAPA spokesman Kim Si-cheol confirmed the arrangement and said DAPA still views Lockheed as its prime contractor for the satcom program even though Airbus will be building the satellite. He said the project is now on track for a launch in 2019 and the Korean personnel have been stationed in both the United States and France.

A funding disagreement in November

Last November, DAPA said Lockheed had suspended work on the satellite, citing cost increases, and asked Korean authorities to provide funds beyond the originally contracted amount.

DAPA said it rejected the proposal and would maintain the satellite order “on condition that the U.S. government and Lockheed Martin will carry out the project within the contract amount already established,” and agreed that the delays associated with the project’s suspension will not result in a penalty imposed on Lockheed.

In addition to accepting these terms, DAPA accepted agreed “to pursue the consultation based on comprehensive consideration of national interests, such as the urgency and economic efficiency of the military satellite communications project,” the agency said.

But at some point, Lockheed apparently decided that having someone else provide the satellite was preferable to incurring the cost and complications associated with building it on its own.

Whether U.S. technology transfer regulations, commonly known as ITAR, or International Traffic in Arms Regulations, had much to do with Lockheed’s decision is unknown. ITAR’s satellite export rules have been relaxed in the past two years, except where China is involved, and a close U.S. ally such as South Korea that’s buying combat aircraft would not normally be subject to deal-breaking ITAR restrictions.

DAPA, U.S. Commerce Department agree on confidence-building measure

In the days following the November agreement to restart the project, DAPA and the U.S. Department of Commerce agreed to create a formal structure to smooth U.S.-Korean industrial interaction on defense contracts.

“[D]efense procurement agencies have suffered a lot due to lack of reliable information needed for verification of participating companies when purchasing munitions from the United States and other countries,” DAPA said in a statement.

“However, through the signing of this cooperation memorandum, it is possible to acquire credible information of the US Department of Commerce. It is expected that the contract implementation ability and the reliability of overseas introduction equipment will be greatly improved.”

Two industry officials said Lockheed may have made a judgment based on the headaches involved in having a Korean engineering team stationed at Lockheed’s satellite production plant for months on end during the satellite’s construction.

“Don’t underestimate this as an issue,” an industry official said. “A sophisticated training program of the kind the Koreans would have insisted on is not a small thing. You have to rearrange your facility’s security apparatus and agree to outsider presence for a long period.”

In response to SpaceIntelReport queries, Lockheed Martin on Feb. 7 issued the following statement:

“As a matter of policy, Lockheed Martin does not discuss details of ongoing business discussions, however we can confirm that we continue to work with the Republic of Korea on the implementation of various offset programs related to their F-35A program.”

Airbus Defense and Space declined to comment and would not confirm that it had won the KMilSatCom contract from Lockheed.

Industry officials agreed that, for Airbus, the publicity value of announcing that the biggest U.S. manufacturer of military telecommunications satellites is buying one from Airbus for Korea would be considerable.