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BAE finalizes South Korean F-16 upgrade deal, eyes more prospects

A F-16 fighter jet belonging to the U.S. Air Force comes in for a landing at a U.S. air force base in Osan, south of Seoul April 3, 2013. REUTERS/Lee Jae-Won

WASHINGTON (Reuters) - Britain's BAE Systems Plc (BA.TO) said on Monday it will hire 300 workers at its Fort Worth, Texas, plant and other sites to upgrade over 130 South Korean F-16 fighter jets after finalizing a deal with the U.S. government it hopes to replicate in other places in Europe and Asia in coming years.

BAE in 2012 beat out the maker of the jets, Lockheed Martin Corp (LMT), for the upgrade work, which could be worth over $1 billion, according to South Korean media reports.

Historically the companies that make warplanes have also serviced them and carried out major upgrades, but tighter military budgets in the United States and Europe have spurred arms makers to look for business in new areas, such as upgrade work, since there are fewer major new acquisition programs.

Erin Moseley, president of BAE Systems' Support Solutions sector, told Reuters the deal marked a significant expansion of BAE's F-16 modernization business. She added the company was in talks with other countries in Europe and Asia about similar work.

"A number of countries were watching to see if this model could be successful," Moseley said, noting that BAE already does about 40 percent of the work building and upgrading the avionics on the jets.

The company also had a different cost structure than Lockheed, which allowed it to be more "cost-effective," she said.

She said she expected BAE to land another F-16 upgrade deal before the end of 2014, citing a potential market of over 3,000 F-16s that could eventually need upgrades.

"The options are endless, or close to it," Moseley said, adding, "We believe F-16s are going to be there for quite some time. It's going to be a great chance for a franchise."

She said some countries operating F-16s now were interested in buying next-generation F-35 fighter jets, also built by Lockheed, and were looking at upgrading their current F-16s until those jets were available for delivery.

Upgrades also offered options to other countries that could not afford the new jets, she said. BAE is one of the major suppliers to Lockheed on the F-35 program.

BAE said it would begin work immediately on the first phase of the deal, which is worth $200 million, and covers initial design and development efforts.

The Pentagon's Defense Security Cooperation Agency notified lawmakers that it had approved the F-16 upgrade sale last month.

The second phase, covered under a separate contract, would kick off in 2014, covering the production and installation of upgrade kits for South Korea's KF-16C/D Block 52 aircraft, BAE said in a statement.

It said work on upgrading South Korea's F-16 fleet would be done mainly at BAE's Fort Worth facility, but other sites in Florida, New York, California and Virginia would also be involved.

(Reporting by Andrea Shalal-Esa; Editing by Jeffrey Benkoe)