[Defense Brief] What the KAI Union Should Do

The labor union of Korea Aerospace Industries (KAI) traveled from Sacheon to Seoul to hold a rally opposing Hanwha's efforts to increase its stake in the company and interfere with its management rights. The rallies will continue. The union has announced plans to hold more rallies at the end of October and in December. This is not the first time the KAI union has staged large-scale collective action over the company's management. In 2012, when Korean Air pursued an acquisition of KAI, about 1,800 KAI union members also traveled to Seoul to rally against privatization. Even unions from other companies, which were neither affiliated with the union's higher-level organization nor part of the same company, joined in. The LIG D&A branch affiliated with the Korean Confederation of Trade Unions issued a joint statement opposing Hanwha's acquisition of KAI.

The unions singled out Hanwha because it is considered a leading candidate to acquire KAI. In August 2026, Hanwha Group increased its stake in KAI to 15.89%, becoming its second-largest shareholder after the Export-Import Bank of Korea. The stakes held by its affiliates are 9.90% for Hanwha Aerospace, 4.98% for Hanwha Systems, and 1.01% for Hanwha Aerospace USA. The Fair Trade Commission approved Hanwha's acquisition of the shares without a general review, reasoning that although Hanwha had secured a stake of at least 15% in KAI, it would be difficult for the company to exercise substantial influence over KAI's overall management. The commission took into account, among other factors, that the government side, including the largest shareholder, the Export-Import Bank of Korea, holds more than 35% of the shares.

The Export-Import Bank of Korea, KAI's largest shareholder, is also moving ahead. It recently commissioned a consulting project. This is the first time the bank has proposed consulting on the space and aviation industries. The bank insists that the project is not intended to prepare for a sale or privatization of KAI, but the mood in the market is different. Industry insiders believe the project will provide a comprehensive look into KAI's internal operations, including ongoing projects, export volume, costs, personnel, and labor relations. That is why some in the defense industry have interpreted it as "the preparation of a bill for the sale process."

The government, too, appears to be making no effort to discourage the move. It believes the Export-Import Bank of Korea has allowed KAI's management to deteriorate. The policy is ostensibly intended to guarantee the company's management autonomy, but the government believes the pattern of political appointees dividing up positions depending on the administration in power has continued to repeat itself. KAI's performance has indeed been dismal. Last year, it successively failed to win a contract for a 1 trillion won UH-60 Black Hawk upgrade project and a contract to develop the next-generation geostationary weather satellite Cheollian 5. It also lost a bid for a 1.5593 trillion won project to develop a Korean electronic warfare aircraft.

Given the situation, many companies are seeking to acquire KAI. One leading candidate is LIG D&A. Industry insiders had estimated that buying the stakes held by the Export-Import Bank of Korea and the National Pension Service would cost about 3 trillion won, but with the share price rising, they now put the figure at 7 trillion won. LIG D&A says an acquisition is well within reach if it invests 30% of the funds and an LG Group affiliate invests the remaining 70%. The acquisition process under the Yoon Suk Yeol administration fell through because of the declaration of martial law, and the rising share price then brought speculation about an acquisition to a halt.

Hyundai Motor Group is also seeking to acquire KAI. Using Supernal, which it established in the United States in 2020, Hyundai Motor Group has set a goal of commercializing electric vertical takeoff and landing aircraft (eVTOLs) in 2028. KAI has focused on developing military aircraft and built up unrivaled expertise in aircraft design. Hyundai Motor Group aims to combine its mass-production capabilities and global supply chain with KAI's "aviation DNA."

The conditions are now in place. The government has begun moving toward privatizing KAI, and several companies have said they intend to take part in the acquisition bid. The matter should therefore be left to market forces. It is normal to leave changes to corporate ownership structures, mergers and acquisitions (M&A), and the restructuring of the national defense industry ecosystem to the market. If there are concerns about monopolies, the government can step in. The Fair Trade Commission can prevent them through institutional measures. This is not an issue for unions to take up. Unions should focus only on job security for their members and improving working conditions. It is wrong to flex their muscles before an acquisition has even been decided. Unions that step in to choose an owner to their liking must decide for themselves what they should do to avoid being called "cartel-style unions" seeking to protect their vested interests.

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