Korean Air faces a bumpy road to take over Korean Aerospace Industries as a local city government in South Gyeongsang Province officially declared that it would oppose the sale of KAI to the nation’s flagship carrier.

“Korean Air’s recent investment plan to invest in Busan deals a blow to Sacheon City’s continued efforts to make the city a mecca of the nation’s aerospace industry,” Sacheon Mayor Chung Man-gyu said in a press briefing on Monday. “We are not going to be deceived by any sweet talk of Korean Air and will boycott the sale of KAI to Korean Air.”

Opposition from the Sacheon City Government and citizens where the nation’s sole aircraft maker is located has escalated since Korean Air signed a memorandum of understanding with the Busan Metropolitan Government on Nov. 19 to build its second tech center near Gimhae International Airport under its 2020 vision to become the No. 1 aerospace company in Asia. Korean Air runs a tech center in Busan. The company’s plan includes expansion of the tech center as well. 

Korean Air rushed to unveil a 1.5 trillion won ($1.37 billion) investment plan in Sacheon to quell the anger of the Sacheon City Government and citizens just two days after signing an MOU with Busan, but it failed to dispel doubts that the aerospace industry base could be relocated to Busan if Korean Air acquires a 41.75 percent stake in KAI early next month.

“It is hard to trust Korean Air’s investment plan in the city. The hub of the nation’s aerospace industry should be Sacheon, which is responsible for 80 percent of the nation’s aerospace-related production activities,” Chung said, adding that the city government would ask for a delay of the sale of KAI by the central government.

The mayor also launched a committee to develop action plans.

Market watchers said it is not certain whether or not Sacheon’s opposition would not hamper the sale of KAI as the government is determined to proceed with the privatization of KAI as planned before the current administration ends. Korea Finance Corp., the state-run policy bank in charge of the sale, and other shareholders hold a 41.75 percent stake in KAI.

Korean Air and Hyundai Heavy Industries are competing against each other in the race for the takeover of KAI worth an estimated 1.2 trillion won ($1.1 billion).

According to the timetable for the deal, both companies will complete their due diligence process by Nov. 29. Market analysts said both companies would sign the main contract as both companies have presented their vision in aerospace. The preferred bidder will be announced on Dec. 3.

By Seo Jee-yeon  (jyseo@hearldcorp.com)