Korean Air is shifting away from a passenger-centric business structure and nurturing the defense industry as a new growth engine. With its Aerospace Business Division, which had long been in deficit, expected to turn profitable last year, defense has emerged as a substantial revenue source. Korean Air’s strategy is to overcome the structural limitations of its passenger business, which is vulnerable to external factors like oil prices and exchange rates, by fostering its defense sector.   According to industry sources on the 20th, Korean Air’s Aerospace Business Division recorded cumulative sales of 471.388 billion Korean won and cumulative operating profit of 16.574 billion Korean won in the first to third quarters of last year. When provisional results for the fourth quarter are included, annual sales are projected to reach approximately 770 billion Korean won. Although the division had posted losses for five consecutive years due to the COVID-19 pandemic and lack of major contracts, it has successfully turned profitable. While the division’s share of total sales (approximately 16.5 trillion Korean won) remains around 5%, breaking the cycle of losses and transforming into a profit-generating unit is encouraging for Korean Air.   Defense Sector Likely to Turn Profitable   Korean Air’s Aerospace Business Division, established in 1975, has been responsible for military aircraft maintenance, civil aircraft structure manufacturing, and unmanned aerial vehicle (UAV) development. Over 5,500 U.S. and South Korean military aircraft have passed through its facilities. However, it recorded consecutive losses since 2019.   The turning point was large-scale contracts. Last year, Korean Air secured the 800-billion-Korean-won Black Hawk performance upgrade project for 36 military helicopters and, through a consortium with LIG Nex1, the 1.6-trillion-Korean-won Block-I electronic warfare system development project. These two contracts alone secured an order backlog exceeding 2 trillion Korean won.   The core reason Korean Air is focusing on defense is to ensure “management stability.” The airline transport business is structurally vulnerable to external shocks like high exchange rates and oil prices. In fact, with the won-dollar exchange rate recently approaching 1,500, airlines’ fuel and lease costs have surged. In contrast, defense contracts with the government guarantee long-term, stable cash flow. When passenger demand plummets or exchange rates spike, the defense sector can act as a buffer against external shocks. By transforming into a tech company capable of designing and maintaining weapon systems, Korean Air aims to enhance its survival capabilities.   Interest in Whether Sales Will Exceed 1 Trillion Korean Won   This year’s focus is whether the defense sector’s sales will surpass 1 trillion Korean won. iM Securities stated, “With expanding competitiveness in unmanned and fighter jet performance upgrades, revenue growth is expected to accelerate from 2026. Quarterly sales could reach 300 billion Korean won, making annual sales of 1.2 trillion Korean won achievable.”   Key growth drivers are MROU (maintenance, retrofit, and upgrade) and UAVs. Leveraging its Busan Tech Center, Asia’s largest military aircraft maintenance facility, Korean Air is targeting the global MROU market. Given that 70% of aircraft procurement costs are spent on maintenance over 30–40 years, MROU is a “golden goose.” The global market is projected to grow from $103.9 billion (approximately 140 trillion Korean won) in 2024 to $124.1 billion (approximately 167 trillion Korean won) by 2034.   Korean Air is also accelerating efforts to secure UAV technology, a cornerstone of future battlefields. It recently began joint development of mission-autonomous UAVs with U.S. defense firm Anduril and is discussing collaboration with Turkey’s Baykar. The goal is to transition from subcontracting to a global player with independent technological capabilities.   (ICE SEOUL)

Fonte notizia: The Chosun Daily