South Korean manufacturer's chief executive Hae Joo Chung predicts brighter future and greater global footprint
Korea Aerospace Industries (KAI) may finally be on track to achieve its long-time goal of becoming one of the world's 10 largest aerospace companies, fuelled by an anticipated boom in exports and commercial sales.
Under the leadership of new president and chief executive officer Hae Joo Chung, KAI is in the middle of a major restructuring designed to make its line of trainer aircraft more affordable to potential export customers.
The company is also trying to become a more attractive supplier to commercial aircraft manufacturers by reducing its labour rate to $50 per man hour.
KAI saw its revenues dip about 17% last year to $650 million, but Chung forecasts a brighter future, starting this year with the anticipated signing of new work worth a combined $2.5 billion. The new contracts should put KAI on a path to achieve its revenue target of $1.5 billion in 2007 and $3 billion in 2010, which would place it in the top 10 manufacturers in the world.
In February the manufacturer signed a contract to participate in the development of the new Bell 429 light twin-engined civil helicopter and Chung says this year it also plans to join the international development programmes of major commercial aircraft manufacturers, including the Boeing 787. Domestically, it will sign contracts for the development of a 6,800kg (15,000lb) utility helicopter for the South Korean army and the upgrade of Lockheed Martin P-3s for the South Korean navy.
Domestic defence contracts, which account for 80% of KAI's revenues, will continue to be its largest business. But Chung expects commercial revenues, which include the export of military aircraft and civil aircraft components, to account for 40% of income in future as KAI steps up international marketing activities for its KT-1 primary trainer, T-50 advanced trainer and other products.
"Up until now we have mainly focused our efforts on building development capabilities for the defence market in Korea," says Chung. "However, we realised that the domestic market is very limited in fulfilling our capacity. So we are going to drive our energy to expand our business in export and more in commercial areas."
So far KAI has exported only seven aircraft – KT-1s that were delivered to Indonesia in 2003. But it plans to sell five more KT-1s to Indonesia this year and is actively marketing an armed variant of the aircraft to several potential customers in South America and South-East Asia. "We are a late-starting company to the world, so it's tough to sell Korean indigenous aircraft to the world," acknowledges Chung.
"[But] I see a bright future for the KT-1 and export of the T-50 is most important. I spoke with Lockheed Martin people last month and they told me there is a requirement for 3,500 of this type of aircraft and 800 to 1,200 should be our share."
KAI is already in talks with several potential T-50 customers, including Israel and the United Arab Emirates, but sales are not expected to materialise until after the first of the type is delivered to the South Korean air force in October.
South Korea plans to acquire at least 94 T-50s, co-developed with Lockheed, and is studying acquiring a proposed fighter variant.
After taking over as chief executive last October, Chung initiated a three-year effort to drive down the cost of the T-50 because the aircraft is not price competitive. To reduce costs, at the end of February KAI moved its headquarters and 130 employees from downtown Seoul to rural Sacheon, where it builds the KT-1 and T-50. A reduction in headcount from the current 2,700 is being evaluated, with a decision expected this month.
Chung believes the restructuring will allow KAI to slash its labour costs by one-third and achieve the target of $350,000 in revenues per employee at a labour rate of $50 per hour. "We are trying to reduce the cost as much as we can," he says, but declines to provide current labour cost figures.
KAI is in the black, posting a $7 million profit in 2004, but has long sought an infusion of cash that would give the company a fourth major owner to join South Korean conglomerates Doosan, Hyundai and Samsung. "KAI has been trying to secure foreign investment in order to be released from the financial difficulties due to the company's investment in the T-50 programme and to increase investment capability for the current and future projects," says Chung.
KAI needs the cash to grow its fledging rotorary-wing product line and its new aircraft upgrade business. KAI, already a supplier for the Boeing AH-64D and Bell 212/412, expects to manufacture 350 cabins for the new Bell 429 over the next 10 years. It also anticipates manufacturing at least 200 utility helicopters for the army and plans to use this new platform, known as the Korea Helicopter Programme (KHP), to develop and manufacture South Korea's first indigenous civilian aircraft.
"There's no 15,000lb helicopter in the market and, after KHP, KAI will be able to market this category of helicopters worldwide," says Chung, adding that the project will give KAI the technology to develop its own helicopter for the first time and launch several new technologies. A foreign partner for KHP will be selected later this year.
KAI's aircraft upgrade and modification business is being launched with the P-3 programme. KAI, with partner L-3 Communications, has already begun marketing the upgrade to other P-3 operators in Asia and Chung believes the programme will give KAI the experience to lead future avionics integration projects.
"Compared with semiconductors and shipbuilding, the Korean aerospace industry is not very advanced," says Chung, a former minister of commerce, industry and trade.
"But South Korea has a lot of infrastructure to support the aerospace business and year-by-year the defence budget is growing, so there's a lot of potential."
BRENDAN SOBIE/SEOUL
Source: Flight International
