[Corporate Insight] Korea Aerospace Industries, Increase in Military and Civil Aircraft Parts Orders... Space Industry Growth Also an Opportunity

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As news spreads that the Polish government has decided to massively import South Korea's weapon systems, interest in defense industry-related companies is rising. With an unprecedented large-scale supply contract for K-defense flagship products, it has proven competitiveness in the global defense market, and evaluations suggest a green light for additional large contracts. Asia Economy analyzed Hyundai Rotem and Korea Aerospace Industries, which are gaining attention for exporting the K2 tank and the domestically produced light combat aircraft FA-50. Hyundai Rotem is shedding financial burdens and re-emerging as a key affiliate of Hyundai Motor Group, while Korea Aerospace Industries is finding growth opportunities not only in the defense industry but also in the expansion of the space industry.

[Asia Economy Reporter Park Hyungsoo] Korea Aerospace Industries, which struggled last year due to the impact of COVID-19, is rapidly recovering this year. After achieving results exceeding market expectations in the first quarter, it signed a basic contract with the Polish Military Procurement Office for the export of the FA-50 light attack aircraft, and the trend of improving performance is expected to continue.

Korea Aerospace Industries is a developer of complete military aircraft such as fighter jets, trainers, and military helicopters. It produces the supersonic advanced trainer (T-50), developed with domestic technology for the first time, as well as the TA-50, FA-50 light attack aircraft, KT-100 flight training aircraft, and the KUH Surion helicopter developed as part of the Korean helicopter project. It also manufactures the Korean fighter KF-21 Boramae, unveiled last April. Additionally, it produces airframe structures and parts for commercial aircraft such as the Airbus A350 and Boeing B787. As the main assembler of the Korean launch vehicle system, it is responsible for system assembly and comprehensive management related to the Korean space launch vehicle. Last year, based on separate financial statements, the sales proportions by major business segments were 36.4% for fixed-wing (aircraft type), 29.4% for rotary-wing (helicopter type), 19.1% for commercial airframe parts, and 15.1% for others.

The supersonic advanced trainer T-50 (Golden Eagle) was developed under the Korean trainer project KTX-2 to enter the U.S. advanced trainer market and secure light attack aircraft to replace aging fighters. Since the Air Force began full-scale operation in 2006, it has been subdivided into the TA-50 tactical trainer and FA-50 light attack aircraft through upgrades and weapon integration. Approximately 70 complete aircraft have been exported to Indonesia, Iraq, the Philippines, Thailand, and other countries. Since Russia's invasion of Ukraine, military competition has intensified worldwide. In Southeast Asia, the possibility of introducing the FA-50, a T-50 derivative light attack aircraft with excellent cost-performance, has increased. Na Seungdoo, an SK Securities analyst, explained, "The KF-21 Boramae fighter, whose prototype was unveiled last April, will begin test flights this month," adding, "With plans to deploy about 120 units in 2032, it will be a mid- to long-term growth driver."

Korea Aerospace Industries recorded sales of 640.7 billion KRW and operating profit of 39.2 billion KRW in the first quarter of this year, increasing by 5% and 366%, respectively, compared to the same period last year. The operating profit margin rose by 4.8 percentage points to 6.1%. It achieved a 'surprise performance' exceeding the market expectation of 25.4 billion KRW by more than 50%. Sales of airframe parts increased by 73% year-on-year to 176.5 billion KRW. As the reopening of the economy led to recovery in the performance of upstream companies, Korea Aerospace Industries was also affected. Sales to Boeing and Airbus increased by 15% and 46%, respectively. The relatively slower recovery in Boeing sales was due to concerns about potential defects in the 737 Max and 787 Dreamliner. Since normalization of the Boeing 787 is highly likely in the second half of this year, it could positively impact the airframe parts segment in the latter half.

Lee Sangheon, an IBK Investment & Securities analyst, explained, "Profitability improved due to increased airframe parts sales from reopening, exchange rate effects, and normal deliveries in the rotary-wing segment." He added, "Orders in the first quarter amounted to 229.6 billion KRW, a 99% increase year-on-year, and the order backlog at the end of the first quarter was 18.3 trillion KRW, including 8.3 trillion KRW in domestic business, 1.1 trillion KRW in complete aircraft exports, and 8.8 trillion KRW in airframe parts."

With the growth of the space industry, there is also a high possibility that Korea Aerospace Industries' sales will increase. Among domestic companies, it recognizes the highest sales in the space sector. Kim Honggyun, a DB Financial Investment analyst, said, "It is the company closest to the government-led private space development," and predicted, "It can grow into a satellite and launch vehicle system integrator."

This content was produced with the assistance of AI translation services.