Lockheed to buy European satellite for South Korea in F-35 deal

Lockheed Martin Corp said it will buy a European-built military communications satellite for South Korea as part of a $7 billion deal to supply Seoul with 40 F-35 fighter jets, in what industry observers call among the most unusual "offset" agreements ever to accompany a major arms sale.Lockheed, which builds its own satellites, declined to detail the cost of the new satellite or name its manufacturer, but said the spacecraft would provide a "state-of-the-art" system that met South Korea's military requirements.

"The Lockheed Martin offset commitment ... directly benefits Korean national defense requirements, enables substantial Korean industrial activity and transfers a large amount of high technology to the Republic of Korea," Lockheed said.Steve Over, director of international business development for the F-35 program, said Lockheed would buy and launch the satellite by 2017, including all necessary control equipment and technical training. He declined to give further details.U.S. government and industry officials said they believed it was the first time that a U.S. firm had included a satellite in a so-called "offset agreement" with an arms deal. In this case, Seoul's offset target was 50 percent of the value of the jets.

Weapons sales are generally negotiated between governments, but offset deals are worked out between the company and the purchasing government. A U.S. defense official said the State Department had approved the overall F-35 deal, including any offset costs, but the decision to include the European satellite was "purely" that of South Korea and Lockheed."The U.S. Department of Defense is not a party to any offset arrangement between U.S. industry and the foreign government," said the official, who asked not to be named.

Such agreements have long been demanded by countries to "offset" the cost of new weapons systems. They pay for a wide array of goods and services, ranging from arms components to unrelated items such as construction of hotels and financing for movies. In one case in 2005, Thailand asked Lockheed to buy 80,000 tons of stockpiled frozen chicken as part of an ultimately unsuccessful bid to sell F-16 fighter jets.Analysts and industry executives say offset deals have grown more sophisticated in recent years, but South Korea's interest in a satellite is a new development.