The labor union of Korea Aerospace Industries (KAI) has urged the Fair Trade Commission (FTC) to block Hanwha Group from taking a management role in the company, arguing that the move could simultaneously create a conflict of interest and restrict competition. Hanwha is a key supplier to KAI in aerospace while competing with it in the space sector, the union said.
In a statement on the 12th, the KAI union said Hanwha (000880) — a supplier in aerospace and a competitor in space — should not be allowed to take part in the company's management.
Hanwha Group has steadily bought KAI shares since November last year, securing a 15.89% stake as of the 10th of this month, and changed the purpose of its holding to "management participation." Having acquired more than 15% of a listed company, Hanwha plans to file for a merger review with the FTC.
The union first warned that serious conflicts of interest could arise if Hanwha, a key supplier, takes part in management. Hanwha Aerospace (012450) supplies T-50 series engines to KAI and in 2024 signed a 473.1 billion won ($344 million) contract for 17 types of parts for the initial mass production of the KF-21. Hanwha Systems (272210) also supplies avionics for the Light Armed Helicopter (LAH) and key equipment for the KF-21, including its mission computer, multifunction display and infrared search and track (IRST) system.
"If a supplier becomes a major shareholder and exerts influence over management, it becomes a problem for KAI to independently select suppliers based on price, performance and technology," the union said. "The FTC must closely examine the possibility that Hanwha affiliates' products would be given priority, that competing parts makers would lose business opportunities, and that independent procurement and supply-chain decisions would be undermined."
The union also raised the direct competition between the two firms in the space business. In May 2023, the Agency for Defense Development (ADD) signed a 67 billion won contract with KAI to develop the K model, a synthetic aperture radar (SAR) verification satellite for a micro-satellite system, and a 67.87 billion won contract with Hanwha Systems to develop the H model. The union described this as "a relationship of actual competition over the follow-on mass-production project for the micro-satellite system, not simply that of a potential competitor in a similar business area."
The concern that follows, the union explained, is that if Hanwha takes part in management as a major shareholder, a structure could form in which it gains access to sensitive information such as KAI's bid prices, target prices, project costs, technology development strategy, partner and consortium composition, research and development investment plans, and mid- to long-term space business strategy.
The union also suggested that Korea's aerospace industry could see its competitive structure weaken as KAI is folded into a Hanwha-centered supply chain. "Products and technologies from Hanwha affiliates could be given priority in KAI's projects," the union said. "If the procurement independence of KAI, a systems integrator, is shaken, it will affect the competitive opportunities of many domestic aerospace and defense subcontractors as well."
The union also cited the case in which the FTC, during Hanwha's 2023 acquisition of Daewoo Shipbuilding & Marine Engineering, imposed corrective measures over competition concerns arising from the vertical integration of warship-parts supply and warship construction.
"The aerospace industry is a strategic industry that the state has built through enormous budgets and long-term research and development," the union said. "The Fair Trade Commission must gravely assess the structural risks of this merger and, to protect the independent competitive order of Korea's aerospace industry, must block the merger of KAI and Hanwha."
The KAI union says it will launch a full-scale campaign against the government if the FTC approves Hanwha's merger, either outright or conditionally.
