July 20, 2017 6:58 pm JST

CEO of top South Korean military supplier resigns over corruption scandal

Ha of KAI suspected of manipulating costs of helicopter, aircraft development

KIM JAEWON, Nikkei staff writer

Engineers assemble a FA-50, South Korea's first home-built light fighter, at a plant of the Korea Aerospace Industries in Sacheon on August 14, 2013. © Reuters

SEOUL -- The chief executive of Korea Aerospace Industries, Ha Sung-yong, resigned Thursday amid a corruption scandal in which the state-owned military company is alleged to have manipulated costs for the development of military aircraft by tens of billions of won.

Ha said that he would take responsibility for the wrongdoing and explain what had happened to prosecutors following raids on his car and the company's headquarters earlier this week. KAI's Vice President Jang Seong-seob will take over as acting CEO until the board elects a new leader.

"I am stepping down as KAI CEO, taking responsibility for all the things happening around me and [the company]," said Ha in a statement, adding that he was keen to prevent the situation from tarnishing the reputation of KAI, which had been instrumental in the development of South Korea's aerospace industry.

His resignation came as prosecutors were looking into allegations that the Sacheon-based company created slush funds worth tens of billions won to bribe politicians for contracts. The authorities suspect the company of overstating expenses for the development of its Surion utility helicopter, the T-50 trainer jet and the FA-50 fighter jet.

The new South Korean government of President Moon Jae-in has promised to crack down on corruption in military contracts. Moon has said he will throw a spotlight on the opaque connections between high-ranking defense officers and military companies.

Shares in KAI rose 1.59% to 51,000 won on Thursday, after hitting a one-year low of 47,650 won on Tuesday. The benchmark KOSPI edged up 0.49% to a fresh high of 2,441.84.

Analysts said that the scandal might put a brake on the company's aggressive overseas projects, including its plan to export 21 Surion helicopters worth 590 billion won ($524 million) to Indonesia.

"It won't be easy for the company to export Surion [to Indonesia], which accounts for 9% of its annual order goal," said Choi Jin-myeong, an analyst at Cape Investment & Securities.

KAI has expanded its presence in overseas market, exporting military aircraft and parts to the Philippines, Thailand and the U.S., among other countries. Earlier this month, the company signed a 641.2 billion won deal with Boeing of the U.S. to supply wing ribs for its new B777X passenger jet.

KAI's largest shareholder is the state-run Export-Import Bank of Korea. It raised its stake in the aircraft maker to 26.41% last month after Korea Development Bank, another state lender, handed over its 18.68% stake as part of a government strategy to increase Eximbank's capital.

Asia300

Korea Aerospace Industries Ltd.

South Korea

Market(Ticker): KRX(047810)
Sector:
Industry:
Electronic Technology
Aerospace & Defense
Market cap(USD): 3,595.51M
Shares: 97.47M

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