Hanwha Ocean gains favor in KDDX race, backed by Lee’s praise

Hanwha Group Vice Chairman Kim Dong-kwan, front row right, guides President Lee Jae Myung around Hanwha Philly Shipyard in Philadelphia, Aug. 27. Newsis

Speculation is growing that Hanwha Ocean could be allowed to join the Korean Next-Generation Destroyer (KDDX) project, following President Lee Jae Myung’s public endorsement of the company’s improved labor practices for subcontracted workers.

Combined with the president’s negative stance on awarding a sole-source contract to HD Hyundai Heavy Industries (HHI) for the 7.8 trillion won ($5.3 billion) program to build six 6,000-ton destroyers by 2030, the situation is prompting expectations that the Defense Acquisition Program Administration (DAPA) will ask both shipbuilders to jointly design the KDDX-class destroyers — a departure from the usual practice of granting a sole-source contract to the company that drafted the basic design.

While being briefed on the Ministry of Employment and Labor’s operations on Thursday, Lee unexpectedly mentioned Hanwha Ocean’s unannounced decision to eliminate discrimination against subcontracted workers in bonus payments.

“This is an example of a desirable corporate culture,” he said.

According to Hanwha Ocean, the ratio of subcontracted workers’ performance-based bonuses to their base wages will now match that of the company’s direct employees. Last year, subcontracted workers received bonuses equal to 75 percent of their annual base pay, while directly employed staff received bonuses equal to 150 percent of their base salaries.

This is not the first time Hanwha Ocean has aligned with the administration’s labor-friendly stance. In October, the company dropped a lawsuit seeking 47 billion won in damages from subcontracted workers involved in a 51-day strike in 2022. The case had remained pending even after Hanwha acquired Daewoo Shipbuilding & Marine Engineering (DSME) in 2023.

The president’s favorable view of Hanwha Ocean sharply contrasted with his attitude toward its main rival, HD HHI.

During a Dec. 5 meeting with residents in South Chungcheong Province, Lee warned DAPA Minister Lee Yong-chul against signing a sole-source contract with a firm penalized for leaking military secrets, calling such an agreement “ridiculous.”

Although the president did not name the company, his remarks were widely seen as referring to former HD HHI employees who stole conceptual destroyer designs from DSME between 2012 and 2015. After their convictions were finalized in December 2023, HD HHI received a 1.8-point deduction on government bids through the end of 2026.

In an apparent effort to align with the president’s stance, DAPA asked the Fair Trade Commission to review whether joint participation in the project would be unfair. If the antitrust watchdog approves, the state arms procurement agency is expected to assign both shipbuilders the detailed design and construction of the first KDDX-class destroyer during its Dec. 22 meeting.

However, HD HHI’s labor union has denounced the move, arguing that the government is unfairly favoring one company.

“Regardless of the violations already judged in court, we workers have protected the Korean shipbuilding industry’s technology and quality,” the union said in a newsletter. “We will respond firmly to any threat to job security.”