S. Korea Kicks Off Trade Mission With Billion-Dollar Order : KAL Signs Pact to Buy Up to 8 MD-11 Jets
Korean Air Lines signed a formal agreement Thursday to buy up to eight McDonnell Douglas MD-11 jetliners worth $1 billion, the second-largest order received so far for the yet-to-be-built wide body aircraft.
The aircraft order is part of a much-ballyhooed trade mission that South Korean officials have undertaken to purchase $2 billion worth of U.S.-made products, amid growing U.S. concern over the trade deficit with South Korea.
A large contingent of Korean dignitaries met Thursday with Gov. George Deukmejian, McDonnell Douglas Chairman Sanford McDonnell and other state officials to kick off a public relations effort connected with the trade mission.
4 Planes Plus Options
Korean Air Lines agreed to buy four aircraft and to take options for four additional planes. The initial order is for $344 million, but the options and spare parts are expected to raise the value of the agreement to about $1 billion. British Caledonian’s order for nine MD-11s is the largest order for the airliner that McDonnell Douglas has received so far.
Including the KAL order, McDonnell has received firm orders and options from 17 customers for more than 100 aircraft, a sales performance that exceeded earlier expectations for the new airplane’s potential.
KAL President C. K. Cho acknowledged that the European consortium Airbus had lobbied hard to sell the airline its A-340 airliner, which is under development, and has offered favorable terms for a sale.
Seeks More U.S. Imports
Cho said the South Korean government’s determination to increase U.S. imports tilted the sale to the MD-11. Cho said Korean Air Lines would be willing to accept a 5% to 10% higher price to buy the American aircraft but would draw the line if the price differential reaches 20%. He would not rule out the possibility of eventually buying the A-340.
“We are not running the Salvation Army, gentlemen,” he said at a press conference.
Despite the Korean public relations effort, the U.S. trade deficit with South Korea is expected to continue to grow from last year’s $7.3 billion. Minister of Trade and Industry Rha Woong Bae said in an interview that South Korea hopes to hold the deficit to no more than $8 billion, but acknowledged that it could grow to $9 billion this year. Other recently published figures put the likely imbalance this year at $10 billion.
Rha, who has a doctorate in business administration from UC Berkeley, said that as exports to the United States expand, South Korea hopes to increase its imports from this country. The country plans to send two trade missions per year to the United States; this time, it hopes to buy machinery, chemicals, cotton and coal, as well as the airliners.
Long Way to Go
For all of its recent growth, South Korea has a long way to go in its industrial development. It has less than half the per-capita income of Taiwan and only a small fraction of Japan’s income power.
“Korea is not a rich country,” Cho said. “We are still struggling. We wouldn’t forget what the U.S. did during the Korean War. Please believe us, we are a staunch ally of the United States.”
Korean Air Lines carried 7 million passengers last year, about half of them non-Korean.
Cho and his three brothers bought the airline 17 years ago from the South Korean government and today own 37% of the publicly traded company. It posted sales of $1.5 billion last year, and Cho joked that the $1-billion order to McDonnell will mean that he will be working for McDonnell Douglas, not Korean Air.
THE MD-11 AND ITS COMPETITORS
Seating Model Maker Orders Options range MD-11 McDonnel-Douglas 43 55 276-405 A-340 Airbus Industrie 22 15 264-292 747 Boeing 100 NA 452 767 Boeing 61 NA 216-290
