Andrzej Jeziorski/SINGAPORE

Talks between Korea Aerospace Industries (KAI) and the Foreign Direct Investor (FDI) partnership of BAE Systems and Boeing are close to collapse, according to local press reports. The team was selected in May as the preferred bidder for a 35% stake in KAI, formed last year from the aerospace divisions of Daewoo, Hyundai and Samsung.

Korean press reports say KAI now plans to raise its capital base to 100 billion won ($90 million) without selling the stake, and will ask creditors to accept equity to cover a 150 billion won debt. A senior industry source, meanwhile, says reports that talks have already collapsed are "not true", but that a body of opinion within KAI wants them abandoned.

The talks are faltering over issues such as the degree of management control to be ceded to BAE/Boeing, and their plans to restructure the company to ensure profitability. It is understood that the FDIs want to appoint three directors out of KAI's seven, and to hold a veto on major decisions.

Sources add that the deal could yet be salvaged, but that "a critical stage" has been reached, and "some fairly fundamental differences" remain. KAI will not comment, although BAE says it does not see the problems "as insurmountable".

A "traditional" element in Korea is thought to believe Seoul will bail out its troubled aerospace sector, and that foreign involvement in KAI is unnecessary given military programmes. These include a follow-on order for 20 KF-16s, the planned T/A-50 advanced trainer/light combat aircraft and the forthcoming F-X front-line fighter, which together should safeguard continued production.

F-X selection is "on schedule" for the third quarter of 2001, with an initial order for 40 aircraft, plus 40 options. The South Korean air force is flight testing candidates - the Boeing F-15K, Dassault Rafale, Eurofighter Typhoon and Sukhoi Su-37.

Source: Flight International