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Home-grown design to serve business or regional market

Korea Aerospace Industries is planning to design and manufacture an indigenous business jet or regional aircraft, with funds that the South Korean company plans to raise in an initial public offering in 2010 likely to be geared towards the research and development efforts.

"We started the feasibility study this year looking at either a light aircraft that can carry up to 10 passengers, or a 50- to 80-seat turboprop," says Chung Hae Joo, KAI's president and chief executive. "Once the study has been completed, we will know which aircraft has better market potential and move on to the development stage."

The study is being jointly conducted with the South Korean government, which is keen for the domestic aerospace industry to grow and match that of neighbouring Japan, and various private sector companies.

The government is likely to be a major financial contributor to the project, and the detailed study could continue into the next decade, say company officials. Further information could be revealed at the Paris air show in June, when the company could also begin initial talks with potential foreign partners, they add.

"Many companies are contemplating building aircraft and we have to do that as well," says Lee Seong Jong, vice-president and head of KAI's commercial business department. "We may need to find some risk-sharing partners to work with us as well, given that they will have some market knowledge that we can use."

KAI was created in 1999, when the government consolidated competing aerospace manufacturers into a single entity. It has been restructured over the last few years to reduce debt and cut costs. The government gave the company exclusive rights to all defence-related aerospace projects as part of the consolidation, although KAI has also been involved in the Boeing 787 and is planning to work with Airbus on the A350.

Chung points out that R&D spending must increase if the company is to be successful in weaning itself off a dependence on domestic military contracts. An IPO, he says, will enable the company to get the resources needed to conduct R&D on growth areas such as the commercial aviation sector. The final decision on a public listing is likely to be made around the end of 2008 or early 2009.

"The financial consultants we have been working with have recommended we should be ready for an IPO in 2010, and we plan to keep to that target," he says.