HHI begins restructuring cutbacks

The restructuring of Korea’s shipbuilding and shipping companies started on Monday as Hyundai Heavy Industries began accepting early retirement applications from mid-level office workers.

Some 3,000 employees are expected to be laid off, roughly 30 percent of the 9,000 administrative jobs at the company, according to industry sources close to the matter. The applicants do not include production staff.

In the first quarter of last year, the company, once the world’s No.1 shipbuilder, laid off 1,300 office workers.

“As we face a dire situation in the shipbuilding industry, we decided to take voluntary retirements from employees at the manager level,” a spokesman from the company said. Voluntary retirees will get retirement packages of up to 40 months pay.

The buyout is offered in all five shipbuilding affiliates of the company - Hyundai Heavy Industries, Hyundai Mipo Dockyard, Hyundai Samho Heavy Industries, HYMS and Hyundai Engineering & Technology - after a quarter of executive-level employees were laid off on April 28.

The company officially announced the plan last Wednesday when the trade union of the company launched wage negotiations.

“We have explained to the union our plans on Wednesday along with an offer to jointly form an emergency management team to discuss matters regarding order shortages and human resource management,” a company spokesman said.

However the labor union is not cooperating with the company’s proposed plans.

“The company didn’t have any intention to negotiate with us in the first place and just dropped the news on Wednesday,” a member of the union said Monday. “We are investigating whether the voluntary retirements have a coercive force behind them.”

The union claimed that the company did not adopt any of its requests for follow-up measures for company restructuring, such as nominating a non-executive board director recommended by the union, and that the company needs to take responsibility for its bad management and not pass the buck to its workers.

The company maintains that voluntary retirements are inevitable and the union needs to be more understanding of the situation.

Major problems surfaced in the shipbuilding industry as global orders fell greatly over the past few years. Kwon Oh-gap, the head of HHI, said last month that the shipbuilder has only secured orders to build five ships this year including two from Hyundai Samho Heavy Industries, and that the offshore plant business is showing its worst performance, recording zero orders since November 2014.

The accumulated orders obtained by HHI in the first quarter of this year dropped 42.3 percent year-on-year to $1.74 billion, far below its target of $19.5 billion.

A major drawback in the business was plant construction which plummeted 97.6 percent year on year.

Emergency measures were enforced by the company including cutting 22 percent of its 391 departments, personnel downsizing and the sale of real estate such as shopping complexes and resorts that are not directly related to the shipbuilding business.

If global orders show no sign of recovery, the next step for the company is to gradually halt operation of its docks for building ships.

Samsung Heavy Industries (SHI) and Daewoo Shipbuilding & Marine Engineering (DSME) are suffering a similar plight and are preparing for additional restructuring plans.

SHI is expected to take applicants for voluntary retirements soon with industry estimates of around 500 employees being let go. DSME has already handed in its downsizing plans to cut 2,300 employees through 2019, but its creditors are demanding the company tighten its belt even further. It is also processing the sale of its headquarter building in Jung District, central Seoul.

While the shipbuilders started their restructuring, the creditors of the shipbuilders and shipping companies are being criticized for failing to prevent the massive insolvencies that have led to the large-scale restructuring.

There have been arguments that the creditors themselves need to be restructured.

The number of branches of KDB increased from 61 to 82 in 2012 and that figure has remained unchanged. During the same period, the number of branches of private commercial banks has shrunk by 8 percent, especially since bank users opting for mobile and internet banking have increased significantly.

“The reason KDB failed to act swiftly on corporate restructuring is because they don’t have the urgency that is felt in private banks,” said Nam Chang-woo, a researcher at Korea Development Institute. “This is why there have been arguments that a performance-based wage system needs to be implemented.”

BY KIM JEE-HEE, LEE HO-JEONG [kim.jeehee@joongang.co.kr]