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Restructuring and Continuity in the Aircraft Industry

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The Political Economy of Change and Continuity in Korea

Part of the book series: The Political Economy of the Asia Pacific ((PEAP))

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Abstract

Until 1960s, Korea primarily concentrated on improving the maintenance capability of military aircrafts, starting with the overhaul maintenance of the L-19 reconnaissance aircraft in 1955 (Korean Association of Aircraft Industry 2015). The Korean aircraft industry entered a new stage in the mid-1970s when it first began to seek coproduction. In the early 1970s, facing increasing security threat from North Korea, the Park government started internal discussions to examine the feasibility of indigenous development of aircrafts to improve self-reliant defense capability. The Park government carried out the modernization program of aircrafts in accordance with the “First Force Improvement Plan” to replace obsolescent F-5A and F-86. The Park Chung Hee government sought the coproduction of the “First F-X project” in order to modernize the defense capability of the Korean Air Force. While proceeding to acquire F-16, the Park government cautiously probed the possibility of coproduction. While the Park government attempted to coproduce both F-16 and F-5E/F, it could run the coproduction project of F-5E/F because the Jimmy Carter administration attempted to control arms transfer (Nolan 1986: 30-31). Although the Park government’s attempt was half-successful, it reflected the Korean government’s long-term goal of enhancing indigenous capability of the defense-related industries (Um 2016).

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Notes

  1. 1.

    The Korean government skillfully took advantage of off-set programs in the purchase of foreign aircrafts as a means to enhance its R&D capabilities. In purchasing KF-16, for example, the Korean government could use off-set programs to improve manufacturing capacities for forward fuselage (Cho 2000).

  2. 2.

    For the concise summary of the development history of the Korean aircraft industry, see Cho 2003 and Korean Association of Aircraft Industry 2015.

  3. 3.

    Cho assesses that the current status of the Korean aircraft industry reached the stage between international cooperative development phase and independent development phase (Cho 2000).

  4. 4.

    For a comprehensive overview of the structural reform after the crisis, see Shin and Chang (2003).

  5. 5.

    Nonetheless, the restructuring process was full of uncertainties and conflicts. The aircraft engine division of Samsung and aerospace manufacturing division of the KAL did not participate in the KAI to seek independent survival. In particular, the KAL was adamantly opposed to the merger, arguing that it was unreasonable to merge with the three companies in trouble.

  6. 6.

    Experts were highly critical of the move made by the government: they thought that the Korean government unduly backed the KAI that was created by the government initiative, violating market principles.

  7. 7.

    In 2006, the Korea Development Bank (KDB) became the major investor by injecting 210 billion won into the KAI. In 2009, the KDB possessed 30.5% of the KAI’s share.

  8. 8.

    Since the establishment of the KAI, the KAL was in trouble in expanding its business into defense sector.

  9. 9.

    It is equivalent to about 500 billion won.

  10. 10.

    It was reported that Hanhwa Techwin decided to expand the engine component business by pursuing overseas M&As instead of taking over the KAI (The Korea Herald January 6, 2016)

  11. 11.

    It was a massive investment given that the total production amount of the domestic aircraft industry was just about U$200 million at that time.

  12. 12.

    While Korea has nurtured aircraft industry for the last four decades, it has also imported commercial and defense aircrafts and their parts and components. In 2012, Korea imported about USD 3.8 billion. In 2014, the amount of import has increased to USD 4.05 billion. The US companies are the largest export to Korea as demonstrated in the fact that they accounted for about 40% of the Korea’s entire import in 2014.

  13. 13.

    The review was based on the report by the Korea Development Institute that was critical of the KFX development.

  14. 14.

    Korea planned to purchase forty F-35 in 2018 and may purchase additional twenty aircrafts, depending on the required operational capability.

  15. 15.

    The Korean Air Force uses T-50 for advanced pilot training.

  16. 16.

    The development of the space sector is relatively retarded compared to the aircraft sector, accounting for the about 10% of market share in the entire aerospace industry. To address the industrial setback, in 2016, the Korean government drew up the Mid-to-Long Term Space Development Plan which included a detailed development plan of the space industry. The plan specified that it was needed to build up KSLV-II (Korea Space Launch Vehicle- II) by 2020 to increase satellite exports, of which the prime goal is.

  17. 17.

    The KAI modified the T-50 into the FA-50, which is the light attack version of the T-50. The T-50 has several variants such as FA-50, T-50B (Advanced Maneuverability Aerobatic Plane) and TA-50 (Lead-in Fighter Trainer). The TA-50 is a variant equipped with a multi-mode radar, swing role capability of intercept and Close Air Support (CAS) and key A/A and A/G weapons (KAIA 2015).

  18. 18.

    With this contract, Korea became sixth country to export a supersonic aircraft in the world.

  19. 19.

    The contract amount was about 402 million US dollars (Parameswaran 2015).

  20. 20.

    It includes 2 trillion won sales for civilian aircraft components with the Boeing and Airbus (Kim 2014).

  21. 21.

    The number of T-50 produced by the KAI reached 200 units in 2015 ten years after it began to produce (Korea Economic Daily 9/8/2015).

  22. 22.

    The KAI successfully completed the system development of T50 that had begun in 1997.

  23. 23.

    The KF-X project, launched in 2015, will take up the substantial share as its development cost is expected to be about USD 8 billion (Joongang Daily 2016/1/22).

  24. 24.

    For example, the Korean Aerospace Research Institute developed unmanned tilt-rotor aircraft to transfer to the Korean Air Line (KAL) for commercialization.

  25. 25.

    At the global level, major players show a greater tendency to collaborate with foreign partners as risks and uncertainties have increased in various stages from R&D to production. They actively seek to form international collaboration to reduce the risks and uncertainties (Cho 2000).

  26. 26.

    The development costs will be 650 billion won and 350 billion won, respectively. Domestic companies and Airbus Helicopter will share the development costs by investing 200 billion won and 400 billion won (Joongang Daily 6/26/2015).

  27. 27.

    The KAI says that the development of the KFX will be completed by 2025 and the deployment will begin from 2032 (Kwaak 2015).

  28. 28.

    However, the development process will likely to face serious obstacles because the US government decided not to transfer four core technologies including Active Electronically Scanned Array (AESA) Radar (Joongang Daily 1/22/2016).

  29. 29.

    The KAI was awarded by Boeing as the Supplier of the Year in 2010 and 2012 (KAIA 2015).

  30. 30.

    In the case of the KAI, defense sector and civilian sector account for 67% and 33% of the KAI’s sale, respectively (Chosun Biz April 4, 2016).

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Lee, S., Rhyu, Sy. (2019). Restructuring and Continuity in the Aircraft Industry. In: The Political Economy of Change and Continuity in Korea. The Political Economy of the Asia Pacific. Springer, Cham. https://doi.org/10.1007/978-3-319-71453-0_6

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