Why Hanwha Bought Back Into KAI After Seven Years

[Korea Financial Times, Shin Haeju] Hanwha Group (Chairman Kim Seung-youn) has re-entered the shareholder registry of Korea Aerospace Industries, Ltd. (KAI), signaling a potential reshaping of the South Korean defense industry landscape. The prevailing view is that this move goes beyond a simple equity investment — it is a strategic bet aimed at completing an integrated "land, sea, air, and space" defense system under the direct leadership of Hanwha Group Vice Chairman Kim Dong-kwan.

Hanwha Becomes KAI's Fourth-Largest Shareholder

According to the audit report of Hanwha Aerospace, as of March 16, the total number of KAI shares held by Hanwha Aerospace's consolidated subsidiaries stood at 4,864,000 shares, representing a 4.99% stake. This marks Hanwha Group's first re-acquisition of a KAI stake in approximately seven years, following the sale of its previously held 5.99% interest — acquired during the takeover of Samsung Techwin in 2018.

The stake-building effort involved the joint participation of Hanwha Aerospace, Hanwha Systems, and a U.S.-based defense-related subsidiary. Specifically, Hanwha Aerospace purchased 2,670,000 KAI shares (2.74%) for KRW 280 billion on October 23 last year. Hanwha Systems then acquired 566,635 shares (0.58%) for KRW 59.9 billion on November 3.
Hanwha Aerospace further expanded its holdings this year with an additional purchase of 1,620,000 KAI shares, bringing its total to 3,236,635 shares. With the participation of the U.S. defense subsidiary, the combined stake was raised to 4.99%. While Hanwha Aerospace declined to identify the U.S. subsidiary, it described the entity as affiliated with its defense business.

As a result, Hanwha Aerospace has become KAI's fourth-largest shareholder. The current largest shareholder is the Export-Import Bank of Korea (Korea Eximbank), holding a 26.41% stake, followed by the National Pension Service (NPS) at 8.12%, and Fidelity Management & Research Company LLC and 38 other foreign investors at 7.06%.

From Engines to Airframes: Completing the 'Integrated Defense' Picture

Analysts attribute Hanwha's renewed move on KAI to its pursuit of vertical integration. Hanwha has been building out its defense lineup through Hanwha Aerospace (launch vehicles and engines), Hanwha Systems (satellites and communications), and Hanwha Ocean (naval vessels).

However, the company had been unable to make direct inroads into the finished aircraft segment due to KAI's dominant position in that space. This equity acquisition is seen as completing a value chain that ties engines and airframes together.

In particular, should Hanwha — which possesses Nuri (KSLV-II) launch vehicle technology — absorb KAI's satellite manufacturing capabilities and expertise in medium-to-large aircraft production, it could emerge as a leading player in the era of private-sector-led space development.

This convergence is already evident: in February alone, Hanwha Aerospace and KAI signed two memoranda of understanding (MOUs) in the defense and aerospace sectors. The two companies agreed to collaborate broadly on future core businesses, including joint development and export of unmanned aerial vehicles (UAVs), development of aircraft equipped with domestically produced engines along with joint marketing, and entry into the global commercial space market.

Notably, the partnership carries added significance in that both companies have agreed to fully open their respective supply chains to each other — a departure from the previously exclusive practices both parties maintained. Plans include launching joint R&D programs and technical support initiatives, as well as regularizing a "Future Aerospace Strategy Committee" involving senior management from both sides to establish a robust medium-to-long-term cooperation framework.

Additional cooperation was formalized at the World Defense Show (WDS 2024), held in Riyadh, Saudi Arabia. The two companies committed to jointly localizing airborne weapons systems, including long-range air-to-air missiles for domestically produced aircraft. Beyond development, they also plan to pursue joint marketing efforts to expand exports of Korean-built aircraft such as the KF-21 and FA-50, along with their airborne weapon systems.
Meanwhile, the two companies' share prices reacted in opposite directions to the news. On March 16, Hanwha Aerospace closed at KRW 1,476,000, down KRW 12,000 from the previous session.

KAI, on the other hand, surged KRW 8,500 to close at KRW 191,200 on the same day, and opened at KRW 199,600 on March 17 — up KRW 10,300 from the prior session's closing price.

Shin Haeju (hjs0509@fntimes.com)