KAI Trainer Jet, Helicopter Exports in Doubt as CEO Resigns

Korean Aerospace Industries’ CEO has offered to resign due to the on-going investigation charges of inflating research and development (R & D) cost of a defence project and swindling funds.

The prosecution is scrutinizing the allegations that KAI Chief Executive Ha Sung-yong lobbied Cheong Wa Dae officials and lawmakers for his reappointment in May 2016.

“I have decided to step down from my role as president and CEO of KAI for the responsibility I feel regarding the recent issues surrounding the company. I will do my best to answer all the doubts and questions during the probe to prevent damage to KAI’s name,” Sung-yong was quoted as saying in a statement by Korea Herald Friday.

KAI has secured the deals worth 1.38 trillion won (US$1.2 billion) this year alone. it has signed a 641.1 billion won (US$556.75 million) contract with Boeing to supply wing ribs for its new aircraft model B777X earlier this month.

KAI bagged a 380 billion won (US$330 million) deal from Airbus in February this year to supply wing top panels (WTP) for A320. It also won a 280 billion won (US$243.16 million) contract from Brazilian aerospace giant Embraer in April to supply wing parts for its aircrafts.

In addition, the KAI is receiving more deals for its T-50 advance jet trainer. has decided to purchase eight KAI T-50 trainers at the price of 7.9 billion baht (US$231.55 million). Earlier, Thailand’s military government bought four T-50TH supersonic trainers for US$110 million.  KAI obtained more T-50 contracts in the Philippines as well. KAI signed a contract with the Philippine government in March 2014 to supply 12 light attack aircrafts for export at the cost of US$420 million. It manufactured and supplied FA-50PH to the Philippine Air Force by adding advanced avionics equipment and loading functions on T-50. 

The alleged fraud investigations and the resignation of Ha will make it difficult for KAI to deliver the current orders on time.

Prosecutors have looked into the alleged fraud since the Board of Audit and Inspection of Korea in 2015 implied KAI had extorted some 54.7 billion won ($48.1 million) in sum, partly by fabricating the source of investments from DAPA in the development project of Surion. KAI claimed the money is not illicitly gained, citing the risk of brokering the investors.

On Sunday, the BAI requested a prosecutorial probe into KAI-developed Surion helicopters, saying the home-grown utility chopper model lacks technological stability such as lightning protection and anti-icing capability required for an air mission, the news daily reported.

The state watchdog also requested the prosecution to look into Chang Myoung-jin, chief of the Defense Acquisition Program Administration, for committing breach of trust. Chang stepped down from his position with permission from President Moon on Thursday. 

Ha, however, stressed that the Surion project, as well as KAI’s other core project, T-50 supersonic trainer jets, must continue, echoing the defense sector’s worries that the ongoing probe might damage future arms deals with other nations. 

The prosecution is currently tracing a former company executive on the run believed to be deeply involved in the creation and use of the illicit fund. 

The person, surnamed Sohn, disappeared in June last year and is allegedly responsible for embezzling more than 20 billion won ($17.8 million) by inflating order amounts. 

The slush fund allegation is part of a bigger scandal revolving around the defense firm. 

Five KAI subcontractors were raided earlier this week to probe suspected corruption in connection with a few major defense projects.

At least two of the companies searched Tuesday are reportedly run by close aides of Ha, and they've heavily depended on KAI orders for revenue.

An earlier probe by the state audit agency estimated the unfair profits at some 24 billion won (US$21.2 million).

The search comes days after they carried out a raid on Friday at KAI headquarters in Sacheon, 437 kilometers south of Seoul, and its offices in the capital in connection with the allegations.

The prosecution is expected to soon bring in Ha for questioning in relation to the allegations. He's been barred from overseas travel upon the prosecutors' request.