Gunning for a 'global KAI'

After three years of restructuring, president and chief executive Chung Hae Joo believes the future is bright

About 200km (120 miles) south of Seoul, in a small rural town called Sacheon, more than 2,000 Korea Aerospace Industries employees dressed in uniform grey jackets are striving for one aim - to make KAI one of the top aerospace companies in the world.

Leading them is Chung Hae Joo, a former South Korean cabinet minister and academic who became KAI's president and chief executive in 2004. KAI was a bloated giant, created in 1999 out of the consolidation of three domestic aerospace companies, when he took over. It was bleeding money, its operations were inefficient and its products struggled to make an impact.

Now, after three years of restructuring, KAI's operations and headquarters are consolidated at Sacheon, its business units reduced by a third to 80, and 160 middle management positions have been eliminated. Chung, who looks younger and fitter than his 64 years, is ready to lead KAI towards its "10 10" goal - to become one of the top 10 aerospace companies in the next decade.

"This is the year we embark on the path to becoming a world-class aerospace company," says Chung confidently, although that optimism must be tempered by the last financial statements. Revenues grew by only 4% to $758 million in 2006. Operating income fell by 85% to $8.7 million and the company posted a net loss of $119 million, versus a net profit of $1.2 million in 2005.

Chung, however, says KAI is meeting targets set by its shareholders - the Korea Development Bank, Doosan Infracore, Samsung Techwin, and Hyundai Motor, which collectively own a 92% stake. "We'll see the full benefits of the restructuring in 2007 and 2008," he said during an interview with Flight International at the small office KAI maintains in Seoul.

"We've eliminated almost all losses from the consolidation, debt is much lower, and interest payments have fallen." The bigger challenge, says Chung, who has a doctorate in business administration, is to change mindsets within the company.

This primarily involves weaning the company away from a dependence on government military contracts, which account for 80% of KAI's business. This includes the Korea Helicopter Programme, in which KAI is working with Eurocopter to develop a utility helicopter for South Korea's armed forces. Its T-50 advanced trainer has entered service and the company is working on the derivative F/A-50 light attack aircraft, and it is also upgrading South Korea's P3-C Orion and Lynx helicopters.

The target is for the commercial sector, which includes overseas military aircraft sales, to contribute 40% of revenues - up from the current 20%. "We must be more competitive globally, that's important in our aim to be an internationally recognised aerospace company," Chung says.

Much depends on the success of the T-50. There is a renewed push for overseas sales, with Singapore, the United Arab Emirates and Greece all potential customers. Company sources say that KAI could offer "significant discounts" to the international launch customer of the aircraft, which is being jointly developed and marketed by Lockheed Martin.

"In terms of life-cycle costs, maintenance costs and training costs, we are the best value," says Chung. "But we also recognise that KAI is not known as an aircraft supplier, we have low brand recognition. That's why we're working with Lockheed Martin to jointly market the aircraft."

Civil aviation is another growth area. KAI is jointly developing the M429 helicopter with Bell, it is a vendor for the Boeing 787, and hopes to become a risk-sharing partner in the Airbus A350 XWB. In early 2007, KAI started a feasibility study on the development of a fixed-wing aircraft - either a business jet for up to 10 passengers, or a 50- to 80-seat regional jet. This should be completed in the next decade.

"There are limits to growth if we are a purely defence company," Chung acknowledges. "We want a 'global KAI' with the technological expertise and production facilities to meet customers' requirements. There are high expectations for programmes like the A350, and that is both an opportunity and a challenge."

Defence, however, remains the core business. Chung says that South Korea's national defence initiative could benefit KAI as the government is keen to give opportunities to domestic companies.KAI anticipates a development contract later in 2007 for the F/A-50. It is proposing this type as a replacement for the Northrop F-5, and is confident the air force will commit to 60 aircraft for delivery from 2013. It is also considering an attack version of the KHP and is keen to be involved in the KFX programme, which South Korea has mooted as an indigenous multi-role combat aircraft.

This requires greater investment in research and development, and the company hopes to raise some money through a partial public listing in 2010. But Chung, who was minister for commerce, industry and energy in the late 1990s, also points out that government support is crucial - especially since South Korea wants a viable aerospace industry.

The future, Chung insists, is bright for KAI. "We look at the other big companies, with their facilities, know-how and R&D efforts, and we're confident that we too can be like them."

"We must be more competitive globally,that's important in ouraim to be an internationally recognised company"

Source: Flight International