Korea’s HD Hyundai, Hanwha fail to win $7.3 bn Australian navy deal

HD Hyundai Heavy Industries Co. and Hanwha Ocean Co. failed to win a $7.3 billion deal to build frigates for the Australian Navy, industry sources and foreign media said on Friday, dealing a blow to the South Korean shipbuilding giants seeking a new growth engine in the global warship market.

Australia shortlisted Germany's ThyssenKrupp Marine Systems and Japan's Mitsubishi Heavy Industries Ltd. for a project worth at least 11 billion Australian dollars ($7.6 billion) to build up to 11 heavily armed light frigates to replace its aging fleet, according to Australian Broadcasting Corp. (ABC) News.

“Cabinet's National Security Committee (NSC) had this week chosen Japan's upgraded Mogami 30FFM and Germany's MEKO A-200 as the final two designs ahead of a final selection next year,” ABC News quoted multiple sources as saying.

The Australian government has studied offerings from HD Hyundai, Hanwha, ThyssenKrupp, Mitsubishi and Spanish shipbuilder Navantia for months, the media said.

BLOWS TO HD HYUNDAI, HANWHA

HD Hyundai and Hanwha were expected to secure the project as their vessel price tags were lower than those of its Japanese and German rivals, industry sources in Seoul said.

HD Hyundai sells frigates for 400 billion won ($288.3 million) per unit and Hanwha for 340 billion won each — much less than the 750 billion won for the MEKO and 520 billion won for the Mogami, according to the sources.

Their competitive prices failed to induce Australia, however, as the country’s current frigates are based on German warships and the Japanese model requires 25% fewer crew, the sources said.

It was also hard for the Korean government to support both HD Hyundai and Hanwha Ocean, which are in a legal battle over Korea's largest warship project worth 7.8 trillion won. Meanwhile, Thyssenkrupp and Mitsubishi each worked cooperatively with their respective governments on the Australian deal, according to the sources.

HD Hyundai and Hanwa could also fail to win submarine projects in Poland and Canada as they are also competing there to secure deals, sources in Seoul said.

“Both companies have run out of warship work,” said another source. “Their warship business will be idled if they lose again at overseas projects.”

INITIAL VESSELS TO BE BUILT OVERSEAS

The first three vessels will be built overseas, after which construction of the remainder is transferred to the Henderson shipyard in Western Australia, ABC News said.

Australia hopes to take delivery of its first overseas-built frigate in 2029 in a project budgeted at between 7 billion and 11 billion Australian dollars over the next decade, according to the report.

Aside from larger naval platforms such as supply ships and helicopter landing docks, Australia has not built a warship in a foreign yard in nearly half a century, and a defense source said initial discussions had begun about potentially building six of them overseas, ABC News said.

Germany's MEKO A-200 is a modern version of the Australian navy's Anzac frigate and has a modular design that can easily accommodate Australian requirements. It is also likely to be considerably cheaper than Japan’s initial proposed price, the media said.

JAPAN CONSIDERS JOINT DEVELOPMENT

The latest version of the Mogami frigate is widely considered one of the world's leading warship designs, and though Japan is growing strategically more important for the Australian military, the nation has minimal naval export experience, according to the report.

Japan’s defense ministry is considering jointly developing a vessel with Australia by adding equipment and features requested by the country to its Mogami frigate, Japanese media said.

Tokyo, which has long prohibited most arms exports under the country’s pacifist constitution, decided to ship American-designed Patriot missiles made in Japan and has allowed the sale of a stealth fighter jet, jointly developed by Japan, Italy and the UK to third countries in a bid to boost its defense exports.

Write to Hyeon-woo Oh at ohw@hankyung.com
 
Jongwoo Cheon edited this article.