The controversy surrounding Hanwha Group's acquisition of Korea Aerospace Industries (KAI) is escalating in the political arena. Concerns were raised during a National Assembly audit that Hanwha's aggressive acquisition of KAI shares could deepen the monopoly structure in the domestic defense industry. Lawmakers also called for the government to clarify its stance on the privatization of KAI, citing potential impacts on fair competition and national security.
During the National Assembly's Defense Committee audit on October 13, lawmakers questioned the head of the Defense Acquisition Program Administration (DAPA) regarding Hanwha's increased stake in KAI. However, executives from Hanwha Group, KAI, and LIG Defense & Aerospace (LIG D&A) were not summoned as witnesses for the hearing.
This year, Hanwha Group expanded its stake in KAI to 15.89%. The Fair Trade Commission approved Hanwha's acquisition, making it the second-largest shareholder. Lawmakers urged the government to proactively assess the implications of KAI's governance changes on the domestic defense industry.
Rep. Cheon Jun-ho of the Democratic Party stated, "KAI is a unique and irreplaceable systems integrator, so its impact on our security is significant. I believe DAPA should not simply approve this based on economic criteria alone." He referenced mergers among defense companies in the U.S. and U.K., expressing concern that consolidation could lead to reduced technological innovation and increased weapon acquisition costs. He cited a 2022 U.S. Defense Report detailing the negative effects of the Clinton administration's consolidation of over 50 defense firms into five.
Concerns about market monopolization in the defense sector due to Hanwha's expansion were also raised. With Hanwha already holding a significant share of revenue among the four major domestic defense companies, acquiring KAI could further concentrate market power within a single corporate group. Rep. Cheon emphasized, "If Hanwha acquires KAI, it will become the overwhelming leader in land, sea, air, and aerospace sectors, controlling about 70% of the top four companies' market share, which is a serious issue."
Worries about Hanwha's control over KAI are also spreading within the defense industry. On September 14, labor unions from KAI and LIG D&A issued a joint statement opposing Hanwha's acquisition of KAI's management rights and vertical integration in the defense sector.
In response, Rep. Song Young-gil of the Democratic Party remarked, "Given that the unions are also expressing concerns, the government must clarify whether it will allow privatization. The government needs to set a direction so that Hanwha can establish its management policies."
The government stated it would comprehensively examine the impact of Hanwha's changes in KAI's governance on negotiation power, supply chain stability, and the industrial ecosystem. On October 20, during the National Assembly's Finance and Economy Planning Committee audit, KAI President Kim Jong-chul and other business leaders are expected to present their positions regarding Hanwha's stake increase.
DAPA head Lee Yong-cheol expressed, "I fully agree that we need to examine this matter closely from a national security perspective. However, we must also consider the pros and cons of economies of scale, so it may be premature to decide on a direction at this point."
Additionally, the audit addressed issues related to the testing and evaluation procedures for the Army's multipurpose unmanned vehicle procurement project, as well as allegations of bribery involving DAPA officials and LIG D&A executives.
* This article has been translated by AI.
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