Offer from Hyundai for Daewoo stake may scupper KAL buy-out, with knock-on effects for European company's investment

EADS is poised to become an investor in Korea Aerospace Industries (KAI) should Korean Air (KAL) succeed in its attempt to buy Daewoo's stake in KAI.

But South Korean industry sources say a rival offer from Hyundai threatens to derail the KAL deal and attempts by Boeing and EADS to invest in KAI.

EADS and KAL signed an agreement last month at Incheon that could make EADS an investor in KAI and give its Eurocopter subsidiary an inside track in the contest for the Korean Multi-role Helicopter (KMH) programme, say the sources. EADS, Eurocopter and KAL decline to comment.

South Korea plans to select next year a foreign manufacturer to help develop an indigenous helicopter with attack, utility and civilian variants. The $13 billion programme, expected to result in the purchase of up to 1,000 helicopters, is spurring interest in KAI because it will be prime contractor for KMH.

KAL, which has no stake in KAI and whose aerospace business has been squeezed since 1999 by a government policy to award all defence contracts to KAI, seeks to take control of KAI because otherwise it could not lead KMH.

Hyundai wants control of KAI because its Dymos and Wia subsidiaries could supply the transmission, landing gear and rotor hub for the KMH. Rotem, a Hyundai subsidiary which makes tanks, also fears a KAL takeover of KAI could have a negative impact on its business.

KAL's first tentative offer to Daewoo was 129 billion won ($110 million), with the final price to be set following due diligence. Sources say Daewoo is insisting on over 200 billion won.

Daewoo, Hyundai and Samsung now each own 28%, with creditors holding about 15%. Samsung is not interested in a majority stake, partly because its Techwin subsidiary faces no competition in its bid to build KMH's engine.

Sources say EADS's potential investment in KAI is driven by its desire to reduce the domination of the South Korean defence market by UScompanies.

KAL in October said it was talking with a few "big" aerospace companies interested in investing $200-300 million in KAI. Sources say Boeing and EADS are prepared to invest in KAI.

Source: Flight International