South Korean shipbuilding conglomerates HD Hyundai Heavy Industries (HD HHI) and Hanwha Ocean are venturing into the maintenance, repair, and overhaul (MRO) segment for US Navy ships. This sector has witnessed sustained demand over several decades and offers prospects for expansion through future warship newbuilding contracts. The US Navy’s MRO sector presents a lucrative opportunity for both companies as they seek to broaden their presence in the defense industry.
According to the shipbuilding industry on May. 13, HD HHI and Hanwha Ocean submitted applications for a Master Ship Repair Agreement (MSRA), a crucial qualification to access the US battleship MRO market. Earlier this year, they underwent on-site inspections of their shipyards, a rigorous process through which the US Navy assesses the capabilities of potential MRO service providers. Upon approval of the MSRA, these companies will be eligible to undertake MRO orders for US Navy ships.
The interest of these two shipbuilding giants in the US Navy ship MRO services is primarily fueled by the immense size of the market. According to projections from British military intelligence firm Janes, the global specialty ship market is anticipated to reach approximately $1 trillion (about 1,320 trillion won) over the next decade. Within this market, the segment for submarines and surface ships, which are the focal points for domestic shipbuilders, is estimated to be around $243 billion (about 320 trillion won). Moreover, the global naval vessel MRO market is expected to hit $57.76 billion (about 78 trillion won) this year, with the US alone accounting for approximately $14.62 billion (about 20 trillion won) annually.
A critical requirement for securing business opportunities in this domain is the operation of a local shipyard. South Korean shipbuilders face challenges in entering the MRO business due to the absence of shipyards in the United States. The Jones Act, implemented in 1920 following World War I, mandates that only domestically built ships can operate within the US, aiming to safeguard national security interests and protect the domestic shipbuilding industry.
To overcome this obstacle, Hanwha Ocean is in the process of acquiring Austal, a global shipbuilding company and defense prime contractor based in Australia. Austal, which supplies ships to various naval forces, including the Australian and US navies, operates shipyards in Alabama in the US. If Hanwha Ocean successfully acquires Austal, it would gain easier access to US shipbuilding and MRO contracts.
Meanwhile, HD HHI has entered into a memorandum of understanding (MOU) with Philly Shipyard in Pennsylvania, US, for newbuildings and MRO projects for ships and tubular vessels commissioned by the local government entities. Additionally, there are discussions regarding the potential acquisition of a local shipyard in the US by HD HHI. An official from HD HHI mentioned, “We are exploring all possible avenues, including the acquisition of a local shipyard, as part of our strategy to secure MRO business opportunities.”
