Will the Lee Jae-myung Administration Complete KAI Privatization? [Yang Nakgyu's Defence Club]

KEXIM Commissions Space and Aerospace Industry Consulting Project
Industry Views It as "Step Toward Preparing a Sale Prospectus"

The privatization process of Korea Aerospace Industries (KAI) appears to be gaining momentum. The Export-Import Bank of Korea (KEXIM), which is KAI's largest shareholder, recently commissioned a consulting project—marking the first time it has sought proposals for consulting related to the space and aerospace industry. Adding to this, major domestic defense companies are actively pursuing the acquisition of KAI, increasing expectations that the long-stalled privatization of KAI could be realized under the current administration.

According to the 'Consulting Project for Strengthening the Competitiveness of the Space and Aerospace Industry' commissioned by KEXIM on August 13, the contents include an analysis of domestic and international markets, strategies for enhancing competitiveness, and a review of action plans for project implementation. KEXIM, however, is drawing a line by saying this is not related to plans for the sale or privatization of KAI.

Management Crisis Due to Political Appointments After Each Administration Change

The market sentiment is different. The privatization of KAI has been discussed in the past, with both Korean Air and Hyundai Heavy Industries having failed in previous acquisition attempts. KEXIM has not actively participated in management over the years, officially claiming to respect the company’s management autonomy. However, due to repeated instances of political appointments after each administration change, executive positions have frequently been allocated as spoils. The results have been disastrous. Last year, KAI failed to secure a 1 trillion won contract for the UH-60 Black Hawk performance upgrade project, as well as the next-generation geostationary weather satellite project 'Chollian 5.' KAI also lost out in the 1.5593 trillion won bid for the Korean electronic warfare aircraft project.

Industry: "Consulting Work Effectively Drafts a Sale Prospectus"

The industry believes that this consulting project will allow for a thorough review of KAI’s ongoing business, scale of exports, costs, HR, and labor management. This is why some in the defense sector interpret it as a step essentially preparing a prospectus for sale.

Among domestic companies, Hanwha Group is the most active in its pursuit to acquire KAI. The gap in shareholding between KEXIM, which holds 26.41%, and Hanwha Group has narrowed to 10.52 percentage points. Hanwha’s move aligns with the ongoing restructuring within Korea’s space, aerospace, and defense industries. Hanwha possesses capabilities in aircraft engines, guided weapons, radars, satellites, and land and naval defense, while KAI has a comprehensive system integration capability for fighter jets, helicopters, and unmanned aerial vehicles. Reportedly, Hanwha Group has already deployed executives with prior KAI backgrounds and those with acquisition experience from the Daewoo Shipbuilding & Marine Engineering deal to its acquisition team.

Hanwha Group Prepares Acquisition Team as It Increases Stake in KAI

LIG D&A has also expressed its intention to take part in the acquisition. The industry initially estimated that about 3 trillion won would be needed to buy out the KEXIM and National Pension Service stakes in KAI, but this figure has risen to 7 trillion won as KAI’s stock price soared. LIG D&A believes that if it invests 30% of the required funds and LG Group affiliates provide the remaining 70%, the acquisition is feasible. During the Yoon Suk-yeol administration, an attempt was made to acquire KAI, but the plan was scrapped due to martial law, and the rising stock price caused the acquisition talks to stall.

LIG D&A and Hyundai Motor Group Also Join the Acquisition Race

Hyundai Motor Group is also eyeing KAI's acquisition. Hyundai Motor Group has set a goal of commercializing electric vertical take-off and landing aircraft (eVTOL) by 2028 through Supernal, a U.S. company established in 2020. KAI has focused on military aircraft development, accumulating unparalleled expertise in aircraft design. Hyundai Motor seeks to combine its mass-production capabilities and global supply chain with KAI's "aerospace DNA."

An industry insider remarked, "KEXIM's KAI consulting notice effectively serves as due diligence in preparation for a sale. As domestic defense companies are eager for the acquisition, the pace of the sale is expected to accelerate."

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