[Exclusive] Hanwha, KAI and LIG leaders line up for National Assembly audits: "Would this help K-defense?" Rifts emerge across party lines

[Financial News] Kim Dong-kwan, vice chairman of Hanwha Group; Shin Ik-hyun, president of LIG Defense & Aerospace (LIG D&A); and Kim Jong-chul, president of Korea Aerospace Industries (KAI), are among the leaders of major K-defense companies whose names have been proposed as witnesses for an audit by the National Assembly's National Defense Committee. The move is intended to examine Hanwha's planned acquisition of KAI and alleged bribery by an LIG D&A executive. However, critics question whether it is appropriate to summon one defense-industry leader after another for National Assembly audits. Concerns that this could burden corporate management at a time when the industry must expand exports and respond to competition in advanced technologies, including manned-unmanned teaming, have made an agreement on adopting the witness list uncertain.
According to the list of proposed general witnesses for the National Defense Committee's audit obtained by Financial News on the 17th, the names include Kim Dong-kwan, senior vice chairman and CEO of Hanwha Aerospace; Kim Jong-chul, president of KAI; and Shin Ik-hyun, president of LIG D&A.
Kim Dong-kwan was proposed as a witness by both Hwang Myeong-seon of the Democratic Party of Korea and Chun Ha-ram of the Reform Party. They requested that he appear at the Ministry of National Defense audit on the 7th of next month, the DAPA audit on the 13th, and the comprehensive audit on the 26th in connection with Hanwha's planned acquisition of KAI. Chun also proposed Kim Jong-chul and Joo Byung-ki, chair of the Fair Trade Commission (FTC), as witnesses for the DAPA audit and the comprehensive audit over the same issue.
On August 31, the FTC approved the acquisition of KAI shares by Hanwha Aerospace, its U.S. affiliate and Hanwha Systems. Hanwha Group has consequently secured a 15.89% stake in KAI and has applied to the FTC for a business-combination review as required by law. The move is being viewed as opening the door to KAI's privatization.
However, the labor unions at KAI and LIG D&A oppose the acquisition over concerns about a monopoly in the defense market. Kim Jong-chul also reportedly raised concerns about a monopoly at a recent internal meeting, saying in effect that DAPA and the Ministry of Trade and Industry would oppose the acquisition.
Some in the industry believe that the audit could instead provide an opportunity to sort out the issues surrounding Hanwha's planned acquisition of KAI. Because the final acquisition depends on government approval, discussions in the National Assembly could clarify the positions of the government and other stakeholders. There is also hope that a consensus could emerge on considering privatization as a way to improve KAI's financial condition.

Chun proposed Shin Ik-hyun as a witness in connection with allegations that an LIG D&A executive offered bribes. The executive was indicted while in custody on charges of providing bribes and making improper solicitations to an official in order to receive favorable evaluations in DAPA contract bids. The allegations involve providing 320 million won and rights to recommend subcontractors over five years beginning in 2021.
Prosecutors believe biased evaluations took place in six projects worth a total of 91.5 billion won. It has not yet been determined, however, whether the improper solicitations were made at the company level or were an individual deviation carried out by the executive to improve his personal performance record.
Political circles and industry officials point out that, because the trial is ongoing, Shin Ik-hyun's answers would be limited even if he appeared before the National Assembly. DAPA could likewise be restricted in responding to specific facts.
Although the proposed witnesses are tied to specific issues, members of both the ruling and opposition parties say caution is needed in demanding that corporate leaders appear, given the country's efforts to promote K-defense at the national level.
A National Defense Committee member from the People Power Party said, "Both the ruling and opposition parties are asking whether calling in all the top executives of defense companies would really help K-defense. The situation is difficult for the witness list to be adopted—not only because the ruling and opposition parties cannot reach an agreement, but also because there is no consensus within either party."

[email protected] Kim Yun-ho Reporter