[Defense Brief] Current Administration Should Consider KAI Privatization

The history of aircraft development in South Korea is longer than that of automobiles. In 1953, despite numerous challenges such as a lack of equipment and materials, Air Force Technical School instructor Major Lee Wonbok and his maintenance crew succeeded in creating a domestically produced aircraft. This was the first Korean-made aircraft, named "Buhwal" (Revival). At that time, there were no domestically produced automobiles. The first Korean automobile, the "Pony," was unveiled as a prototype at the Turin Motor Show in Italy in 1974 and launched in January 1976.

The company that aspired to develop fighter jets was the former Samsung Aerospace. In 1997, Yoo Moosung, then president of Samsung Aerospace, mentioned the KF-X (Korean Fighter eXperimental) project at a symposium hosted by the Agency for Defense Development (ADD), stating, "We should begin developing domestically produced fighter jets in the 2000s." This was earlier than former President Kim Dae-jung's declaration at the Air Force Academy graduation ceremony in March 2001 that "by 2015 at the latest, we will develop state-of-the-art Korean fighter jets."

After Yoo's remarks, Korea Aerospace Industries (KAI), now the country's leading aerospace company, was established. Following the 1997 Asian financial crisis (IMF), the government merged the aircraft divisions of three major conglomerates?Hyundai Space and Aircraft, Samsung Aerospace Industries, and Daewoo Heavy Industries?creating KAI on October 1, 1999. Structurally, it is a private company: it is a corporation and listed on the KOSPI. However, in terms of shareholders, it is government-owned. The Export-Import Bank of Korea holds a 26.4% stake as the largest shareholder, followed by the National Pension Service with 9.3%.

Because the government is the majority shareholder, it has been deeply involved in personnel appointments. KAI's first president, Lim In-taek, previously served as the 35th Minister of Transportation. The second president, Kil Hyungbo, was a former Army Chief of Staff. Kil was appointed president just ten days after retiring as Army Chief of Staff, leading to criticism that it was a typical parachute appointment. Subsequently, a series of presidents came from bureaucratic backgrounds: the third president was Chung Haejoo, former Minister of Trade and Industry, and during the Lee Myung-bak administration, the fourth president was Kim Hongkyung, former Vice Minister of the Ministry of Commerce, Industry and Energy.

During the Park Geun-hye administration, President Kim, who still had more than a year left in his term, was replaced by Ha Sungyong. When the Moon Jae-in administration took office, Kim Jowon, who had served as the Secretary for Public Discipline in the Presidential Office and as Secretary General of the Board of Audit and Inspection, became president. During Kim Hongkyung's tenure as president, KAI also experienced severe management disruptions. Ha Sungyong, in the first year of the Moon Jae-in administration in 2017, became the subject of the new government's first major defense industry corruption investigation. Under the Yoon Suk-yeol administration, Kang Guyoung was appointed president. On the first day of President Lee Jaemyung's term, Kang Guyoung abruptly resigned and is currently under prosecution for charges including breach of duty, obstruction of business, and subornation of perjury.

The perception of KAI employees, weary of parachute appointments, has begun to change. In the past, only 20?30% supported privatization, but after Kang's resignation, this figure reportedly rose to 55%. It is natural that KAI employees themselves now want privatization. The global aerospace market is predicted to grow from $321.5 billion (approximately 445 trillion won) in 2022 to about $678.2 billion (approximately 940 trillion won) by 2032. However, in 2022, Korea's aerospace industry sales amounted to 2.9519 trillion won, accounting for just about 1% of the global market share. Industry experts argue that the era of "Old Space," led by the government, should give way to a "New Space" era driven by private companies. The current administration must actively consider privatization, rather than parachute appointments, to usher in the New Space era.