Defense contractors set their sights on European market

Industry

Published: 25 Jul. 2022, 19:34 Updated: 25 Jul. 2022, 19:38

Defense contractors set their sights on European market

Hyundai Rotem's K2 tank in maneuver training [HYUNDAI ROTEM]

Korean defense companies are set to sign at least $10 billion in defense deals with the Polish government as tensions build in Europe and countries seek to arm quickly and efficiently to prepare for possible conflict.

With European nations — many of them being members of the North Atlantic Treaty Organization (NATO) ― upping military budgets, arms manufacturers have been targeting them.

The Polish defense minister confirmed last week that the country will buy jets, tanks and howitzers from Korea. According to Korean media reports, a memorandum of understanding will be signed on July 27. The Korean government and defense companies declined to comment.

The companies said to be involved in the deals are: Hyundai Rotem for delivering K2 tanks, Korea Aerospace Industries(KAI) for FA50 fighter jets and Hanwha Defense for K9 howitzers.

The size of the deals will total 19 trillion won ($14.5 billion) to 25 trillion won, according to the reports.

It will be the first time for the K2 and FA50 to be sold in Europe, although the K9s have been delivered to Finland, Norway, Estonia and Poland in the past.

Hanwha Defense's K9 howitzer [HANWHA DEFENSE]

The defense players hope that the signing of the deal could become a watershed moment for entry into a wide range of markets as exports of weapons have traditionally been limited to certain countries in Asia and Oceania.

Fifty-five percent of the arms exports were delivered to Asian and Oceanic countries between 2015 and 2019, according to Korea Research Institute for Defense Technology Planning and Advancement.

European countries only took 23 percent during the period, followed by the Middle East at 14 percent.

In gaining potential contracts, the Korean companies boosted their appeal with competitive price tags and customization when bidding with rival suppliers based in Europe.

Hyundai Rotem has been offering region-specific K2 models.

"Norway carried out a field test of the K2 battle tanks as it considers buying them," said Na Seung-doo, an analyst at SK Securities. "A chief rival in the bidding is Krauss Maffei Wegmann's Leopard. But it seems that the K2 has an upper hand in price and greater mobility."

Hanwha Defense is eyeing Britain as it is pitching its K9 howitzers to replace aging AS 90 artillery weapons.

Vice Defense Minister Shin Beom-chul called attention to the K9s during a meeting with British Defense Procurement Minister Jeremy Quin earlier this month.

"A 1-trillion-won project has kicked off to replace the AS90 and Hanwha Defense is among the bidders," Shin told reporters last week.

"The K9 supplier will work with other British companies in participating in the bidding," he said.

The Ukraine-Russia war was a wake-up call for a number of European countries that assumed that armed conflict was relegated to history.

Since the start of the war, six NATO members have pledged defense increases totaling $133 billion. Poland vowed to boost defense spending to 3 percent of gross domestic product — one of the highest levels in NATO.

The Korea government was reportedly very involved in the negotiations, with talks at very high levels and the product being pitched as a package.

President Yoon Suk-yeol met with Polish President Andrzej Duda in June at the NATO summit in Madrid.

Choi Sang-mok, senior secretary for economic affairs, said that the two had an in-depth discussion on cooperation in defense, expecting "a viable result" soon.

The expectations surrounding the mega deal have been reflected in stock prices of the defense companies.

Shares of Hyundai Rotem went up 2.7 percent to close at 25,050 won on Monday, following a 20.8 percent surge last Friday. KAI jumped by 5.9 percent to 53,800 won, while Hanwha Aerospace, which owns Hanwha Defense, rose 3.6 percent to 51,700 won.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]