Paul Lewis/SEOUL

The South Korean Government has stipulated that Daewoo Heavy Industries (DHI), Hyundai Space & Aircraft and Samsung Aerospace have until the end of the year to overcome debt and conflicting programme hurdles and formulate a plan to form a single corporate entity.

Following the submission of individual company business plans, three teams of independent financial consultants have been given until 15 November to complete their respective audits of DHI, Hyundai, Samsung's assets and liabilities. They then have until the end of the month to reach a negotiated agreement on the value of each manufacturer.

"We expect this new company to be established and be in business by the first half of next year, " says Lae-Gue Leem, director general of the Ministry of Commerce, Industry & Energy's capital goods bureau. "This is a very aggressive schedule," adds Leem, who has the task of overseeing the planned merger.

The most formidable challenge is settling the three companies' outstanding loans, which in the case of Hyundai amount to an enormous 2,700% debt-equity ratio. "Initially when the company starts, the total debt-equity ratio will not exceed 200%," says Leem.

A portion of the outstanding debt will be retired by converting money owed to state-run banks into a 40% equity holding in the new company, which will then be offered for sale to foreign investors. The remaining debt will be retained by the three parent companies, which will each own an equal share of the remaining equity.

Approaches have been made to potential overseas aerospace investors, including Aerospatiale, Boeing, British Aerospace, Daimler Chrysler Aerospace and Lockheed Martin. But many have voiced scepticism over the planned pace of consolidation and concern at the three South Korean companies' apparent conflict of interests.

This is clearly highlighted by Hyundai's newly announced memorandum to partner Dasa to develop the AT2000 Mako advanced trainer/light combat aircraft in direct competition with the Samsung/Lockheed Martin KTX-2. BAe, at the same time, is continuing to press the case for an alternative development based on the Hawk already in South Korean air force service. "This creates potential for confusion," observes one diplomatic Western executive.

Samsung has indicated that it is looking to the Government to resolve the issue, which has stated that all state-funded work would be channelled to the new company. Seoul, however, appears to be looking elsewhere for an answer. "Any decisions on on-going projects will be made in full discussion with foreign partners," says Leem.

Source: Flight International