LIG D&A Faces Loss of Defense Contractor Status, Putting 122.3 Billion Won Program at Risk

LIG Defense & Aerospace's Pangyo House. (Photo courtesy of LIG D&A) The Defense Acquisition Program Administration (DAPA) is pursuing additional sanctions against LIG Defense & Aerospace (LIG D&A), following a two-year bidding ban, by seeking to revoke the company's designation as a defense contractor over bribery and cost-related fraud allegations. The move goes beyond barring the company from new competitive bids, as it could also jeopardize its ability to secure mass-production contracts for weapons systems whose development has already been completed, potentially dealing a significant blow to its business. According to the defense industry on Oct. 26, DAPA recently asked the Ministry of Trade, Industry and Energy to review revoking LIG D&A's defense contractor designation in connection with a counter-small unmanned aerial vehicle (UAV) system program. The designation system allows the government to award negotiated contracts to designated companies to ensure a stable supply of defense equipment. If the designation is revoked, LIG D&A could lose the opportunity to secure a mass-production contract worth 122.3 billion won, or approximately $92.22 million, for a program whose system development it completed earlier this year. The case began with the indictment of a LIG D&A executive on suspicion of paying bribes worth hundreds of millions of won to a DAPA official in exchange for favorable evaluations during bidding for weapons development projects. Prosecutors allege that the official participated in proposal evaluations for six projects between 2021 and 2025 and received a total of 460 million won in money and other benefits from the company, including 320 million won in bribes. DAPA had already imposed a 24-month ban on LIG D&A's participation in bidding on Oct. 20. DAPA's request to revoke the designation signals an effort to close off the remaining route to negotiated contracts. While the bidding ban applies to new competitive tenders, a company that retains its defense contractor designation may still be able to proceed with mass production under existing programs through negotiated contracts. The Ministry of Trade, Industry and Energy plans to hold a hearing before deciding whether to revoke the designation and notifying DAPA of its decision. If the additional sanctions take effect, they could also hamper LIG D&A's efforts to build a competitive position in the global counter-drone market. The counter-small UAV system relies on a “soft-kill” approach, using radio-frequency jamming to neutralize hostile drones. With demand for drone-defense systems surging amid conflicts such as the Russia-Ukraine war, the company could be at a disadvantage in overseas markets if it fails to establish a track record of supplying the system to South Korea's military. Further financial pressure may follow. DAPA is also reviewing whether to revoke LIG D&A's certification under the defense cost management system in connection with allegations of cost-related irregularities. If the certification is revoked, the agency plans to recover hundreds of billions of won in previously paid incentive profits, according to the agency's stated plan. With 72.1% of its revenue in the first half of this year coming from South Korea, LIG D&A remains heavily reliant on its domestic market, leaving it vulnerable to the cumulative impact of successive sanctions. LIG D&A has strongly contested DAPA's actions and launched legal challenges. On Oct. 22, the company filed for a suspension of enforcement and sued to overturn the administrative order imposing the bidding ban. On Oct. 27, a court issued an interim suspension, temporarily halting the ban's effect through Nov. 20. Although the ruling has temporarily eased the immediate threat of exclusion from public procurement, a formal hearing on the suspension, scheduled for Nov. 5, is expected to be a key turning point for the company's business prospects. The company argues that imposing the most severe sanctions based solely on the allegations in an indictment is unjust while court proceedings to establish the facts are ongoing. LIG D&A CEO Shin Ik-hyeon appeared before the National Assembly's National Defense Committee during a parliamentary audit on Oct. 26, where he denied allegations of company-level involvement in the bribery case and sought to explain the company's position. Meanwhile, the company is accelerating internal reforms, including replacing four of its seven business and management division heads and establishing a compliance and audit office.