[Exclusive] Export-Import Bank of Korea Set to Begin Privatization of KAI

Consulting Service Ordered for KAI; Industry: "Effectively Due Diligence"

Hanwha, Hyundai, and LIG D&A Among Domestic Defense Companies Showing Interest

The privatization process of Korea Aerospace Industries (KAI) has gained momentum. Analysts see the initiation of the privatization process as the Export-Import Bank of Korea, KAI’s largest shareholder, issued a public notice for a consulting service regarding KAI. This is the first time the Export-Import Bank of Korea has solicited a consulting service for KAI.

On August 12, the Export-Import Bank of Korea launched an electronic bidding process for a "consulting service to strengthen the competitiveness of the aerospace industry." The bidding will remain open until September 22, and the consulting period is set for three months. Considering that the consulting will conclude in December, this suggests that the bank aims to draw up a concrete plan for KAI’s privatization within this year.

Privatization gathers pace as CEO appointment is delayed

KAI’s two main shareholders are the Export-Import Bank of Korea (26.41%) and the National Pension Service (8.3%). This is why KAI is regarded as a quasi-public company. However, the Export-Import Bank of Korea has not actually participated in management. Officially, this is to guarantee autonomy in company management, but in practice, the structure of splitting the CEO position according to whichever administration is in power has repeatedly occurred. In the current administration, the CEO position has been exceptionally vacant for eight months, lending further support to calls for privatization.

Hanwha Group most active in acquisition efforts

KAI’s privatization has been attempted in the past. While Korean Air and Hyundai Heavy Industries once vied for the acquisition, those efforts failed. Recently, the atmosphere among domestic defense companies has shifted. Hanwha Group is the most active. Hanwha Group recently secured more than 15% of KAI’s shares and is now undergoing a business combination review by the Korea Fair Trade Commission. The ownership gap between Hanwha and the Export-Import Bank of Korea, which holds 26.41%, has narrowed to 10.52 percentage points. Hanwha’s efforts are aligned with the ongoing restructuring of domestic space, aviation, and defense industries. Hanwha possesses capabilities in aircraft engines, guided weapons, radar, satellites, and ground and maritime defense, while KAI specializes in the integrated development of complete aircraft systems, including fighter jets, helicopters, and unmanned aerial vehicles.

Hyundai Motor Group also shows willingness to acquire aircraft business

LIG D&A has also expressed its intention to acquire KAI. Industry sources had estimated that acquiring shares from the Export-Import Bank of Korea and the National Pension Service would require about 3 trillion won, but with KAI’s share price rising, estimates have now reached 7 trillion won. LIG D&A believes that it can achieve the acquisition if it invests 30% itself and receives a 70% capital contribution from an LG Group affiliate. The acquisition attempt under President Yoon Suk-yeol’s administration was scrapped due to the imposition of martial law, and as the share price increased, acquisition rumors have paused.

Consulting likely to serve as effective due diligence for KAI acquisition

Hyundai Motor Group is also eyeing the acquisition of KAI. In 2020, Hyundai Motor Group established Genesis Air Mobility in the United States, later renaming it "Supernal," and has set a target of commercializing electric vertical takeoff and landing aircraft (eVTOL) by 2028. eVTOLs are electrically powered aircraft capable of vertical takeoff and landing, like helicopters, and are gaining attention as solutions for urban traffic congestion and carbon emission reduction. Since its founding in 1999, KAI has focused on developing military aircraft, from the KT-1 basic trainer to the KF-21 fighter jet, accumulating unique aeronautical design technology. Hyundai Motor Group’s mass production capabilities and global supply chain, combined with KAI’s distinctive "aviation DNA," signal strong intent to create a powerful synergy.

An industry official stated, "The Export-Import Bank’s announcement for KAI consulting effectively amounts to conducting due diligence ahead of a potential sale," adding, "Given that domestic defense companies are eager to pursue an acquisition, the speed of the sale is expected to accelerate."

The Export-Import Bank of Korea responded, "There are no plans to privatize KAI," and clarified, "The consulting service is intended to analyze key aerospace companies and the overall industrial ecosystem, and does not include due diligence content."

This content was produced with the assistance of AI translation services.