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Aviation History
2003
2003 - 2543.PDF
South Korea: consolidation KAL Aerospace Source: KAI and KAL 2002 sales 187.4bn won 951.7bn won 2001 sales 212.9bn won 831.1bn won 2002 operating profit 6.4bn won 51.8bn won 2001 operating profit 37.4bn won 44.3bn won these were built in South Korea. KAI is responsible for supplying the air- frame/cabin for all 427s, including those sold and assembled by Bell, and for build ing helicopters sold in China, South Korea and elsewhere in South-East Asia. Oh says the 427's inability to operate under instrument flight rules (IFR) has hampered sales. "Most customers prefer helicopters with IFR, so the market is lim ited," he says. Bell and KAI are now in talks to jointly develop a new IFR version. "We're looking at the market to see if it is feasible," Oh says. KAI's aerostructures business, mean while, has been hit by the downturn in commercial aircraft orders following the 11 September terrorist attacks. Oh says rev enues have fallen, and are only now start ing to recover. It remains unclear if this business will expand over the next decade. KAI, however, has added three aerostruc- ture contracts in the last year made possi ble by offset commitments from South Korea's purchase of 40 Boeing F-15Ks. KAI will supply Boeing with 737 vertical fins and horizontal stabilisers, which are larger than any of the commercial aircraft com ponents KAI now manufactures (see chart). KAI has also begun building fuselages for Boeing AH-64 Apache helicopters and will from 2007 supply forward fuselages and wings for F-15s sold outside the USA. These deals give KAI's aerostructures business its first defence work. KAL Aerospace's aerostructures business also fell by 50-60% after September 2001, but it too has added business in the past year, including Boeing 747-400 winglets and a section of Boeing 767 fuselage. Its maintenance business has also picked up since September 2001, with new contracts from the USA for Fairchild A-10 mainte nance and modifications and Sikorsky UH- 60 Black Hawk maintenance. The company's business, however, has steadily shrunk since KAI was created in 1999 because KAI was given a "right of first refusal" on all new Korean military aircraft projects. As a result KAL has been unable to bid for any project and its military aircraft manufacturing line shut down two years ago after the delivery of the last licence- built Black Hawk to the South Korean army. KAL Aerospace has since lobbied the gov ernment to drop its "sole-source policy" that puts KAI at an advantage on military programmes, says its president, Suh Sang- mook. But the company has been unsucc- KAIhas exported only seven KT-1s,the result of a counter trade deal between Indonesia and South Korea essful and does not expect any change soon, helping to push it towards a deal with KAI. "I tried to lobby, and I said that the sole- source policy is not a good policy for the long term. We have to compete," Suh says. "I tried for two to three years, but unsuc cessfully." KAL was especially interested in pursuing a prime role on KMH with long- term partner Sikorsky. "The reason KAL is interested in taking over KAI is KMH," says an industry official. "They could never have it if they stay out, they could only be a subcontractor to KAI." Lobbying for maintenance Meanwhile, the official says KAI has been lobbying the government for its first mili tary aircraft maintenance contract, putting further pressure on KAL to reconsider join ing KAI. KAL was pressured in 1999 by the government to fold its manufacturing unit into KAI but it declined, claiming its aero space business was financially stronger than those of Daewoo, Hyundai and Samsung. Suh says KAL first looked at acquiring Daewoo's shares two years ago, when the conglomerate approached it saying it wanted to sell out of KAI, but KAL con cluded that having only a minority holding "cannot change KAI's culture or capability". "KAI has been divided by three compa nies on the leadership, so we felt they need strong leadership. If not, the company can not be [successful]," he adds. "Taking 51% of the company is easy - we can buy Daewoo stock, and some of the portion of the others, but that cannot help KAI. KAI needs cash, so we decided we would have to put cash into KAI so we can Airbus A330/A340 forward upper and ( upper shells (KAL) Airbus A340-500/600 forward upper shell Airbus A380 lower outer wing skin panel (KAI) Boeing 717 nose (KAL) Boeing 737* vertical fin and horizontal stabiliser (KAI) Boeing 737 flap support fairings (KAL) Boeing 737 stringers (KAI) Boeing 757* auxiliary power unit door (KAI) Boeing 757* crown frame (KAI) Boeing 757* stringers (KAI) Boeing 747 stringer and frame (KAI) Boeing 747 wing rib (KAI) Boeing 747 winglets and flap track fairings, win tip extension (KAL) Boeing 767 section 48 (KAI) Boeing 767 section 48 (KAL) Boeing 777-200/300 wing tip assembly and fla support fairings (KAL) Boeing 777-300ER raked wing tip/wing box extension (KAL) Boeing 777 machined rib and nacelle fairing (KAI) Bombardier Dash 8 empennage, wing tank access door (KAI) Embraer 170/190 centre fuselage (KAL) Gulfstream IV stang beam (KAI) Gulfstream V leading edge (KAI) "deliveries have not yet begun *programme is coming to an end make 51% of KAI's stock. We know they need cash. They are trying to borrow money every day," Suh says. KAL expects the takeover to be formally completed by year-end, after it completes an expected six to eight weeks of due dili gence. It is not certain the deal will be completed and not all of KAL's takeover efforts have gone smoothly. There were initial difficulties in talks with Hyundai and Samsung, while KAI unions have vehemently opposed the takeover. But Suh is not worried about KAL www.flightinternational.com FLIGHT INTERNATIONAL 4-10 NOVEMBER 2003 47
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