Korea Aerospace Stake Sale Fails as Only Korean Air Bids

Korea Aerospace Industries Ltd. (047810) shareholders’ plan to sell a 1.05 trillion won ($925 million) stake in the country’s only planemaker failed because of a shortage of offers.

Korean Air Lines Co. (003490) was the only bidder to register by the 3 p.m. deadline today, Korea Finance Corp. said in a statement. The shareholders will decide whether to hold another round of bidding after further discussions, it said without elaboration. At least two bids are needed because of rules governing sales by government entities.

Interest in the planemaker may have been damped by concerns about the impact of December presidential elections and objections to the sale raised by some lawmakers. The company expects to more than double orders this year as North Korea’s militarization and rising defense spending in emerging markets spur demand for its helicopters and T-50 trainer jets.

“Apart from the political risk, the bigger question is who will want to buy the company,” said Justin Lee, a Seoul-based analyst at Nomura Holdings Inc. “It’ll take some time to find an owner as the deepening economic uncertainties discourage takeovers.”

Korean Air, which already makes parts for Airbus SAS and Boeing Co., submitted a preliminary bid as it tries to expand its aerospace business. The company didn’t say how much it would offer. The sale is being managed by Korea Development Bank and Credit Suisse AG.

Airbus, Boeing

Korea Finance is offering part of its 26 percent stake in Sacheon-based Korea Aerospace in the sale. It plans to remain the second-biggest shareholder. Hyundai Motor Co. (005380), Samsung Techwin Co. and Doosan Group are each selling 10 percent holdings.

The planemaker has a market value of $2.2 billion, according to data compiled by Bloomberg. The shares dropped 1 percent to close at 25,750 won in Seoul before the announcement. Korean Air rose 0.1 percent to 47,500 won.

Lawmakers have objected to the sale because of concerns about transparency. Korea Finance is acting “hastily” and placing the planemaker under private control may weaken public accountability, Chyung Ho Joon of the Democratic United Party said during a July 30 meeting of the National Policy Committee, a parliamentary body that oversees Korea Finance and other agencies.

Opinion Polls

Kim Jung Hoon of the ruling New Frontier Party also said at the same meeting that the current administration shouldn’t rush the sale. His colleague Park Geun Hye is leading opinion polls ahead of the December election. President Lee Myung Bak will end his five-year term in February.

Korean Air which generated 3.3 percent of revenue making plane parts last year, has previously been unsuccessful in buying a stake in Korea Aerospace. The company abandoned a three-year-long attempt to gain control of the planemaker in 2006 because of a lack of progress.

Korea Aerospace has a limited pool of potential bidders because national-security rules mandate that it remains under local ownership. The South Korean military accounted for 57 percent of the company’s 1.29 trillion won sales last year.

Korea Aerospace plans to spend 245.4 billion won this year, including construction of a new plant that will make wing components for Airbus A320 planes under a record $1.2 billion deal signed in March. The company also supplies Boeing.

The Korean company said in February that total orders this year may more than double to 5.45 trillion won. Second-quarter net income increased 27 percent to 44.1 billion won and sales rose 6.6 percent to 395.5 billion won.

Heavy Fighter

The Korean planemaker is separately working on the nation’s first heavy fighter, after developing the KUH-Surion helicopter with Eurocopter. Next year, it will begin making the FA-50, a light combat fighter based on the T-50, which will be supplied to the South Korean air force.

The company is set to bid for a $15 billion contract to supply training jets to the U.S. The bid is in partnership with Lockheed Martin Corp., which helped develop the T-50. Talks on selling the trainers to Iraq and the Philippines are also under way after the company won its first overseas order, from Indonesia, last year. The company lost out on an Israeli order to Finmeccanica SpA in February.

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

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