Korea Aerospace Industries Hammered Amid Scandal
(Source: The Korea Times; issued July 18, 2017)
By Park Hyong-ki
Korea Aerospace Industries (KAI) shares are falling like a plane crash amid the erupting scandal at the defense manufacturer.

The company, which once held the spotlight for its technological potential in the age of the Fourth Industrial Revolution, has become a symbol of corruption and disgrace after state auditors and prosecutors uncovered a series of business malpractices there.

The maker of the KUH-1 Surion utility helicopter, T-50 supersonic jet trainer and airplane parts for Boeing and Airbus is trading below 50,000 won per share. The company touched 100,000 won two years ago.

Auditors found that the state-run Defense Acquisition Program Administration (DAPA) has been covering up a number of defects with KAI's Surion chopper, including problems with its engine and lightning protection. KAI has also allegedly marked up the price of the helicopter, which has been deemed unsafe.

To make matters worse, KAI executives, including CEO Ha Sung-yong, face prosecution for embezzlement.

President Moon Jae-in said the scandal is a threat to national security, and called for reform in the defense industry.

KAI's market cap has lost more than a trillion won since last Friday. It closed at 47,950 won, down 5.98 percent, Tuesday.

Analysts have downgraded KAI's stock amid the scandal, projecting lower profits.

The scandal could negatively affect not only KAI exports but also its ongoing bid to provide jet training systems to the U.S. Air Force's Advanced Pilot Training (APT). With its modified T-50, KAI has partnered with Lockheed Martin to bid for the APT.

"The probe into KAI is not likely to settle down any time soon," said Lee Sang-woo, an analyst at Eugene Investment & Securities.

Observers say KAI's shareholders may lose further if the probe uncovers additional malpractices involving the company's helicopters.

KAI's biggest shareholder is the state-run Export-Import Bank of Korea, which received KAI shares from the Korea Development Bank (KDB). KDB, which had faced trouble amid Daewoo Shipbuilding & Marine Engineering's accounting scandal, handed over its KAI shares to Eximbank to help boost the export policy bank's capital base.

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