The competition between HD Hyundai Heavy Industries and Hanwha Ocean over the Korea Destroyer Next Generation project, the core of next-generation maritime defense power, is intensifying once again. Unlike the first bid, which ended with Hanwha Ocean as the sole bidder, the balance is shifting toward HD Hyundai Heavy Industries participating in this second bid, foreshadowing fierce competition between the two companies. The result of this bidding war is expected to be a crucial turning point that could determine future follow-up ship projects and global naval ship export competitiveness.

According to the industry on May 21, the Defense Acquisition Program Administration issued a re-announcement for the ‘KDDX detailed design and lead ship construction project’ on May 18 and resumed the business operator selection process. The previously conducted first bid was aborted as only Hanwha Ocean submitted a proposal alone. The Defense Acquisition Program Administration plans to close bidding participation registration on May 28 and receive proposals by May 29. Following evaluations and negotiations, it is expected to finalize the ultimate business operator selection as early as in July.

The total project cost of the KDDX is 7.8 trillion won (approximately $5.2 billion). By injecting this budget, the plan is to secure six 6,000-ton (t) class mini Aegis destroyers. It is evaluated as a project that holds significance beyond a simple order, as it can affect future follow-up ship projects, next-generation surface combatant development, and global naval ship export competitiveness.

Inside and outside the industry, there is a high possibility that HD Hyundai Heavy Industries will participate in the second bid. It is reported that the company has been comprehensively reviewing business feasibility, security penalty risks, and legal response strategies internally after its non-participation in the first bid.

The two companies have been in sharp confrontation over this project for more than two years. Hanwha Ocean, which was Daewoo Shipbuilding & Marine Engineering at the time, took charge of the conceptual design, and HD Hyundai Heavy Industries undertook the basic design, but conflicts materialized afterward over the method of selecting the business operator for the detailed design and lead ship construction. HD Hyundai Heavy Industries holds the position that it is a general practice in the naval ship business for the company that performed the basic design to continue with the follow-up projects. On the other hand, Hanwha Ocean has been arguing for the necessity of open competition, putting forward the principle of competitive bidding.

The conflict between the two companies has even escalated into a legal dispute. HD Hyundai Heavy Industries filed for an injunction, claiming trade secret infringement regarding the Defense Acquisition Program Administration providing some of the basic design materials to Hanwha Ocean, but the court dismissed it. The court judged that there was no significant practical benefit in ordering a ban on disclosure in a situation where the relevant materials had already been delivered to Hanwha Ocean. HD Hyundai Heavy Industries has since continued its response by filing an appeal. Perspectives are also emerging from inside and outside the company that a revision of the existing bidding strategy has become inevitable in a situation where the basic design performance results were shared with a competitor.

The issue of security penalties also remains a core variable. Previously, executives and employees of HD Hyundai Heavy Industries were convicted on charges of illegally filming and leaking the KDDX conceptual design materials of the former Daewoo Shipbuilding & Marine Engineering. Analyses suggest that the penalty itself can be a burden because defense business projects often do not have a large difference in technical scores, and success or failure is frequently decided by decimal point differences. In relation to this, the HD Hyundai Heavy Industries labor union recently submitted a petition to the Minister of Employment and Labor and argued that the fairness controversy surrounding the security penalty issue could spread into problems regarding workers’ right to live and the local economy of Dong-gu, Ulsan.

The industry expects the competition between the two companies to heat up further, as the KDDX is being viewed not simply as a domestic naval ship project, but as a core reference for expanding into the global maritime defense market. It is a judgment that the track record of destroyers verified through national projects can itself become a significant competitive edge in the overseas naval ship export market in the future.

An industry official said, “It is a situation where both companies will find it difficult to easily back down, as it can be connected to follow-up ship projects, next-generation naval ship development, and future global export competitiveness,” and added, “There is also a possibility that it could become a turning point for the competitive system of the domestic and international naval ship industry itself.”

Source:Business Korea