By Tim Kelly
TOKYO (Reuters) - Japan wants to develop a stealth fighter domestically, rejecting designs from Lockheed Martin Corp (NYSE:LMT) and Boeing (NYSE:BA) Co in the United States and Britain's BAE Systems (LON:BAES) PLC, three sources with knowledge of the program told Reuters.
That would put Japan's leading defense contractor, Mitsubishi Heavy Industries, in the lead for a military contract worth more than $40 billion. The company has not submitted a design for the next-generation fighter, but developed Japan's stealth fighter technology demonstrator, the X-2, in 2016.
"Japan's stealth designs have performed well in tests so far," said one of the sources, who has knowledge of discussion about the new proposed plane, referred to as the F-3 or F-X.
A spokesman for Mitsubishi Heavy said the company would work with the government on whatever policy it decided to follow.
"We understand the Japanese government will lead the development program," a Mitsubishi Heavy spokesman said.
Japan's Air Self Defense Force flies about 200 Boeing F-15 jets and is replacing squadrons of decades-old F-4 fighters with Lockheed Martin F-35s. The F-3 will succeed the F-2, a derivative of the F-16 Fighting Falcon jointly developed by Mitsubishi Heavy and Lockheed Martin more than two decades ago.
Proposals from Lockheed, Boeing and BAE "were judged not to have met our needs," said an official at the Japanese defense ministry's Acquisition, Technology & Logistics Agency (ATLA). "No decision has yet been reached on the airframe," he added.
After settling on the airframe - the aircraft itself without the systems that make it fly - Japan's government will select suppliers for the engine, flight systems, sensors and other components that will give the proposed jet its advanced capabilities, the sources said.
All three spoke on condition of anonymity because the were not authorized to speak to the media.
For many of the systems, Tokyo will need help from foreign companies to reduce development costs and time, ensuring it can deploy the fighter in the next decade to counter Chinese expansion in East Asia.
U.S companies, including Lockheed Martin, Boeing and Northrop Grumman (NYSE:NOC), are still potential partners, the sources said.
"Lockheed Martin is encouraged by the ongoing dialogue between the U.S. Government and Government of Japan regarding Japan's F-2 replacement plans, and is looking forward to detailed discussions with Japanese industry," Lockheed Martin said in an email. It had proposed an aircraft combining elements of its F-22 and F-35 stealth jets.
"Boeing is committed to partnering with Japan to support development of a Japan-led, next-generation future fighter," said a spokesman from Boeing, which had offered Japan a design based on its F-18 Super Hornet jet.
Northrop Grumman is "engaged in frequent dialogue with Japan's Ministry of Defense and Japanese industry in support of the F-X program," a company spokesman said. Northrop Grumman did not submit an airframe proposal.
The United States, which has about 50,000 troops in Japan, including as an aircraft carrier strike group, remains the cornerstone of Tokyo's defense policy. U.S. President Donald Trump wants Japan to pay more for that protection and reduce its trade surplus with the United States.
Japan is seeking deeper security ties elsewhere, including with Britain, which is courting Japan as a possible partner on its proposed next-generation jet, the Tempest. If built, it would deploy in the 2030s.
The leading defense contractor in that project, BAE, which offered Japan a design based on the Eurofighter Typhoon jet, could stand to benefit.
BAE and other companies involved in Tempest proposal "continue to support the UK in its discussions with Japan to consider more deeply how the two nations can collaborate on their combined combat air requirements," a BAE spokesman said.
Japan wants to decide on the international partners for the F-3 by the end of the year, the ATLA official said.