The labor union of Korea Aerospace Industries (KAI) is strongly opposing Hanwha Group’s attempt to participate in management, urging South Korea’s Fair Trade Commission (FTC) to reject the corporate combination review. The union warned it would launch an all-out fight against the government if the deal is approved, even conditionally.

In a statement released on the 12th, the KAI union declared, “Hanwha, which is a supplier in the aviation sector and a competitor in the space sector, must not be allowed to participate in KAI’s management.” This backlash follows Hanwha Group’s continuous purchase of KAI shares since November last year, securing a 15.89% stake as of the 10th of this month and changing the purpose of its holdings to “management participation.” Under South Korean regulations, acquiring a stake of 15% or more in a listed company triggers an FTC corporate combination review.

Conflicts of Interest Entangled in Both Supply Chain and Competitive Dynamics

The union argues that Hanwha’s dual role as a major supplier to KAI and a direct competitor in the space sector could create serious conflicts of interest and competition restrictions.

In the aviation sector, Hanwha Aerospace supplies engines for the T-50 family of advanced trainers. In 2024, it signed a contract worth ₩473.1 billion (approximately $334.4 million) with KAI for 17 types of initial mass-production parts for the domestically developed KF-21 supersonic fighter jet. Hanwha Systems also delivers core equipment, including avionics for the Light Armed Helicopter (LAH) and the KF-21’s mission computer, multi-function displays, and infrared search and track (IRST) systems.

The union emphasized, “If a supplier becomes a major shareholder and exerts influence over management, it compromises KAI’s ability to independently select suppliers based on price, performance, and technology.” It added, “The FTC must closely scrutinize the potential for preferential adoption of Hanwha affiliate products, reduced business opportunities for competing parts manufacturers, and the undermining of independent purchasing and supply chain decision-making.”

In the space business sector, the union highlighted that the two companies are in direct competition. In May 2023, South Korea’s Agency for Defense Development (ADD) signed a contract worth ₩67 billion (approximately $47.4 million) with KAI to develop the K-model Synthetic Aperture Radar (SAR) verification satellite for a micro-satellite system, while signing a separate contract worth ₩67.87 billion with Hanwha Systems for the H-model. The union pointed to Hanwha Systems’ direct mention during a February earnings conference call that the K-model and H-model are in competition as evidence that the two companies are actual rivals for subsequent mass production projects.

This raises concerns that if Hanwha participates in KAI’s management as a major shareholder, a structure could emerge where sensitive information—including bid prices, target prices, project costs, technology development strategies, partner and consortium compositions, R&D investment plans, and mid-to-long-term space business strategies—could be leaked to a competitor.

Calls for Stricter Scrutiny Than the Daewoo Shipbuilding Acquisition

The KAI union cited the FTC’s 2023 decision to impose corrective measures on Hanwha’s acquisition of Daewoo Shipbuilding & Marine Engineering, citing competition restriction concerns from the vertical integration of naval component supply and shipbuilding. At that time, the FTC imposed corrective measures to prevent discriminatory pricing on naval component quotes and the potential transfer of competitors’ trade secrets, and earlier this year extended the implementation period by an additional three years.

“In the case of KAI and Hanwha, the problems of a supplier participating in a customer’s management and a competitor participating in a rival’s management exist simultaneously,” the union stated, raising its voice to demand that “stricter standards must be applied than in the Hanwha-Daewoo Shipbuilding case.”

The union also raised concerns that if the purchasing independence of KAI, a systems integrator, is shaken, it could stifle competitive opportunities for numerous domestic aerospace and defense partner companies. It warned that “products and technologies from Hanwha affiliates could be preferentially adopted in KAI projects,” potentially undermining the competitive landscape of South Korea’s aviation industry itself.

The KAI union urged, “The aerospace and defense industry is a strategic sector built through massive national budgets and long-term R&D. The Fair Trade Commission must strictly judge the structural risks of this corporate combination and reject the KAI-Hanwha combination to protect the independent competitive order of South Korea’s aerospace industry.” It added that if the FTC approves the deal, even conditionally, it will launch an all-out fight against the government.