KAI shareholders agree to try sale one more time

Korea Aerospace Industries (KAI) will again be put up for sale as Korea Finance Corporation (KoFC) received a letter of agreement from other major shareholders last week to sell the nation’s sole aircraft manufacturer.

According to industry sources, KoFC will push for due diligence for KAI this week as soon as it appoints an accounting firm to oversee the sales process. Ernst & Young Han Young, which previously managed the process, is likely to be reappointed.

KoFC, the largest KAI shareholder, aims to complete the sale this year after two previous attempts failed. After finishing due diligence, the state-run finance company is expected to issue a public notice of sale by early August. Bidding is likely to start in September.

KoFC has a 26.41 percent stake in KAI, while Samsung Techwin, Hyundai Motor and Doosan Group each hold 10 percent. These companies have formed a shareholders’ conference to sell their shares by the end of the year.

A total stake of 41.75 percent will be up for sale, in which KoFC will put up an 11.75 percent stake while the three private companies will offer a combined 30 percent stake.

Last year, two sales attempts for KAI failed as they couldn’t meet legal requirements. The State Contract Act requires at least two bidders, but in the first attempt Korean Air Lines was the only bidder, while Hyundai Heavy Industries was the only bidder in the second try. These two companies are still considered potential buyers.

Industry insiders said that if KAI can’t be sold through competitive bidding this time around, KoFC may try a sale by private contract after getting an agreement from stockholders.

Under law, if the sale of a government asset is not consummated in two competitive biddings, it can be sold through private contract.

Last year, KoFC was reluctant to sell KAI by private contract as it might have been seen as preferential treatment, but since the agreement with shareholders to sell KAI is effective solely this year, speculation is mounting that KoFC will change the selling process.

Experts predict that a KAI sale will not be easy because the company’s labor union, and even some politicians, oppose privatizing the aircraft manufacturer. The union has been saying that both potential buyers don’t seem to have a strong commitment to develop KAI.

Politicians perceive the sale of KAI as a potential roadblock to KAI’s current business of manufacturing helicopters and light fighter jets for the military. The export of the Surion, Korea’s first combat helicopter, has been delayed due to protests by KAI employees.

“Regarding sales of KAI, there were many controversies about privatizing the aviation industry and preferable treatment for some companies,” said Saenuri Party lawmaker Kim Jae-kyung at the National Assembly last week. “There should be a convergence of opinions from politicians, labor unions, management and civic groups about when and how to sell.”

BY JOO KYUNG-DON [kjoo@joongang.co.kr ]