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LG Electronics Eyeing IFEC Sector Devoid of Korean Competitor
New Business Development
LG Electronics Eyeing IFEC Sector Devoid of Korean Competitor
  • By Michael Herh
  • July 21, 2017, 02:45
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LG Electronics established the IFEC Task Force Team and surreptitiously sounded out an entry into the aviation parts market.
LG Electronics established the IFEC Task Force Team and surreptitiously sounded out an entry into the aviation parts market.

 

LG Electronics' M&A deals (excluding affiliated companies) stopped after the company took over a smart TV platform, “the Web Operating System” from HP in 2013. Over the past four years, LG Electronics has focused on R&D-oriented innovation. Although the importance of R&D played a part, the company was concerned about the failure of M&As.

LG Electronics’ VC Business Division launched in the same year was a new growth engine prepared for more than 10 years including the R&D period. Although the division still incurs deficits, the division is a future business item and is promoted via a differentiation strategy of LG Electronics. The division was one step ahead compared to Samsung Electronics which is LG Electronics’ archrival in the home electronics sector.

However, the situation has changed since Samsung Electronics acquired Harman, the world's leading infotainment company last year. To take over Harman, Samsung Electronics invested 9.3 trillion won (US$81 billion), the largest amount in the history of Korean companies’ M&As and suddenly became a giant in the field of electronic auto parts. Samsung’s acquisition of Harman made LG Electronics’ roughly ten years of R&D trifling.

Samsung’s acquisition of Harman made LG Electronics no longer say to shareholders that its electronic auto parts business was its future growth engines. Then, LG Electronics selected the aviation interior field as a new growth engine. LG Electronics' entry into the in-flight entertainment and communication (IFEC) system business is interpreted as a clever move in this regard. This is because LG Electronics' VC business is similar to the IFEC business.

Last year, LG Electronics established the IFEC Task Force Team and surreptitiously sounded out an entry into the aviation parts market. Especially, the company sought M&A deals in 4 years but failed to cut any deals. However, it is said that the IFEC Task Force Team has focused on M&As and is now in the final stage of taking over a company.

LG Electronics is reportedly considering signing a supply contract with Lufthansa Airlines of Germany. A high-ranking official of LG Electronics said, “We have a business model to make profit by supplying aviation parts to Lufthansa as soon as the M&A deal is cut."

LG Electronics focused on Panasonic whose business model is similar to that of LG Electronics. Panasonic which was a famous consumer electronics company is now a leader in the business-to-business (B2B) business through electric car batteries, broadband aerial antennas and the IFEC business. Panasonic accounted for more than 70 percent of global IFEC shipments including exhibiting IFEC products at the world's largest consumer electronics show in January.

It is also good news for LG that there is no competitor in Korea. Korean airlines such as Korean Air and Asiana Airlines are all dependent on foreign companies for IFEC products. Companies in developed countries such as Canada, the United States, France and Japan are dominating the industry.

In 2005, Korean Air carried out a project to upgrade its airplane seats in 490 aircraft for 6 years at the cost of 360 billion won. Asiana Airlines also introduced new business-class seats by investing about 100 billion won for three years from 2006. Asiana Airlines' A380 aircraft and Korean Air's Cosmo suites were upgraded all by foreign companies. In particular, in the IFEC sector that LG Electronics intends to enter, both Korean Air and Asiana Airlines signed supply contracts with Panasonic.

The market size of the aircraft interior industry stood at about 17 trillion won (US$15 billion) as of 2015. The market is expected to grow by 12.5% ​​annually and reach 30 trillion won (US$27 billion) in 2020. Aircraft demand is estimated at 32,600 units over the next 20 years. Of these, 40% (12,210 units) is identified as Asian countries’ demand.