A Korean Air aircraft. The image is not directly related to this article. [Korean Air]
A Korean Air aircraft. The image is not directly related to this article. [Korean Air]

An appeals court has ruled partially in favor of Korean Air in its lawsuit against the Defense Acquisition Program Administration over penalty charges stemming from delays in a division-level unmanned aerial vehicle project, upholding a lower court's decision.

The Seoul High Court's Civil Division 22-2, presided over by Judge Nam Seong-min, held a sentencing hearing Thursday morning in the appeal of Korean Air's lawsuit against DAPA seeking confirmation that it owed no delay penalties, ruling partially in the airline's favor — the same outcome as the first trial. Delay penalties are amounts a debtor must pay a creditor when contractual obligations are not fulfilled within the agreed period.

The appeals court dismissed both sides' appeals. The first-instance court had ordered DAPA to return about 40.4 billion won ($28.8 million) to Korean Air. DAPA had previously offset about 65.8 billion won in contract payments to collect part of the delay penalties.

Korean Air signed a contract with DAPA in 2015 to deliver 16 sets of division-level UAVs for aerial surveillance and reconnaissance in the initial mass-production phase. The total contract value was about 400 billion won, with the project scheduled to run through 2020. The first-phase contract, worth about 230 billion won, was set to be completed by 2018.

DAPA claimed deliveries were delayed and held Korean Air responsible, demanding about 200 billion won in delay penalties. Korean Air pushed back, arguing that DAPA had unilaterally demanded specification changes that caused the delays, and filed a lawsuit in April 2021.

Korean Air said it bore no responsibility for the delays, arguing that DAPA had unilaterally demanded changes to specifications and configurations at a stage when mass production should have proceeded based on finalized blueprints. DAPA filed a counterclaim in 2023 seeking about 150 billion won — the original penalty amount after offsetting receivables from other project payments.

The first-instance court ruled partially in Korean Air's favor in February last year and dismissed DAPA's counterclaim.

The lower court ordered DAPA to return about 40.4 billion won of the roughly 65.8 billion won it had withheld from contract payments, recognizing only 25.4 billion won — about 10 percent of the contract value — as a valid delay penalty. Both sides appealed the ruling, but the court rejected their appeals.


bell@heraldcorp.com