KAI head resigns amid corruption scandal

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KAI head resigns amid corruption scandal

Korea Aerospace Industries (KAI) said its president and CEO, Ha Sung-yong, resigned in a board of directors meeting Thursday amid allegations of corruption and embezzlement involving major defense projects.

The Seoul Central District Prosecutors’ Office on the same day summoned executives close with Ha for questioning as they expanded their probe into allegations that the nation’s only aircraft manufacturer inflated expenses for developing military aircraft and pocketed gains of at least tens of billions of won. Prosecutors said that Lee, a director of management support at KAI who oversaw human resources and production support, was undergoing questioning. Lee, who previously worked for Daewoo Heavy Industries, is suspected of supporting Ha in the various allegations, such as getting kickbacks from subcontractors and creating a slush fund.

Prosecutors suspect KAI was involved in the inflation of prices of parts to build military aircrafts in the development process of major defense projects such as the Surion utility helicopters, T-50 Golden Eagle trainers and FA-50 light-weight fighters.

They also suspect Ha and other executives may have created a slush fund which may have been used for lobbying efforts toward Ha’s reappointment for a second term as KAI CEO.

The investigation is expanding into probing whether Ha used slush funds to lobby with previous government officials and also to help secure a second term as KAI head.

KAI said through a statement that an extraordinary general meeting of shareholders will be convened as soon as possible to select a new CEO. KAI Vice President Chang Sung-sup will be taking over as acting chief of the company until a new head is selected.

Ha said through a statement, “I strongly realize the responsibility over everything that has happened involving KAI recently and will resign as CEO.” He added that large-scale projects such as the export of the T-50 supersonic advanced trainers to the United States and development of the KF-X next-generation fighter plane need to proceed without any setbacks.

He also apologized to KAI employees, saying, “I am sorry to all the employees who have done their utmost to develop and export domestic aircraft day and night.” Ha added that he plans to “sincerely explain” the various allegations to the prosecution. Ha served as KAI head since 2013 and was reappointed for a second term in May last year.

The JoongAng Ilbo reported on Thursday that KAI collected funds worth tens of millions of won from subcontractors to establish an internal affiliate company aimed at enabling its production-related retirees to find new employment. This internal affiliate company enabled three new separate firms to be established, and their creation was funded by the subcontractors according to the report, citing a KAI official.

Ha and other officials had been barred from leaving the country by prosecutors after the probe kicked off on July 14 as investigators raided KAI’s headquarters in Sacheon and other offices in Seoul. Prosecutors earlier this week also raided five subcontractors that were suspected of being involved in selling inflated military aircraft parts to KAI. Prosecutors said that it is in the process of analyzing hard drives, mobile phones, documents and account books that it seized from the subcontractors.

BY SARAH KIM, SOHN GUK-HEE [kim.sarah@joongang.co.kr]
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