Top DOD Bid Down to the Wire As Scandal Lingers | NTK Network Top DOD Bid Down to the Wire As Scandal Lingers

Top DOD Bid Down to the Wire As Scandal Lingers

The defense award would provide $16 billion for 350 aircraft to replace the T-38 trainers.

By NTK Staff | 09.24.2018 @9:40am
Top DOD Bid Down to the Wire As Scandal Lingers

Top officials suspect this week could be the announcement for the T-X Trainer contract, one of the top defense competitions of the year. The major bid award has been long delayed but appears to finally be coming to an end.

The defense award would provide $16 billion for 350 aircraft to replace the T-38 trainers, which are made by Northrop Grumman. Northrop has dropped out of the bid.

The contract has multiple foreign companies hungry to win the deal, which has grabbed headlines for the Michael Cohen scandal’s connection to Korea Aerospace Industries, Lockheed Martin’s partner in the bid. The scandal has thrown a twist into the competition, raising questions about the ethical concerns of working with foreign companies with a history of corruption.

State prosecutors investigated KAI on suspicions that it manipulated research and development costs for T-50 Aircraft – the one KAI is entering into the Trainer competition – as well as the Surion helicopter.

The Board of Audit and Inspection (BAI) discovered that KAI officials illegally acquired 54.7 billion won ($48 million) by inflating development costs for the Surion helicopter. KAI officials set up their own companies outside KAI and siphoned funds through business contracts with KAI using the artificial costs.

It is suspected that KAI’s CEO, Ha Sung-yong, was directly involved in embezzling money worth about 500 billion won ($440 million) in fraudulent accounting. Meanwhile, Ha raised his salary and bonus by about 250 million won and 200 million won, respectively.

After the heat turned up, Ha resigned from his position and was later indicted for accounting fraud, bribery, and embezzlement.

In total, 12 KAI executives, including Ha, were indicted on corruption charges in a sweeping crackdown on the company’s questionable practices. One high-ranking official fled law enforcement. Another KAI executive who was in charge of handling overseas deals committed suicide during the investigation.

Leonardo, the third-place contender for the contract, adds a Russian twist that could complicate things even further. Leonardo’s proposed aircraft for the major American contract is nearly identical to a Russian aircraft, raising serious questions about their submission’s viability.

Air Space Magazine explored the striking similarities between Leonardo’s work and the Russian product:

“Like the T-50, Leonardo’s Italian-built Aermacchi M-346—dubbed the T-100 for U.S. Air Force purposes—is no newcomer. The aircraft began life as a joint project with Russian company Yakovlev, but the partnership fell apart after a few years, and the two companies went their separate ways. (The M-346 looks strikingly like the Russian product of the collaboration, the Yak-130, but has no Russian components, says Leonardo.)”

Air Force Magazine points out that “In its early days, the M-346 was a co-development with Yakovlev of Russia and bears a strong resemblance to that company’s Yak-130 trainer.”

The scandals for KAI and the Russian ties for Leonardo raise serious questions about whether these issues will imperil their bid. A Newsmax columnist aptly summarized the Trump administration’s complications associated with Leonardo’s bid in a piece earlier this year:

“Leonardo S.p.A., an Italian aerospace company, is teaming up with its American subsidiary Leonardo DRS. Their offering is a derivative of an older Russian jet that is currently built in Italy. If they win the competition, they plan to move their operations to the U.S. But regardless, they are offering an older, modified Russian jet. The Italians fly 18 such planes. The Poles fly 8. Singapore has 12 in service. You get the point. This offering doesn’t make a lot of sense for America, no matter what bargain price they may offer.”

Lockheed Martin, which is partnered with KAI in the bid, denied allegations that it had illicitly “received business favors from the Park [South Korean] government,” and similar allegations were leveled against KAI. The Korea Times reported that state prosecutors investigated a program involving Lockheed and KAI’s dealings with the Korean government.

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