Bill would bar approval of management control acquisitions if Defense Ministry or DAPA flags security concerns

DAPA chief says Hanwha's potential KAI takeover warrants 'deep review' from national interest perspective

Rep. Kim Byung-joo of the Democratic Party of Korea, who leads his party's side on the National Assembly's National Defense Committee [Yonhap]
Rep. Kim Byung-joo of the Democratic Party of Korea, who leads his party's side on the National Assembly's National Defense Committee [Yonhap]

Amid growing calls to scrutinize the potential monopoly risks and national security implications of Hanwha Group's possible acquisition of Korea Aerospace Industries (KAI), a bill has been introduced to tighten security reviews of mergers and acquisitions involving defense companies.

Rep. Kim Byung-joo of the Democratic Party of Korea, a member of the National Assembly's National Defense Committee, said Tuesday he had introduced the bill to amend the Defense Acquisition Program Act.

The core provision would prohibit the Ministry of Trade, Industry and Energy from approving an acquisition of management control if South Korea's Ministry of National Defense or the Defense Acquisition Program Administration (DAPA) determines it poses a serious risk to national security.

The amendment would also require the trade minister to consult with the defense minister — in addition to the DAPA chief, as currently required — before approving any acquisition of management control over a defense company.

A new clause would bar approval outright if the defense minister or the DAPA chief submits an opinion that the acquisition could seriously impede national security, the protection of military secrets, or the execution of defense policy. The intent is to give the security authorities' views legal binding force, effectively granting them a veto.

Kim said the current law, which requires only consultation between the trade minister and the DAPA chief, leaves little room to factor security concerns into approval decisions. Because changes in a defense company's ownership structure affect not only weapons research and production but also follow-on logistics support, he said, a separate security review is needed beyond the economic assessment of whether competition would be restricted.

The bill comes as Hanwha has been moving to expand its stake in KAI and seek a role in its management.

Hanwha changed the stated purpose of its KAI shareholding from "passive investment" to "management participation" in May, then increased its stake through affiliates. As of August, its combined shareholding stood at 15.89 percent, making it the second-largest shareholder after the Export-Import Bank of Korea.

The Korea Fair Trade Commission approved Hanwha's share acquisition on Aug. 31, finding no risk of restricted competition. Kim said, however, that the Fair Trade Commission review alone cannot verify the security implications, given that KAI is the prime systems integrator for core aviation weapons platforms including the KF-21 Korean fighter jet.

Concerns over monopoly risks and the timing of any potential sale also came up Tuesday during the National Assembly National Defense Committee's national audit of DAPA.

DAPA chief Lee Yong-cheol said in response to related questions that he agreed "there are many variables that need to be examined from a national interest perspective" and that his agency would conduct a thorough review before submitting its opinion. On the question of KAI's privatization, however, he said he was "not aware of any current privatization plan."

Kim had earlier raised the same issue at the Defense Ministry's national audit on Wednesday, urging that the defense minister — as the official responsible for overseeing national security strategy — be explicitly named as a required party in consultations over changes to a defense company's ownership structure.

"The defense industry is a core pillar of national security that cannot be left to corporate self-interest or simple market logic," Kim said. "A Fair Trade Commission review of competition restrictions alone cannot verify the full impact that defense M&A could have on security and military operations."

He added that the amendment aimed to "fundamentally block security gaps and technology leakage risks that could arise from ownership changes, and establish an institutional foundation that puts national security and the consistency of defense policy first."


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