Defense export boom tests supply chain resilience

Hanwha Aerospace's Chunmoo multiple rocket launcher, known in Poland as Homar-K, is displayed at the MSPO defense exhibition in Kielce, Poland, Sept. 5, 2023. Courtesy of Hanwha Aerospace

The explosion at Hanwha Aerospace’s missile production facility in Daejeon in June has raised fresh questions about the resilience of Korea’s defense supply chain, where many critical weapons components often rely on a single qualified manufacturer.

Authorities have not confirmed any impact on production or export deliveries, but defense officials and industry sources say the accident has exposed a long-standing vulnerability at a time when Korea's defense exports are growing faster than ever.

Guided missiles are produced through a network of specialized manufacturers responsible for propulsion systems, warheads, fuzes and guidance equipment. Because many of those components require proprietary technologies, dedicated production facilities and lengthy qualification processes, replacing a supplier is neither quick nor easy.

“If one supplier stops production, another company cannot simply step in and make the same component,” an industry source familiar with the defense sector said. “This accident isn’t the real issue. The risk has always been there.”

The issue resurfaced after an explosion occurred last month at Hanwha Aerospace’s Daejeon facility during a process used to clean explosive residue from molds used to manufacture missile propellant. Authorities are investigating the cause of the accident and no disruption to deliveries has been confirmed.

A Defense Acquisition Program Administration (DAPA) official said the difficulty reflects the nature of the defense industry rather than procurement rules.

“Guided weapons require a high level of technical expertise because even a single defective component can affect the performance of the entire weapons system,” the official said.

“Given the required technology, production facilities and qualification process, it is difficult for another company to immediately take over production.”

The official said the current supplier structure developed over decades as companies built expertise in different fields while Korea’s defense market remained relatively small.

“For many years, companies naturally specialized in different technologies because domestic demand was limited,” the official said.

The official added that companies operating multiple production sites, such as Hanwha Aerospace, may be able to shift some manufacturing internally depending on which production line is affected.

Labor Minister Kim Young-hoon inspects the site of an explosion at Hanwha Aerospace's Daejeon facility in Daejeon, June 1. Courtesy of the Ministry of Employment and Labor

Even so, some highly specialized processes remain concentrated at individual suppliers, making them difficult to replace in the short term.

Industry officials say defense companies have spent the past several years expanding production capacity and strengthening operational flexibility as export orders have surged.

“Meeting delivery deadlines is everything in this business,” another industry source said.

“Companies try to build redundancy into key production processes whenever possible.”

The source said the industry’s production strategy has changed significantly since global demand accelerated following Russia’s invasion of Ukraine.

“Before the Ukraine war, one or two production sites were enough. That’s no longer the case,” the source said.

“Export demand has grown much faster than anyone expected, so companies have continued expanding production capacity.”

Major contractors now operate production lines at multiple sites, giving them greater flexibility if one facility encounters problems. Even so, industry officials say certain core processes remain difficult to duplicate because of their technical complexity.

A similar issue surfaced in 2019, when a fire at another Hanwha Aerospace facility led labor authorities to suspend operations for about 181 days. The disruption delayed deliveries of missile fuzes and explosive charges for artillery shells, prompting DAPA to deduct about 9.87 billion won in liquidated damages from the company.

Hanwha later took the case to court, saying the delays stemmed from a government-ordered work suspension rather than negligence by the company.

The courts ultimately ruled that about 20 percent of the penalty should be returned, a decision the Supreme Court later upheld.

Hanwha Aerospace said it is “closely reviewing all aspects of the situation to ensure timely deliveries and the smooth execution of all projects.”