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Will Hanwha buy KAI to produce fighter jets?

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The domestically developed KF-21 fighter jet flies during its first test flight over the Air Force's 3rd Flying Training Wing base in Sacheon, South Gyeongsang Province, July 19. Courtesy of Defense Acquisition Program Administration
The domestically developed KF-21 fighter jet flies during its first test flight over the Air Force's 3rd Flying Training Wing base in Sacheon, South Gyeongsang Province, July 19. Courtesy of Defense Acquisition Program Administration

By Park Jae-hyuk

Korea Aerospace Industries (KAI) has been mentioned as the next acquisition target of Hanwha Group for the conglomerate to become a global defense industry powerhouse going after Lockheed Martin, according to industry officials, Tuesday.

Earlier this week, Hanwha announced its decision to take over a 49.3 percent stake in Daewoo Shipbuilding & Marine Engineering (DSME) for 2 trillion won ($1.4 billion) from the shipbuilder's largest shareholder, Korea Development Bank.

Once the business group completes the acquisition deal, it will be able to enhance its competitiveness in naval defense systems through DSME's warship manufacturing division.

Hanwha, however, has yet to produce aircraft unlike Lockheed Martin, although it has supplied radar systems and engines for the Republic of Korea Air Force.

Attention has therefore been focused on whether Hanwha will push ahead with the acquisition of the developer of the FA-50 light combat aircraft and the KF-21 fighter jet, despite both companies' continuous denials of the speculation.

At this moment, KAI's largest shareholder is the state-run Export-Import Bank of Korea with a 26.4 percent stake. Its second-largest shareholder is the National Pension Service with 10.3 percent.

Given that the Yoon Suk-yeol administration has sought to streamline public institutions by selling their assets, KAI's largest shareholders are likely to unload their stakes in the near future.

When Hanwha Aerospace sold its entire 6 percent stake in KAI in 2018, the disposal was considered to show the conglomerate's indifference to the aircraft manufacturing business.

In addition, skepticism remains that Hanwha will not be able to afford KAI, considering that the conglomerate has to pay debts on behalf of DSME.

However, there is a rumor that the government has given Hanwha permission to acquire KAI in the future, on condition of taking over both the warship and commercial ship manufacturing units of DSME. The conglomerate is said to have initially been interested only in the warship business.

If Hanwha acquires KAI, the conglomerate will also be able to lead the project to upgrade a domestically developed launch vehicle. The two companies are in direct competition to be chosen as the preferred bidder for the 303 billion won project, which is seen as the Korean version of SpaceX.

With this project, the government aims for a transition to the era of "New Space," which refers to the private sector taking the initiative in space exploration.


Park Jae-hyuk pjh@koreatimes.co.kr


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