The three South Korean manufacturers planning to form Korean Aerospace Industries (KAI) are to move ahead with their merger despite the lack of a creditor-approved business plan.
Samsung Aerospace, Daewoo Heavy Industries and Hyundai Space & Aircraft signed a heads of agreement to proceed with their planned merger on 28 July in Seoul. The companies' creditor banks, represented by the Corporate Restructuring Committee (CRC) rejected a second business plan for KAI in June because it was too heavily weighted in favour of military programmes (Flight International, 23-29 June).
Industry sources say the CRC has agreed to allow the merger to proceed without an approved business plan and before the selection of a foreign investment partner.
After the business plan's last rejection, KAI set a target date of August for the merger, saying it expected approval for its business plan by the end of July. With the latest developments, the target date for KAI's formation has been pushed back to September.
A new business plan will be submitted for creditor approval after KAI has been established, say KAI officials.
The delay is due in part to an ongoing dispute between Boeing and Hyundai, which is suing the US manufacturer for $750 million for its decision to transfer Boeing 717 wing work to its Toronto plant from South Korea.
Hyundai also accuses Boeing of undermining its wing work by delaying parts deliveries, failing to update engineering drawings and implementing frequent design changes.
Hyundai was one of the original suppliers to the former MD-95 programme, which was taken over by Boeing when it acquired McDonnell Douglas in 1997. According to KAI, the change is forcing Hyundai to cut its $966 million asset base by about 10%.
The KAI partners still aim to form the company with a debt-to-equity ratio of 164% - substantially reduced from the original proposal of 500% - a figure rejected by the CRC.
KAI has signed memoranda of understanding with potential foreign direct investors (FDIs), including Aerospatiale Matra, British Aerospace, DaimlerChrysler Aerospace, GEC and Lockheed Martin. The US and French companies have teamed for a joint bid, in response to the creditors' concerns about an excessive focus on military programmes in the KAI business plan. The two UK companies are merging.
According to foreign investor officials, it seems likely that investment proposals will be submitted by September, with a shortlist of two companies selected for detailed negotiations by the end of November.
KAI has previously said it wants the chosen foreign company to invest $167 million in return for a 30% stake in the new company.
Source: Flight International
