South Korean shipbuilders set sights on U.S. naval vessel MRO market

South Korean shipbuilding companies are looking for opportunities to enter the U.S. Navy’s ship maintenance, repair and overhaul (MRO) market. This aligns with U.S. efforts to revive its declining shipbuilding industry by working with Asian allies.

Two major companies, HD Hyundai Heavy Industries Co. (HHI) and Hanwha Ocean Co., are actively seeking partnership and acquisition agreements with U.S. shipyards authorized for the construction and repair of U.S. warships. The U.S. wants to reactivate its inactive shipyards and boost its maritime capabilities in response to China’s rapidly growing navy.

Their bid to enter the U.S. naval market gained attention after the U.S. Secretary of the Navy, Carlos Del Toro, visited their shipyards in February to assess their ship construction and MRO capabilities.

Both HHI and Hanwha have applied for a Master Ship Repair Agreement, which would allow them to be eligible for MRO work on U.S. naval vessels at their shipyards in South Korea. They have completed the necessary U.S. Navy on-site inspections, according to company officials.

Following his visit, Del Toro praised South Korea’s ability to construct high-quality commercial and military ships cost-effectively, expressing concerns about the declining shipbuilding capabilities in America.

The top U.S. Navy official emphasized the potential of dormant and active shipyard sites for conversion into dual-use facilities for both military and civilian purposes.

Del Toro conveyed, according to a Navy transcript, that in each of these discussions, he presented a clear yet impactful opportunity: to invest in America. He expressed contentment with the notable interest demonstrated by top shipbuilders in establishing U.S. subsidiaries and investing in American shipyards.

While the U.S. naval market holds significant influence globally, with its Pacific Fleet alone comprising approximately 200 vessels, the private shipbuilding capacity in the U.S. is merely 0.13 per cent, a stark contrast to China’s 46.6 per cent share of the global market, according to the U.S. Naval Institute.

Due to the U.S. Jones Act’s restrictions, which bar foreign-built, owned, or flagged vessels from participating in coastwise trade, Korean shipbuilders are actively seeking partnerships with U.S.-based shipyards to gain access to this tightly regulated market.

In a recent development, HHI entered into a memorandum of understanding with Philly Shipyard Inc. This agreement aims to explore potential business collaborations for upcoming U.S. government shipbuilding projects and MRO endeavours.

Hanwha Ocean, formerly known as Daewoo Shipbuilding & Marine Engineering Co., has been in negotiations with Austal as part of its strategy to acquire foreign shipyards for potential warship and maintenance, repair, and overhaul (MRO) deals in advanced markets.

Austal, based in Australia, derives approximately 90% of its revenue from its U.S. subsidiary, operating under a specialized security arrangement. This allows the U.S. affiliate to work on sensitive U.S. defence programs despite Australia’s foreign ownership. The company also has affiliates in the Philippines and service centres in Singapore.

Lee Yong-ook, senior executive vice president of Hanwha’s naval ship business, mentioned during a press conference on Thursday that they have been in discussions with Austal’s parent company in Australia. While talks are ongoing, they anticipate that it will require a significant amount of time.

On Wednesday, Australian Defense Minister Richard Marles stated that his government does not have concerns over Hanwha’s possible bid to acquire Austal. However, he noted the need for security arrangements to protect the shipbuilder’s sensitive defence technologies and intellectual property. South Korean shipbuilders seek entry into the U.S. naval market, aligning with efforts to revive American shipbuilding. Talks with Austal in Australia indicate potential for expansion.