As the nominee for the new Minister of National Defense is appointed, with a new control tower for the defense industry set to activate, attention is focused on whether the conflicts arising between defense companies over project contracts and exports will be resolved. Typically, defense transactions are conducted as government-to-government (G2G) deals, where the government often plays the role of mediator.
A notable conflict between defense companies was the competition between HD Hyundai Heavy Industries and Hanwha Ocean over the detailed design and selection of the lead ship for the Korea Destroyer neXt generation (KDDX). The detailed design was supposed to be completed after the basic design was finished in December 2023, but the project was delayed by more than a year due to clashes between HD Hyundai Heavy Industries, which wanted a negotiated contract, and Hanwha Ocean, which insisted on a competitive bid.
The KDDX project is finalized by the Defense Acquisition Program Administration's commission through the Defense Acquisition Promotion Committee. The chair of the committee is the Minister of National Defense. The Defense Acquisition Program Administration intended to proceed with a negotiated contract, and held a project subcommittee meeting in April to review the KDDX project method, but could not reach a conclusion.
If the nominee passes the confirmation hearing and is officially appointed, they will need to persuade the private committee members of the Defense Acquisition Program Administration, who had divided opinions regarding the KDDX project method, and come up with a solution to resolve the conflict between the two companies.
Conflicts between companies can also lead to failures in overseas project contracts. In November last year, HD Hyundai Heavy Industries and Hanwha Ocean each entered the competition for the Australian frigate project but failed to secure contracts. At that time, industry commentators said it was because they could not form a single team. An industry insider noted, "While Korea is jointly participating in the Canadian submarine project, internal disputes are still ongoing."
The conflicts between companies that arose during the export process are also a concern for the industry. After the export contract of the medium-range surface-to-air guided weapon Cheongung II (M-SAM II) to Iraq last September, tensions arose between LIG Nex1 and Hanwha Group's defense affiliates. This was because LIG Nex1 signed a contract with the Iraqi government without reaching an agreement on the supply price and delivery date with Hanwha.
The two companies met at the National Assembly in November last year and agreed on smooth exports, and in February of this year, Hanwha Aerospace's CEO Son Jae-il and LIG Nex1's CEO Shin Ik-hyun met to confirm their cooperation, followed by ongoing discussions among staff.
The Cheongung II negotiations are attracting attention as they may set a precedent for future exports of Korean air defense systems. Currently, countries in the Middle East are interested in Korean air defense systems ranging from Cheongung to L-SAM (Long-range Surface-to-Air Missile). During the development process of Cheongung and L-SAM, Hanwha provided missiles, launchers, and radar, while LIG Nex1 was responsible for system integration. This suggests that conflicts may arise again in the future.
Industry insiders are hopeful that the nominee, who has a thorough understanding of the defense industry, will resolve the conflicts smoothly. An industry official remarked, "Given that the nominee has been in a position to closely examine the defense industry for a long time, they are expected to have ample experience and expertise in this field."