Andrzej Jeziorski/SINGAPORE

South Korea's Daewoo Heavy Industries, Hyundai Space and Aircraft and Samsung Aerospace Industries have set a deadline of the end of June to complete their long-awaited merger.

The companies are initiating an asset valuation programme before forming a new company, to be called Korean Aerospace Industries (KAI). The merged entity's debt-to-equity ratio has been capped at 300% - higher than the 200% predicted.

All the companies have high debt-to-equity ratios: in Hyundai's case, it is as high as 2,700%. Part of the debt is expected to be settled by converting money owed to state-run banks into a 40% equity holding, which will then be offered to foreign investors.

Industry sources in Seoul confirm that the Korean companies have secured memoranda of understanding (MoUs) with four international partners interested in investing in the merged company. However, the MoUs are not legally binding and merely amount to agreements to continue talks.

The four companies are believed to be Aerospatiale, British Aerospace, DaimlerChrysler Aerospace (Dasa), and Lockheed Martin. Boeing is also understood to have been approached, but declined to pursue a stake.

Lockheed Martin co-operates with Samsung on the Korean KF-16 fighter production programme and the KTX-2 trainer/light attack aircraft. Late last year, Dasa signed an MoU with Hyundai to proceed with joint development of the Mako trainer/light combat aircraft, which lost to the KTX-2 in South Korea's selection of an advanced trainer. BAe sells jet trainers, naval equipment and missiles to South Korea.

The companies are also positioning for South Korea's F-X replacement programme for its ageing McDonnell Douglas F-4and Northrop F-5s. BAe and Dasa will promote the Eurofighter Typhoon for the requirement, while Lockheed Martin is proposing a variant of its Block 60 F-16C/D, competing against the Dassault Rafale and the Boeing F-15E.

The merger plan foresees each Korean partner taking a 20% stake in the company, with the remainder offered to foreign investors. It is not clear whether the foreign stake could be divided between several overseas investors, although joint bids may be possible.

Source: Flight International