Paul Lewis/SEOUL

The South Korean aerospace industry is poised for a massive shake-up, possibly involving the creation of a single merged company, as the Government steps in to re-organise a sector which is struggling under mounting debts, shrinking work levels and growing overcapacity.

In the wake of the country's economic crisis, the newly elected South Korean Government of President Kim Dae-jung has targeted 10 major industries for extensive restructuring.

The aerospace industry is among those being given priority, with a plan scheduled to be submitted by October. The move comes against a background of a pending crisis for major aerospace companies as existing programmes begin to wind down without the prospect of immediate follow-on work to take its place.

Samsung Aerospace's licence production of the Lockheed Martin F-16C/D, the industry's biggest single programme, has started to slow, ahead of the final delivery in April 2000, while the aerospace arm of Korean Air (KAL) has licence production of the Sikorsky S-70 Black Hawk helicopter, but that will end late next year without more orders. Production of the new Daewoo KTX-1 basic trainer will begin in 1999, and will be housed at a new facility built alongside Samsung's F-16 plant. Hyundai has also invested $350 million in its new Seosan site, but has precious little work other than the manufacture of 50 Boeing 717 wing shipsets.

"The best way forward is to combine all resources, facilities, manpower and technology of the four companies and make one consolidated company," says Hyundai Aircraft & Space president Dong-Jin Kim. While the four main aerospace players appear to agree in principle to the need for consolidation, which, it is estimated, could result in a 30% reduction in the industry's 6,800-strong workforce, there are differences on how this should be implemented.

KAL, which is partially supported by maintenance work for its airline parent, has major reservations about forming a single entity without assurances on future contracts and profitability.

"What programmes are there? If we end up with empty plants and unusable machinery, that company will make a loss," says KAL executive vice-president Yi Taek Shim.

With the exception of the KTX-1, there are no new major fixed-wing programmes in sight. Development work on the Samsung/Lockheed Martin KTX-2 jet trainer has only just begun and the aircraft will not go into production before 2004.

South Korea has failed in the meantime to find an international civil co-development programme to join, while previous Government pledges to fund a national project appear to be fading fast as the economy sinks.

The most likely scenario now being discussed is the merger of the aerospace interests of Samsung and Daewoo into a single company, with Hyundai as a subcontractor. Observers suggest that, in the long term, KAL will also have to join, given the Government's stated position that all future military work will go to the new company.

Source: Flight International