Taiwan Faces Tough Choices After US Cancels F-16 Upgrade

The US Air Force’s decision not to fund the Combat Avionics Programmed Extension Suite (CAPES) program that would have upgraded 300 US F-16 fighter jets and 146 Taiwan F-16s comes as a blow to Lockheed Martin and Northrop Grumman.

The decision not to include CAPES in the Pentagon’s fiscal 2015 budget request was a “tough tradeoff,” according to Maj. Gen. James Martin, Air Force deputy assistant secretary for budget. He described the decision as part of a pattern of prioritizing “buying new capability over upgrading legacy equipment.

“We do have money in the budget to handle some key modification programs for our legacy equipment so we can keep it ready,” Martin said. “But the F-16 CAPES program is one program that we decided not to fund.”

On the likelihood that CAPES could be funded at a later date, Martin noted the service reviews budget decisions frequently, “but I’m not holding that door open.”

Lockheed was selected as the CAPES system integrator, and Northrop’s scalable agile beam radar (SABR) secured the requirement for an active electronically scanned array (AESA) radar.

Taiwan now faces a tough decision — continue funding the CAPES program on its own or call for an open competition among BAE Systems, Boeing and Lockheed for systems integration, and a secondary competition between Northrop’s SABR and the Raytheon advanced combat radar (RACR) for the AESA requirement.

Sources in Taiwan’s Ministry of National Defense (MND) indicate that officials are embarrassed and beginning to panic. Cost sharing with the US Air Force on the CAPES program’s nonrecurring engineering costs and research-and-development funding will be nonexistent.

The US assured Taiwan’s MND that the CAPES program was “guaranteed” to go forward and that there was zero risk,” an MND source said. In many ways, the MND was forced to accept the conditions of the CAPES program, which included sole sourcing, after the US government turned down Taiwan’s request for new F-16 fighters.

Asked whether Taiwan’s needs factored into the decision to defund CAPES, Martin reiterated that the service “made choices that we really didn’t want to have to make.”

A Taiwan defense consultant to the MND said there are four drivers that will push costs up. Costs could rise upward of 30 to 60 percent as a result of the US decision not to fund CAPES, he said, and MND might be forced to cancel the plane’s new mission modular computer, priced at $200 million, if prices for the overall program escalate.

The first driver is quantity. With the 300 US F-16s out of the program, the unit price for components and systems for the 146 Taiwanese aircraft will rise.

Second, the consultant warned Taiwan not to expect the US to pay for additional nonrecurring engineering costs. “US law prohibits the taxpayer from being responsible for paying for increases to the customer under the Foreign Military Sales program,” he said.

Third, life-cycle costs over the next 10 to 15 years will go up because program costs are no longer being shared with the US, “not to mention the fact that Taiwan’s F-16 upgrade is a unique configuration by itself,” the consultant said.

Fourth, Taiwan’s Legislative Yuan issued a strict budget allotment of $3.8 billion for the core upgrade. The legislature warned MND not to come back for more due to economic problems.

“This is not going to be increased,” the consultant said.

Northrop officials at the recent Singapore Airshow said the program price for the SABR radar would not go up because it is a foreign military sale.

Paul Laliberte, Northrop’s country manager in Taiwan, admitted that previous foreign military sales to Taiwan, such as an early warning program, had suffered cost overruns. This was in reference to the Raytheon Surveillance Radar Program for Taiwan; Laliberte said the $750 million program ran in excess of $150 million over budget.

Lockheed’s F-16 communications manager, Mark Johnson, said the company is “confident Taiwan is not paying more for their upgrade as Lockheed Martin provides a total solution to our customer’s needs and is the lowest cost upgrade solution available.”

Johnson said the letter of acceptance for Taiwan would not be increased as a result of any action by the US with respect to CAPES and/or the F-16 service-life extension program. He suggested that Taiwan might be stuck with the Lockheed CAPES solution, as the letter is an agreement between the two governments, which has the approval and endorsement of the US Congress.

Defense News