[Yang Nak-gyu's Defence Club] Domestic Naval Defense Companies Hunting in the US MRO Market

Hanwha Ocean Pursuing Acquisition of Australian Shipyard
Japan Also Enters Market with US 7th Fleet Involvement

Domestic naval defense companies are entering the U.S. naval maintenance, repair, and overhaul (MRO) business. This is because the U.S. market alone is worth about 20 trillion won annually and offers advantages in market preemption.

[Image source=Yonhap News]

On the 29th, an industry insider said, “The Korea-Australia Foreign and Defense Ministers’ Meeting (2+2 Meeting) will be held in Australia on the 1st of next month, and positive effects are expected regarding the acquisition of Australian shipyards.”

Korea is the only country besides the U.S. to hold a 2+2 Meeting with Australia. This meeting is the first in three years since 2021. The two countries are expected to exchange opinions on Korea’s participation in the AUKUS (Australia, United Kingdom, United States Anglo-Saxon security alliance) technology cooperation framework during this meeting.

AUKUS consists of two programs: ‘Pillar 1,’ which provides nuclear-powered submarines to Australia, and ‘Pillar 2,’ which jointly develops advanced military technologies in eight fields including artificial intelligence, quantum computing, cybersecurity, and underwater technology. It is anticipated that Korea’s inclusion as a partner in AUKUS ‘Pillar 2’ will also be discussed.

Australia has a strong interest in ‘K-Defense.’ Following the import of 129 ‘Redback’ armored vehicles from Hanwha Aerospace last year, Australia is also paying close attention to Korea’s conventional submarines. Domestic defense companies are using this as a stepping stone to enter the U.S. market. Hanwha Ocean is focusing on the U.S. naval MRO business by pursuing the acquisition of the Australian defense company Austal. Although a previous negotiation failed, the possibility of renegotiation remains open pending Australian government approval. Austal is a defense shipbuilding company that designs, constructs, and delivers vessels to the Australian and U.S. navies, headquartered in Australia with shipyards in Alabama, USA. Hanwha Ocean established its first dedicated MRO organization through a corporate restructuring last year and decided to inject 181.8 billion won in capital increase into its U.S. subsidiary ‘Hanwha Ocean USA Holdings’ this year.

Domestic naval defense companies are interested in MRO because of the market size. The global naval ship MRO market is expected to grow from about 79 trillion won this year to approximately 88 trillion won by 2029. Earlier this year, the U.S. Navy released a report disclosing delays in major ship programs. The Columbia-class ballistic missile submarines, jointly built by General Dynamics Electric Boat and Huntington Ingalls Industries, are delayed by 12 to 16 months. The Virginia-class submarines, blocks 4 and 5, are delayed by 36 months and 24 months respectively. The ocean surveillance vessels built by Austal USA and the amphibious ships by Huntington Ingalls Industries are facing similar delays.

The issue lies in relations with the U.S. and Japan. Local media report that the U.S. is considering using Japanese shipyards as bases for maintaining U.S. Navy ships patrolling East Asian waters. If ships can be serviced in Japan, the U.S. can maintain more vessels in combat-ready status to counter China’s naval expansion. Until now, the U.S. Navy had to move ships across the Pacific to its own country for maintenance, and even then, maintenance contracts were backlogged.

Japan hosts the largest number of U.S. troops worldwide and leverages this fact. In particular, the U.S. Navy’s 7th Fleet, which operates around Northeast Asia, is based at the Yokosuka (?須賀) U.S. naval base in Kanagawa (神奈川) Prefecture. The nuclear-powered aircraft carrier USS Ronald Reagan (CVN-76) and missile destroyers are deployed there. Simple maintenance of forward-deployed vessels in Japan is conducted at docks within U.S. military bases in Yokosuka and Sasebo (佐世保), Nagasaki (長崎) Prefecture. Japan expects repairs of U.S. Navy warships to be carried out at domestic shipyards used by the Japan Maritime Self-Defense Force. To this end, the U.S. and Japanese governments have reportedly launched a working-level council to establish related systems.