This post has been updated to clarify that Hanwha has not partnered with Anduril.
A top executive of the Korean conglomerate that’s buying a Philadelphia shipyard pledged to bring the facility back its 1940s prominence.
“We will be investing in Philly big time,” said Michael Smith, the newly named chief executive officer of Hanwha Defense USA. The yard is primarily known now for building Jones Act ships. U.S. law requires ships engaged in domestic maritime trade to be built in the United States. The yard produces about 50 percent of the largest domestically-built commercial vessels, including tankers and container ships, according to the company.
Speaking at a Hudson Institute event on the defense industrial base last week, Smith said Hanwha is also “looking at [mergers and acquisitions]” to expand its footprint in the United States. The company was in talks through this summer with Austal, an Australian-based company with an American subsidiary, to buy its Alabama facilities, Korean news agencies report. However, the companies did not reach an agreement.
Although the broad industrial base was the topic, the discussion largely centered on shipbuilding and the impact of the Australia-United Kingdom-United States agreement, also known as AUKUS, aimed at reducing barriers among the three nations for high-technology transfers.
Panelists cited Modular Open Systems Architecture in software as a major improvement in facilitating transfers and building to scale.
Shipbuilding is “always a significant element” in global strategy, said Hyun-dong Cho, South Korea’s ambassador to the United States. He added that Korea is second only to China in building ships.
Collaboration from technology transfers to bending metal to build ships requires trust, Cho added. He said there are still barriers to working with Washington to build U.S. Navy ships, “but this is a pivotal moment” in the two nations’ relationship.
He pointed to North Korea’s support of Russia, from supplying artillery shells to sending troops in its invasion of Ukraine, and China’s assertiveness in the Indo-Pacific, as examples of the changed environment.
“Speed and scale” are absolutely vital to meet these new challenges, Cho said.
Immediately, Smith said Hanwha is looking for partnerships and investments in the United States. “The good news is we have the capabilities back in Korea, so we will be a smart partner” with the U.S.-based company, he said.
Anduril announced this spring that it will partner with HD Hyundai Heavy Industries, also a Korean-based and major shipbuilder, on a variety of naval and maritime projects.
Pending final approval from regulatory agencies expected later this year, Hanwha will pay $100 million to Norwegian investment company Aker ASA for Philly Shipyard.
“Hanwha’s acquisition of Philly Shipyard is a game-changing milestone,” Navy Secretary Carlos Del Toro said when the purchase was announced.
“I could not be more excited to welcome Hanwha as the first Korean shipbuilder to come to American shores—and I am certain they will not be the last.”
Del Toro has encouraged foreign companies to invest in U.S. yards to create more competition among American shipbuilders.
At last week’s Hudson event, Rep. Rob Wittman (R-Va.) echoed Del Toro’s remarks about foreign investment in U.S. yards.
“We’re not the only nation that does really cool stuff,” the vice chairman of the House Armed Services Committee said.
“We have to be more predictive [in introducing technology] of the next step our adversaries will take.”
Steve Brock, a senior advisor to Del Toro, said the secretary’s message following his visit to Hyundai and Hanwha in February is to “invest in America.” He added that Austal USA in Alabama and Fincantieri Marinette Marine, an Italian-owned shipyard in Wisconsin, led the way in coming to the United States. Fincantieri is building the Navy’s new frigate at its American yard.
“The secretary has hoped others would follow that lead,” Brock said.
USNI News reported last month that Austal is working with a private equity firm to expand operations to build a submarine module facility near Mobile.
The “advantage to shipbuilders is to have diversified” and provided strategic depth to the United States, Brock added.
“Our shipyards are not the most modernized. We need more investment … to introduce 21st shipbuilding practices” to American yards, he added.
Noting that HD Hyundai Heavy Industries delivers 50 ships per year, Sang-bon Lee, head of engineering and design said, “we’re not replacing any jobs in America” by coming to the United States. He added that Hyundai’s military work orders – for new Korean destroyers, for example – are done efficiently by embedding commercial practices in building those ships.
Unlike U.S. shipyards, commercial shipbuilding in Korea is heavily subsidized by the national government. Korean shipbuilders are also losing ground to Chinese containership manufacturers and have moved to build more complex ships and look for new markets in like the U.S.
Philly’s major government contract now is with the Maritime Administration to build the National Security Multi-Mission Vessels for training at the federal and state maritime academies. The five ships are also designed to conduct disaster relief and humanitarian aid efforts.
They are not designed or built to warship requirements for survivability, panelists said.
While saying “we can’t do all this ourselves” in keeping pace with China and recognizing the Russian threat, Wittman held back from advocating that allies and partners build U.S. Navy ships overseas.
But readiness repair overseas makes sense, he said. “We do need that capacity” in case of war. “Deep-dive maintenance” needs to happen in America to ensure the U.S. retains that capability.
Allies’ and partners’ defense industries “have that technology and they can build [what is needed] today,” Wittman said.
Inside the Pentagon, Wittman said the requirements process takes too long to field equipment and software. He pointed to the 23 years that have gone into the F-35 Lightning II Strike Fighter as “the poster child of what not to do.”
“The Chinese start with a blank sheet of paper. They are willing to take risks,” he said. Too many “great programs” are inside the Pentagon but are not emerging because of the requirements process and budgeting cycle, Wittman added.
