Korea Eximbank Rules Out Sale of KAI Stakes

The entrance of Korea Aerospace Industries (KAI) and Hanwha booths visible at the international defense exhibition ‘ADAS 2024’ held in Manila, the Philippines. (Photo provided by Ministry of National Defense joint press corps) Amid the controversy over the privatization and mergers and acquisitions (M&A) of Korea Aerospace Industries (KAI) sparked by Hanwha Group’s recent large-scale stake expansion, the Export-Import Bank of Korea (Korea Eximbank), the largest shareholder, clearly stated its position during a National Assembly audit that it currently has no plans to sell. However, fierce debates are continuing over concerns about a defense monopoly, opposition from members, and the appropriateness of the Fair Trade Commission’s review. During the National Assembly audit by the Finance, Economy and Planning Committee on Oct. 20, Export-Import Bank of Korea President Hwang Ki-yeon drew a line against pointing out that the bank’s recent commissioning of consulting services for the space and aerospace industry was made with the sale of KAI in mind. In response to a question from Representative Yun Hoo-duk of the Democratic Party of Korea, President Hwang stated, “The service was not conducted on the premise of privatization or sale, and there is no current plan to sell KAI.” Following this, regarding the pointing out by Representative Kang Min-kuk of the People Power Party that the recent commissioning of consulting services worth 1.8 billion won (about $1.36 million) overlaps with the timing of Hanwha’s on-market stake purchase, he dismissed it, saying, “I was unaware of Hanwha’s stock purchase, and the disposal of KAI stakes was not included in the scope of the service.” He also drew a line against the question of whether he had been contacted by political circles, including the Office of the President, stating, “There was none.” However, President Hwang added, “It is difficult to speak conclusively about future plans,” thereby not completely closing the door on the possibility of future corporate governance reorganization. KAI Chief Executive Officer Kim Jong-chul, who appeared as a witness on the same day, expressed clear concerns about Hanwha Group’s attempt to participate in management. CEO Kim emphasized, “(If Hanwha Group takes over management rights) a monopoly problem will arise, significantly undermining the competitive system, and there is a possibility that the overall aerospace industry ecosystem will shrink,” adding, “There will be no change in KAI’s corporate governance without the consent of our members.” Furthermore, citing the fact that government approval and control are bound to apply due to the nature of defense companies, he forecasted that Hanwha’s practical participation in management or entry into the board of directors would realistically be difficult to achieve immediately. On the same day, the labor union of Korea Aerospace Industries (KAI) held a second protest in Seoul in front of Cheong Wa Dae with all union members in attendance to block Hanwha’s acquisition attempt. The labor union urged official answers and practical measures from the government, taking direct aim at the issue of poor review by the Fair Trade Commission. Previously, it was revealed that the Fair Trade Commission approved Hanwha’s acquisition of a 15.89% stake in KAI through a ‘simplified review’ without undergoing a full-scale analysis of the monopoly impact. Through a statement, the labor union criticized, “Even though Hanwha changed the purpose of its stake to ‘management participation,’ the Fair Trade Commission remained at a formal judgment that practical control had not been formed,” and added, “If Hanwha participates in the board of directors, it can access business strategies and core technological information, exercising immense influence on supplier selection.” In particular, they warned that the vertical integration between KAI, which handles system integration, and Hanwha, which produces components such as engines, could undermine the competitiveness of the national aerospace industry. The KAI privatization controversy and Hanwha’s move to expand its stake go beyond simple stake competition between private companies and are a grave matter directly linked to the reorganization of the monopoly structure and fair competition system of the national strategic defense industry. Amid the intertwined interests of the National Assembly, the government, labor, and management, attention is focused on the policy decisions that will determine the future direction of the defense ecosystem.