Privatization calls grow as KAI names new CEO

Korea Aerospace Industries (KAI) headquarters in Sacheon, South Gyeongsang Province / Courtesy of KAI

Korea Aerospace Industries (KAI), the military aircraft manufacturer controlled by the state-run Export-Import Bank of Korea (Eximbank), appointed Kim Jong-chool as CEO on Wednesday.

His appointment put an end to KAI's eight-month leadership vacuum following the resignation of former CEO Kang Goo-young, known as a close ally of former President Yoon Suk Yeol.

Korea Aerospace Industries CEO Kim Jong-chool

KAI’s shareholders and board members agreed that day to give the CEO post to Kim, a former Republic of Korea Air Force officer who worked for the Defense Acquisition Program Administration.

Defense industry officials expect the government to resume efforts to privatize KAI under its new chief, as Hanwha and LIG have recently been mentioned as potential buyers of the controlling stake held by Eximbank.

Although KAI is not directly owned by the government, it is effectively under state control because Eximbank holds the largest stake at 26.4 percent. The National Pension Service is the second-largest shareholder with an 8.5 percent stake.

This structure has allowed the government to continue influencing KAI’s leadership appointments.

When Kim was recommended as CEO last month, KAI’s union and civic groups in the company's home of Sacheon, South Gyeongsang Province, protested the decision, calling it an act of favoritism.

“The conflict with the union has been resolved as the new CEO has kept the dialogue open and accepted the union’s requests,” a KAI spokesman said.

Kim has reportedly promised to streamline the organization by eliminating unnecessary task force teams within the company.

The spokesman, however, denied speculation about privatization.

“The rumor began after Hanwha’s additional share purchases became known,” he said. “As of now, the government has not taken any official steps toward privatization.”

Eximbank has also dismissed the idea. The government has tried multiple times to privatize KAI since 2012, but these attempts have failed.

Still, calls for privatization are growing, with warnings that KAI could miss opportunities amid the global defense industry boom.

“It is regrettable that KAI is not playing its part amid the rising global demand for Korean defense products,” Defense Minister Ahn Gyu-back said during a National Assembly audit last October when asked about the government’s privatization plans.

Momentum for privatization especially increased after it was revealed that Hanwha Group had quietly become KAI’s fourth-largest shareholder with a 4.99 percent stake.

Hanwha Systems said in its latest annual report that it bought a 0.58 percent stake in KAI last November for 59.9 billion won ($40 million). Hanwha Aerospace also disclosed that it and its subsidiary together purchased a 4.41 percent stake in KAI last October.

The acquisitions came seven years after Hanwha Aerospace sold its entire 5.99 percent stake in 2018.

Hanwha denied speculation that the investments were aimed at exerting managerial influence, saying the purchases were meant to strengthen collaboration in the aerospace and defense sectors.

“Our stake acquisition in KAI is intended to enhance cooperation in aerospace and defense,” a Hanwha Group official said.

LIG Nex1 is also reportedly open to joining a potential bid for KAI if the company is put up for sale. Some media outlets reported that LIG Nex1 formed a task force to explore the feasibility of acquiring KAI, although the company denied those claims as groundless.

“At this stage, we have nothing to say about our position regarding KAI,” an LIG Nex1 spokesman said.

With LIG Nex1 planning to change its name to LIG Defense & Aerospace later this month, market watchers expect the company to expand its presence in the aerospace sector, potentially by acquiring KAI.