While Daewoo, Hyundai and Samsung plan to merge their aerospace arms, Korean Air Aerospace is going its own way

Andrzej Jeziorski/PUSAN

As the rest of South Korea's aerospace industry pursues its imminent merger and the formation of Korean Aerospace Industries (KAI), Korean Air's (KAL) Aerospace division is staying on the sidelines.

"From the beginning we have been interested in participating [in KAI] - [but] up to now I cannot see any healthy business plan that they have. If they invited me to join right now, I would say no," says KAL president Shim Yi-taek, who headed KAL Aerospace before promotion in April to his current post.

Other senior officials point out that with KAL financially far healthier than the KAI participants, it is understandably wary of plunging into such a partnership.

The two draft business plans presented so far by KAI - which is being formed through a merger of Samsung Aerospace, Daewoo Heavy Industries' aerospace arm and Hyundai Space and Aircraft - have been rejected by the companies' creditor banks. It now seems that the partners are intent on carrying the merger through without an approved business plan, leaving this detail to be tackled later.

Yet despite KAL Aerospace's obvious reluctance to involve itself with KAI, senior officials of the evolving entity say they hope the airline subsidiary will relent, and eventually join.

KAL established its Aerospace division in 1976, with its head office in Seoul and its 65Ha (160 acre) production and maintenance plant near Kimhae International Airport, which serves the southern port of Pusan. The aim of the new division was to manufacture and develop aircraft. It now employs 1,850 people at Pusan, out of KAL's total of 14,000 employees.

Last year, KAL Aerospace accounted for 6.8% of the company's revenue, bringing in 314 billion won ($265 million), compared with 191 billion won two years earlier - then, 5.2% of KAL's overall revenue. But the division accounted for a larger proportion - 17.5% - of KAL's overall 1998 profit, generating 51 billion won compared with the overall 296 billion won in an operationally difficult year for the airline.

Most of KAL Aerospace's revenue - nearly 60% - comes from military work, both for the South Korean and US governments. Divisional managing vice-president Suh Sang-Mook says, however, that he aims to cultivate commercial work to the point where it accounts for about 70% of the company's revenue. "There's too much uncertainty in the government programmes," he says.

KAL Aerospace's first programme was the licence production of McDonnell Douglas MD 500 light helicopters. In 1978, it began carrying out overhaul work on Republic of Korea Air Force (RoKAF) aircraft, and depot maintenance of US military aircraft based in the Pacific region began in 1979. This work has included the structural repair of McDonnell DouglasF-4 Phantoms, Lockheed Martin F-16 "Falcon-up" structural upgrades, system modifications for the Fairchild A-10, upgrades for the Boeing F-15 and the overhaul of Lockheed Martin C-130 Hercules. From 1981 to 1986, the company produced South Korea's first domestically assembled fighter - the NorthropF-5E/F, the last of which was delivered in 1986.

Today, its prime military aircraft programmes are production of the UH-60P helicopter and the wing and rear fuselage of the RoKAF's Samsung-built F-16C/Ds. But both these programmes are winding down. The current 120-aircraft F-16 Korean Fighter Programme (KFP) ends in April 2000. Although the government has said it wants to buy another 20 aircraft - mainly, some argue, to keep Samsung's production line busy - it has yet to come up with the money for the procurement.

Licence production of the UH-60P utility helicopter for South Korea's armed forces has been going on since 1990. But the current 138-aircraft batch will be completed by the end of this year. The company is pushing for a follow-on contract.

The only alternative for the armed forces, says Suh, would be a UH-1 upgrade programme to extend the current fleet's life for another decade. "[Either that] or they adopt a new airframe," which Suh points out would be an expensive option.

Since 1996, the Kimhae plant has finished a command and control avionics improvement programme (C&CAIP) for air force and navy UH-60s, including the installation of satellite navigation equipment and defensive aids on the navy aircraft. KAL is carrying out a similar upgrade for the army, due for completion in September 2000, which includes an external fuel tank system as well as satellite navigation and communications upgrades.

Suh says this may be followed by a further modification programme for night-time operations, covering an unspecified number of UH-60 and Boeing CH-47 helicopters in all three services. This contract could be worth $20-30 million to KAL.

Since 1989, Korean Air Aerospace has also developed a substantial portfolio of civil manufacturing subcontracts. It builds wing components for Boeing's 747-400, 777 and new generation 737 aircraft. Its MD-11 wing component programme ended in July. It has built fuselage parts for the McDonnell Douglas MD-80/90 family, and now does similar work under contract to Latecoere and Sogerma for the Airbus A330/340 family. It also produces nose sections for the 100-seat Boeing 717-200. KAL Aerospace says it has orders for 100 nose sections, and expects a follow-on order as the 717 wins new customers.

The company is also involved in satellite component manufacture in partnership with Lockheed Martin and TRW, making the bus structure for the Korea Multi-Role Satellite programme and both the bus and the solar arrays for the Korean Satellite Programme.

The company has set October as its deadline for achieving international ISO 9001 certification for its production facilities, having already got Boeing's DI-9000 certificate. "Many customers now ask for ISO certification," says Suh.

KAL Aerospace is looking at methods of cutting costs and boosting efficiency, aiming to introduce lean manufacturing concepts at Kimhae. In pursuing future commercial manufacturing contracts, the company is looking at the prospects of Boeing pursuing a new 747X programme and the Airbus A3XX high-capacity airliner. The company also says it is in talks with Bombardier, Embraer and Fairchild on possible manufacturing work for their regional jet programmes.

Source: Flight International