A shareholders plan to sell a 41.75% stake in Korea Aerospace Industries (KAI), South Korea’s only aircraft manufacturer, for KRW1.05trn ($925m) has failed due to a lack of bidders.

Korean Air Lines (KAL) emerged as the sole preliminary bidder, but national-security law requires the submission of two or more bids for the auction to proceed.

Shareholders now plan to meet to decide whether to run another auction, but that is likely to draw only a limited number of bidders as the country’s law requires only domestic companies to hold equity in the KAI.

"It’ll take some time to find an owner as the deepening economic uncertainties discourage takeovers."

The auction process has drawn flak from lawmakers, not just concerned about transparency, but also believe that selling the plane manufacturer to a private company will lessen public accountability.

Bloomberg quoted Nomura Holdings analyst Justin Lee as saying that apart from the political risk, the bigger question was who will want to acquire KAI.

"It’ll take some time to find an owner as the deepening economic uncertainties discourage takeovers," Lee added.

The latest development comes as an impediment for KAL, which for long has been seeking to acquire a controlling stake in KAI.

KAI manufactures multipurpose satellites, civilian and military planes such as T-50 advanced jet trainer, FA-50 light fighter, KT-1 basic trainer and subassemblies.

With the acquisition of Sacheon-based Korea Aerospace, the airline operator expected to play a bigger role in manufacturing of its own aircraft as it has already worked on many unmanned air vehicles.

As well as airline operations, KAL manufactures parts for several aircraft programmes and offers MRO services for commercial and military planes.

The company hopes to receive more than double its orders in 2012 for its T-50 trainer jets and helicopters due to growing defence spending in emerging countries and North Korea’s militarisation.

A 56.7% stake in KAI is held between Korea Finance, a state-run financial institution, Hyundai Motor, a Seoul-based multinational automobile company, Samsung Techwin, automation and weapons technology company, and Doosan, a Seoul-based conglomerate company.

Early in 2012, each of these shareholders put up about 10% of their stake for sale, which also comprised management control.

Korean Aerospace Industries was established as joint venture in 1999 between Samsung Techwin, Hyundai and the defunct Daewoo Heavy Industries at the request of the South Korean Government after the plane manufacturer fell into financial trouble during the 1997 economic crisis that severely hit Asia.