Hanjin KAL, LS expand defense business alliance to counter Hoban Group

South Korea’s Hanjin Group and LS Group are tightening their alliance further against Hoban Group, which is raising its stake in Hanjin.

Korean Air Lines Co. said on Friday it has agreed with LS Electric Co. to cooperate in aerospace and defense technology development. The two sides signed a deal at MADEX, an international maritime defense industry exhibition, in Busan.

The agreement outlines collaboration on building smart factories, optimizing logistics in aviation manufacturing and advancing next-generation aircraft production capabilities.

‘ANTI-HOBAN FRONT’

The latest accord signals a deepening of what industry observers described as an emerging "anti-Hoban front" – a strategic alignment between Hanjin and LS to counter the growing influence of Hoban, a mid-sized construction and power cable manufacturer.

The Hanjin-LS defense partnership follows a broader memorandum of understanding signed on April 25, under which the two conglomerates pledged joint efforts in advanced aerospace technologies and urban air mobility (UAM) infrastructure.

The two groups also bolstered their financial ties.

In mid-May, LS Group issued 65 billion won ($47 million) in exchangeable bonds (EBs) to Korean Air. These bonds, convertible into 387,365 LS shares by 2030, provide Korean Air with a strategic equity foothold in LS.

Market watchers said that LS will likely use the proceeds to raise its stake in Hanjin KAL Corp., the parent of Korean Air – a move seen as strengthening the mutual shareholding structure between the two allies.

The convergence of strategic and financial interests comes as Hoban Group intensifies its own play for influence.

On May 12, Hoban increased its stake in Hanjin KAL to 18.46% from 17.44% earlier, narrowing the gap with Hanjin Group Chairman Cho Won-tae, whose combined stake with his friendly shareholders stands at 20.09%.

The encroachment has sparked concerns about a possible challenge to the group’s control.

Compounding tensions is an ongoing legal dispute between LS Cable & System Inc. and Taihan Cable & Solution Co., a Hoban Group affiliate, over alleged infringement of undersea cable technology patents.

HANJIN KAL’S ALLIES

Hoban became the second-largest shareholder of Hanjin KAL in 2022 when its construction arm, Hoban Construction Co., acquired a 16.44% stake from Korean activist fund Korea Corporate Governance Improvement Fund (KCGI).

Hanjin KAL’s third-largest shareholder is Delta Air Lines Inc. with a 14.9% stake.

The US airline giant, in a joint venture partnership with Korean Air, remains a strong ally of Chairman Cho, who also doubles as chairman of Korean Air.

Write to Gil-Sung Yang at vertigo@hankyung.com

In-Soo Nam edited this article.