South Korea (Korea) is the15th largest market for U.S. aerospace exports in 2019 (based on Korea International Trade Association data). In 2019, total U.S. aerospace exports to Korea exceeded 2.5 billion USD (including aerospace products in the defense sector). In total value, U.S. aerospace sales constituted about 69 percent of Korea’s total aerospace imports in 2019. Over 98 percent of the total aerospace imports into Korea are for commercial and defense aircraft and their parts and components. Of this, 69 percent of Korea’s aircraft, parts and component imports were from the United States in 2019.
The United States remains Korea’s most significant military ally, owning largely to the presence of 28,500 U.S. troops in Korea as a deterrent to any aggression from North Korea and with its 67 years of close alliance history, U.S. standards are generally accepted in Korea and most Korean aerospace and defense systems are based on American standards. This has affected defense procurement decisions. The United States constitutes about 84 percent of Korea’s total defense imports (including military aerospace). (This figure is the sum of U.S. share in the foreign defense procurement from 2014 to 2018. There was a sharp increase in FMS in 2014 due to major contracts including F35, Global Hawk, and air-refueling tankers, etc.)
Although the United States continues to be a primary supplier in Korea, the strict U.S. export control policy and aggressive marketing of other suppliers from Europe and Israel come as a challenge for U.S. firms.
Many U.S. firms have sales representatives or agents in Korea and partnerships with local agents is advised for the new-to-the-market firms and especially for those firms targeting Korea’s law enforcement, defense, and government entities. It is important to visit the Korean market to understand the business culture before appointing the appropriate agent who has depth of knowledge and wide networks in the market.
Current Market Trends and Demand
The market size and demand are greater in military aerospace compared to the commercial aerospace sector in Korea.
Over the past ten years, Korea has procured several critical military assets and most of these assets were aerospace platforms. According to the mid-term defense plan from 2020 to 2024 announced by the Ministry of National Defense, a total of 84.6 billion USD had been allocated for the Force Improvement Plan over the next five years. In the plan, procurement of the following key platforms are included: military satellite and mid/high altitude surveillance UAVs, maritime patrol aircrafts and operation helicopters, and additional F-35s to replace F-4s and F-5s.
With the COVID-19 pandemic, the Korean government had announced defense budget cuts three times which will have some impact on both on-going programs and programs that have not started. However, this does not indicate the ‘cancellation’ of the programs but rather a ‘delay’ in either payment or initiation of the planned programs.
On the other hand, the COVID-19 pandemic seems to have a much greater impact on the commercial aerospace sector. Korean Air is the largest passenger and cargo carrier company in Korea and is one of the largest consumers of aircraft, equipment, components, and various aerospace services — as well as being one of the major exporters of aerospace parts and components. Asiana Airlines is the second largest airline in Korea, however, it is going through financial difficulties and as of April 2020, HDC Hyundai Development has postponed its acquisition of Asiana Airlines indefinitely. The decision was highly impacted by the pandemic. LCCs in Korea have continuously increased its operating fleets in the past ten years and demonstrated a dramatic annual sales revenue growth to 40 percent in the past five years. However, the pandemic has a greater impact on the LCC industry. Bankruptcy of financially weak LCCs are reported and mergers and acquisitions are expected leaving a smaller number of LCC operators in near future.
Aircrafts (Rotorcraft and military fixed-wings) and upgrades
Korea has constant demands on both commercial and military rotorcrafts and fixed-wings. While the commercial aircraft market is and will continue to go through difficult times due to the COVID-19 pandemic, military platforms will be procured based on Korea’s mid-term military plan. According to the recent mid-term plan, budget had been allocated for maritime patrol aircraft (decision made to procure Boeing’s P-8) and maritime operation helicopters (Lockheed Martin vs. Leonardo). Additional purchase of F-35s to replace old F-4s and F-5s are also planned as well as upgrade of CH-47s and UH-60s are expected. Although not in great numbers, there are also opportunities for commercial helicopters in non-defense public sectors such as firefighting and emergency/rescue sectors.
For 2020, a total of 40.69 billion USD has been announced for Korea’s defense budget which includes 13.62 billion USD for the force improvement plan (FIP). The total budget and FIP budget have increased by 7.4 percent and 8.5 percent compared to the previous year, respectively. For 2020, Korea’s defense budget is around 2.69 percent of its GDP and constitutes about 14.1 percent of total national budget. Korea is estimated to have the 10th largest defense budget in the world.
According to the mid-term defense plan from 2020 to 2024 announced by the Ministry of National Defense, a total of 84.6 billion USD had been allocated for the Force Improvement Plan over the next five years. Following are the detailed plans for Force Improvement:
1. Allocated 27 billion USD to cope with nuclear/weapons of mass destruction threat
- Improve surveillance capability: Establish Korea’s independent surveillance capability with military satellite, and mid/high altitude surveillance UAVs, etc. (indigenous development)
- Improve ballistic missile capability with Hyunmoo (indigenous ballistic missile), SSM-700K Haeseong (indigenous anti-ship missile), and TAURUS missile, etc.E
- Expand coverage and missile capability for Korea Air and Missile Defense (KAMD): Acquire additional early-warning radar (indigenous) and Aegis combat system radar, upgrade Patriot and Cheolmae II missiles (indigenous), and upgrade Korea Theater Missile Operation Cell
2. Allocated 46 billion USD to cope with defense force restructuring
- Conventional weapons will be replaced with the high-tech weapon systems to cope with defense force reduction: Artillery detection radar-II, 230mm rocket artillery system, Korean tactical surface-to-surface missile system, indigenously developed tanks, small tactical vehicles, and armed helicopters, warrior platform based on 4th industrial revolution, ‘drone-bot system’, and indigenously developed unmanned attack, surveillance, and operation vehicles (most programs falls under indigenous development)
- Improve warship and submarine capabilities and acquire maritime patrol capability: Acquire additional Great-class destroyer with Aegis combat system, 3,000-ton submarine, multi-purpose large carrier, latest maritime patrol aircraft and maritime operation helicopters
- Replace old fighter platforms to latest fighter jets and develop space operation capabilities: Phase out F-4 and F-5s and replace them with F-35A and continue invest in KFX project, acquire additional large military transport aircrafts, develop capabilities for satellite surveillance and monitoring
3. Allocated 2 billion USD to utilize advanced 4th industrial revolution technologies for military operation
- Smart Defense Innovation: Apply big data, AI, IOT into defense field
- Foster Advanced Concept Technology Demonstration (ACTD)
4. Improve maritime surveillance and monitoring capabilities (mostly indigenous development programs)
- Deploy maritime surveillance radar and newest TOD-III
- Develop and deploy fixed long-range radar
C4ISR, sensors and radars
Advanced technologies have opportunities in Korea’s defense market especially with the C4ISR products and high-tech sensors. Korean industry has made a big progress with radar technologies but radars that meets specific high-standard specifications still have opportunities in Korean market.
Defense & Security Expo Korea (DX Korea)
November 18 – 20, 2020
Goyang, South Korea
Seoul International Aerospace & Defense Exhibition 2021 (Seoul Air Show 2021)
October 15 - 20, 2021
Seoul, South Korea
MADEX 2021 (International Maritime Defense Industry Exhibition)
June 9 - 12, 2021
Busan, South Korea
Ms. Sunny Park
U.S. Embassy - Seoul, Korea