South Korean Government and industry officials are working to come up with a mechanism to merge the assets of four competing aerospace companies into a single entity, while also trying to entice foreign manufacturers to invest in the planned new conglomerate (Flight International, 19-25 September).
The South Korean Ministry of Industry and Energy is working with the country's main aircraft companies, Daewoo Heavy Industries (DHI), Hyundai Space & Aircraft, Korean Air (KAL) and Samsung Aerospace, to formulate an acceptable plan. They first need to resolve major issues, however.
One of the most pressing is how to assess the worth of the four companies and apportion shares in the new business accordingly. KAL Aerospace is the oldest established player, dating back to the early 1970s, while Samsung's aerospace involvement started in 1977 and DHI's in 1984. Four-year-old Hyundai is a relative newcomer, but has invested $350 million in a new aerospace plant at Seosan.
The problem is summed up by KAL Aerospace vice-president Yi Taek Shim. "Our building was built in 1970 and Samsung's was built in 1996. They might get a higher price, but what about knowledge and experience? Can you fairly appraise these tangible and intangible assets?" he asks.
KAL is the least enthusiastic of the companies about merging. The company argues that it has the smallest debt and is in the best position to survive. It is proposing instead the establishment of a holding company that can "-work to represent Korean aerospace industries" and expand gradually while remaining profitable.
Samsung, by contrast, is prepared to "-put everything into the new consolidated company" .The most likely solution being discussed is a merger between Samsung and DHI, with Hyundai as subcontractor. Samsung executive senior director Bang Un Chung suggests that the best way to proceed might be to appoint "-international auditors to evaluate and play a neutral role between the three companies".
There is then the issue of individual company debt. Hyundai is the most exposed, with a debt-to-equity ratio of over 2,700%, much of which is owed to the state-run Korean Development Bank. Manufacturers are suggesting that some or all of the debt could be converted into Government equity in the new company. This in turn could be sold to potential foreign investors.
"The Government wants to get in, fix it and get out," suggests an industry observer. Seoul is understood already to have approached major European and US manufacturers, some of which, with an eye to future lucrative defence contracts such as that for the F-X fighter, view such an investment as a long-term strategic interest.
Source: Flight International