Recently, Hanwha Ocean and HD Hyundai Heavy Industries, which have been competing fiercely around South Korean Next-Generation Destroyer (KDDX) project, reached a cooperation agreement under the mediation of South Korea’s Defense Acquisition Program Administration (DAPA), committing to cooperate in the field of warship exports.
On February 25, DAPA announced that it has signed a Memorandum of Understanding (MOU) with Hanwha Ocean and HD Hyundai Heavy Industries to form a “One Team” for warship export to promote cooperation in warship export projects. According to the agreement, the three parties will pool their advantageous resources and work together to secure overseas warship orders. Hanwha Ocean will lead the export of submarine programs while HD Hyundai Heavy Industries will be responsible for the export of surface warship programs, and will provide mutual support to enable further cooperation, such as joint development projects.
A source from DAPA said, “This cooperation proposal aims to maximize the strengths of warship companies while improving the efficiency of business promotion through resource allocation and technology sharing. We look forward to future cooperation not only in the field of warship exports, but also in promoting innovation and growth through ongoing cooperation such as joint development programs.” One Team’s primary goal is reportedly to secure orders for submarine programs in Canada and Poland.
The background of this collaboration is that the long-standing competition between the two major shipbuilders in the KDDX project may have a negative impact on South Korea’s warship exports. The KDDX project follows a sequential process: conceptual design → basic design → detailed design and main ship construction → subsequent ship construction. Hanwha Ocean was previously responsible for the conceptual design, while HD Hyundai Heavy Industries successfully won the bid for the basic design and completed it by the end of 2023. Since then, the project has been stalled in transitioning to the next phase of detailed design and the selection of the company for the construction of the lead ship. Due to intense competition between the two parties, including legal disputes, the selection plan originally scheduled for July last year has been postponed.
The root of this conflict dates back to 2013, when nine employees of HD Hyundai Heavy Industries secretly photographed the conceptual design drawings of the KDDX project, which had been awarded to Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean). They were subsequently prosecuted for violating the Military Secrets Protection Act. Although the guilty verdict for these employees was finalized in November 2022, the DAPA decided to impose only “administrative guidance” on HD Hyundai Heavy Industries, sparking strong opposition from Hanwha Ocean.
In March 2024, Hanwha Ocean reported to the police, alleging that executives of HD Hyundai Heavy Industries were involved in the incident. In response, HD Hyundai Heavy Industries immediately filed a lawsuit against Hanwha Ocean for defamation and damage to reputation based on false facts. Although both parties withdrew their accusations against each other in November of the same year, the rift between the two companies remains unresolved.
Meanwhile, both Hanwha Ocean and HD Hyundai Heavy Industries failed to make the shortlist in a major Australian frigate project last year, losing to Japan’s Mitsubishi Heavy Industries and Germany’s ThyssenKrupp Marine Systems. Analysts suggest that the “infighting” between the two companies may have negatively impacted the bidding process, resulting in South Korea missing out on the project, which was valued at approximately 10 trillion won. Since then, the DAPA has been actively seeking to facilitate reconciliation and cooperation between the two shipbuilding giants.
The movement of the U.S. to amend the relevant bill also provided an opportunity for the signing of this MOU. On the 5th of this month (local time), the U.S. Senate introduced the “Ensuring Naval Readiness Act,” which primarily allows shipbuilders in Indo-Pacific countries that have mutual defense treaties with the U.S. to build naval vessels or manufacture components for the U.S. Navy. If this bill is passed, South Korea’s defense industry could gain new opportunities in the warship export market.
It is worth noting that earlier this month, South Korea’s Ministry of Trade, Industry and Energy designated Hanwha Ocean and HD Hyundai Heavy Industries as the final candidates for the KDDX project. The project aims to build six new destroyers with a total value of 7.8 trillion won (approximately $5.45 billion). These destroyers will utilize entirely domestically developed technologies, from the hull to the weapon systems. Once completed, South Korea will become the sixth country in the world to achieve full domestic production of destroyers.
A DAPA source emphasized, “The importance of maritime security is growing globally, and countries are striving to strengthen their naval forces. In order for Korea’s outstanding warships to enter the global market, close communication and cooperation between the government and warship companies is vital.”
The cooperation marks the beginning of South Korea’s military-industrial enterprises to seek a win-win situation through cooperation in the face of international competition and internal contradictions, opening up a new development path for South Korea’s warship exports.