Hanwha Aero, 3.6 Trillion KRW Capital Increase... Accelerating to Lead the Global Defense Market [Yang Nak-gyu's Defence Club]

Establishing Overseas Production Bases and Joint Ventures in Export Markets
Aggressive Shipyard Acquisitions to Target the U.S. Naval Market
Building a Domestic Launch Site to Lead the Space Industry
Economic Value of Independent Engine Development Estimated at Tens of Trillions

Hanwha Aerospace is planning the largest rights offering by a domestic company. Seeing the U.S. as favorable to K-defense, it aims to raise 3.6 trillion won in the market to secure a leading position in the global defense market.

On the 20th, Hanwha Aerospace held a board meeting and announced that it will proceed with a 3.6 trillion won rights offering through a shareholder allocation followed by a general public offering of forfeited shares. The new share allocation date is set for the 24th of next month, with subscription for existing shareholders taking place over two days from June 3. The subscription period for forfeited shares' general public offering is from June 9 to 10.

The raised funds will be invested with 800 billion won allocated to securing overseas maritime defense and shipbuilding production bases, and 1.6 trillion won for establishing local factories. The total overseas base investment amounts to 2.4 trillion won, accounting for 67% of the total raised funds. This marks a shift from directly exporting weapon systems or supplying and assembling parts locally in Korea to promoting overseas production through joint ventures (JV).

Establishing Local Production Plants and Joint Ventures in Export Countries

Australia is a representative success case. In August last year, Hanwha Aerospace completed the H-ACE factory producing self-propelled artillery and armored vehicles locally in Australia. This is the first time a Korean defense company has established an overseas production base. Using H-ACE as a foothold, the company aims to accelerate entry into the AUKUS (security alliance of the U.S., U.K., and Australia) and Five Eyes (intelligence alliance of the U.S., U.K., Canada, Australia, and New Zealand) markets. Due to geopolitical tensions increasing defense demand in the Indo-Pacific region, H-ACE will be utilized not only for Australia but also as a production base for other allied countries. JV projects will also be developed in collaboration with local partners. Regions under consideration include Saudi Arabia and Eastern Europe.

Acquisition of Shipyards Targeting the U.S. Naval Market

The shipbuilding industry is similar. Hanwha Aerospace is moving to secure overseas maritime defense and shipbuilding production bases centered on the U.S. The U.S. is fostering a favorable environment for investment in maritime defense and shipbuilding bases through legislation such as the Shipbuilding Enhancement Act and the Navy Readiness Assurance Act. Considering the amounts invested in the acquisition of the U.S. Philly Shipyard (143.5 billion won) completed last December and the ongoing equity acquisition of Australia’s Austal (266.9 billion won), the company is deliberating investments across multiple targets. The deadline for utilizing overseas shipbuilding equity investments is next year. Aggressive equity investments in overseas shipbuilding facilities will be made to strengthen the multi-yard strategy.

Establishing Domestic Launch Site to Pioneer the Space Market

Space aerospace is also an important investment area. Hanwha Aerospace is developing the next-generation launch vehicle (KSLV-III) to send a lunar lander into space, positioning itself as a pioneer in the era of private-led space mobility. Starting with the development of the scientific observation rocket (KSR-III) in 1999, the company has accumulated 26 years of engine technology expertise. In May 2023, it succeeded in the third launch of the Korean space launch vehicle Nuri (KSLV-II) and served as the lead manufacturer overseeing the advanced project, gaining experience in three launches and acquiring capabilities to produce medium-to-large launch vehicles. In December of the same year, Hanwha Aerospace was selected as a negotiation candidate for the ‘Next-Generation Launch Vehicle Development Project Lead Manufacturer’ announced by the Public Procurement Service.

It will also build the largest private launch vehicle production facility in Korea. In February last year, the groundbreaking ceremony for the ‘Space Hub Launch Vehicle Manufacturing Center’ (tentative name), a launch vehicle manufacturing facility, was held in Suncheon, Jeollanam-do. With an investment of about 50 billion won, the 60,000㎡ (18,000 pyeong) assembly plant will be completed by 2025, producing the Nuri-5 launch vehicle scheduled for launch in 2026 as well as subsequent new launch vehicles. Additionally, 1.2 trillion won in facility funds will be fully utilized as domestic investment capital. Significant amounts will also be invested in domestic facilities such as the smart factory for missile control systems (MCS) (600 billion won) and the development and mass production facilities for unmanned aerial vehicle engines (300 billion won). The UAV engine investment will be part of the aviation engine and parts business.

Economic Benefits of Independent Engine Development Estimated in Tens of Trillions

Independent development of aircraft engines is also a core investment area. Hanwha Aerospace produces engines for the Republic of Korea Air Force’s main aircraft such as the F-15K fighter and T-50 advanced trainer, as well as the domestically produced engine for the Korean helicopter ‘Surion.’ In April last year, it achieved a cumulative production of 10,000 engines over 45 years. However, while Korea’s fighter airframe development level ranks among the world’s top alongside the U.S., Russia, China, France, Japan, the U.K., Germany, and Sweden, it has yet to secure independent technology for aircraft engines and still relies on imports.

If aircraft engines are independently developed, it will not only strengthen security but also bring significant economic benefits. Fighter engines are linked to unmanned drones, space rockets, and other areas, allowing diverse expansion. The development cost is estimated at 5 to 6 trillion won, and the economic effect after completion is projected to reach tens of trillions of won annually, directly and indirectly.

A Hanwha Aerospace official stated, “We plan to secure strategic overseas production bases in Europe, the Middle East, Australia, and the U.S., where a big cycle of medium- to long-term defense demand is expected, and grow into a global top-tier company with consolidated sales of 70 trillion won and operating profit of 10 trillion won by 2035.”