Hanwha Ocean to Set up Submarine Construction Centers in Canada, Poland
Hanwha Ocean will build global production centers for submarines in North America (Canada) and Europe (Poland). The company has recently reorganized its submarine-related specialty ship organization to focus on domestic and international submarine orders worth a total of 80 trillion won.
On Aug. 30, Hanwha Ocean announced that it will respond to bids for global submarine projects in Poland, Canada, and the Philippines, with the third submarine of the Jang Bo-go-III batch 2 scheduled to be ordered by the Korean Navy in the second half of this year. The company said it will reorganize its business lineup in preparation for bids that will be held in the next one to two years.
The submarine orders that Hanwha Ocean is coveting are four projects in Canada and Poland, including one domestic project for the third 3,000-ton-class submarine ordered by the Defense Acquisition Program Administration (DAPA) of Korea in the second half of the year. 3,000-ton-class submarines are said to be the crown jewel of the maritime defense industry, as they are expensive to build, costing up to 2 trillion won per ship, and require advanced circular hull construction and combat system technology. Korea is the fifth country in the world to independently develop and export medium-sized 3,000-ton-class submarines.
Specifically, Hanwha Ocean has the biggest interest in the Canadian project among submarine projects around the world. The Canadian Navy plans to introduce 12 3,000-ton-class submarines. The project budget is 60 trillion won (including maintenance cost), the largest in recent years. The price per submarine, including the maintenance service, is more than 2 trillion won. The contractor is expected to be selected as early as 2026.
The 3 000-ton Dosan Ahn Chang-ho is considered a leading candidate as it can move long distances underwater and launch ballistic missiles (SLBMs), meeting submarine specifications required by Canada. Hanwha Ocean developed and built the submarine on its own for the first time in Korea.
Canadian military officials are reportedly planning to visit Korea in October to conduct preliminary due diligence on their submarine tender.
Poland will introduce four new submarines. Its so-called Orka Project is to acquire medium-sized 3,000-ton-class submarines by 2034, including technology transfer. The project is worth 8 trillion won. In a recent preliminary bid, 11 companies participated, including HD Hyundai Heavy Industries.
Given close defense cooperation between Korea and Poland, Korean companies are likely to win the contract. However, Poland is demanding more than 20 trillion won in additional financing, a technology transfer, and trade-offs for their defense purchases. The two countries’ compromises and agreements are likely to affect Korea taking the order.
Taking submarine orders is highly symbolic in maritime defense. They are highly technologically intensive and their order amounts are extremely high. They can have a big impact on orders for related combat systems, missiles, and other weapons. For this reason, taking submarine orders are the best business model for Hanwha Group in creating synergies in the defense sector. This is because Hanwha Ocean is able to promote technological collaborations with its sister companies Hanwha Aerospace (lithium batteries for submarines) and Hanwha Systems (unmanned combat systems for submarines).
Taking submarine orders mixes well with Hanwha Ocean’s recently announced blueprint for a 900 billion won investment in the defense sector. Upon the completion of a three-phase investment, the company will have the capacity to build five submarines a year starting from 2029.
The submarine maintenance business is also quite lucrative. A 3,000-ton-class submarine costs hundreds of billions of won per ship. Submarine maintenance involves completely disassembling a submarine and replacing its internal equipment every six to 13 years to maintain the submarine’s performance. This explains why Hanwha Ocean plans to enter the submarine maintenance, repair and overhaul (MRO) business.
To date, Hanwha Ocean has received orders for 22 submarines. It has delivered 17 and is building five. Of these, four 3,000-ton-class submarines have been ordered and two have been delivered, and the remaining two are under construction. Only eight countries, including Korea, the United States, the United Kingdom, and Japan, have the technology to design and build 3,000-ton-class submarines.
Hanwha Ocean’s first submarine export to a foreign country took place in 2011, 24 years after the Korean Navy’s first order for the 1,200-ton-class Jang Bo-go Submarine in 1987. In 2011, Indonesia ordered six 1,400-ton-class submarines and three more in 2019. The total export amount of US$2.1 billion was Korea’s largest single defense export at the time. The feat made Korea the world’s fifth submarine exporter. Three of them have now been delivered to Indonesia, and the finalization of a contract on the remaining submarines is pending.
Hanwha Ocean (Daewoo Shipbuilding & Marine Engineering at the time), which did not have the technology to build submarines, began acquiring the technology in Germany (Hadebe Shipyard) in 1982. Today, 40 years later, Hanwha Ocean has succeeded in localizing more than 80 percent of the technology and parts for its original 3,000-ton-class model.
Note: Article by Michael Herh (www.businesskorea.co.kr)
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