With no blueprint, Hanwha reverse-engineers U.S. Navy ship in bid for $14.5B market

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With no blueprint, Hanwha reverse-engineers U.S. Navy ship in bid for $14.5B market

Published: 23 Jun. 2025, 07:00 Updated: 27 Jun. 2025, 13:05

LEE JAE-LIM
[email protected]

Audio report: written by reporters, read by AI

An aerial view of Hanwha Ocean's shipyard in Geoje, South Gyeongsang [HANWHA OCEAN]

[NEXT CHIP]

For decades, semiconductors and automobiles have dominated Korea’s exports, driving growth and defining its global trade identity. But as shifting global dynamics and mounting uncertainties over U.S. tariffs unsettle traditional trade patterns, a new industrial order is taking shape. Sectors such as shipbuilding and defense are emerging as the next engines of growth. In our “Next Chip” series, we examine the rise of these industries and their potential to reshape Korea’s economic future.

When the timeworn USNS Wally Schirra limped into Hanwha Ocean’s shipyard in Geoje, South Gyeongsang, last September, the first thing engineers noticed was its rudder — badly corroded and eroded beyond repair, rendering the ship's steering mechanism inoperable. With no blueprint available, and requesting one from the U.S. manufacturer likely to incur months of delay and steep costs, the Korean engineers opted to reverse-engineer the entire rudder and steering system from scratch — a feat that earned praise from the U.S. Navy and generated added profit on top of the original contract.

“When the overhaul was finally complete, the U.S. Navy official remarked that the ship looked brand new — not just a patch-up job, but fully rejuvenated,” said Kim Dae-sik, managing director of Hanwha Ocean’s maintenance, repair and overhaul (MRO) business, in a written interview with the Korea JoongAng Daily.

The Korean shipbuilder, the first domestic firm to win the contract with the U.S. Navy, is banking on its engineering capabilities and production scale to expand in the potentially lucrative naval MRO market. The U.S. Navy allocated $14.5 billion to maintenance in 2025 as part of a growing effort to revive the domestic shipbuilding industry that has gained renewed attention under the Donald Trump administration, which has vowed to bolster the sector in response to China’s growing shipbuilding dominance.

The U.S. Navy logistics support vessel USNS Wally Schirra approaches the quay at Hanwha Ocean's Geoje shipyard in September 2024. [HANWHA OCEAN]

To prepare for rising demand, Hanwha is pursuing both inward expansion domestically and outward investment in U.S.-based shipyards.

The USNS Wally Schirra was the first of two MRO projects awarded to Hanwha Ocean. It was followed by the replenishment oiler USNS Yukon, which arrived at the Geoje shipyard for an overhaul in November.

Historically, the U.S. MRO market has been closed to foreign shipyards under the Jones Act, which classifies shipbuilding and repairs as critical to national security. However, the limited capacity of domestic yards has prompted policymakers to reconsider, opening doors for foreign expertise to modernize and accelerate the naval supply chain.

Scaling capacity at home
Hanwha Ocean is committing 1 trillion won ($725 million) this year to large-scale infrastructure upgrades, including the addition of an ultralarge dock and a 6,500-ton offshore crane. While the investment is primarily intended to support the construction of large offshore platforms — such as floating production storage and offloading units — and commercial vessels like container ships, it is also expected to improve overall yard flexibility and increase throughput across multiple business lines, including MRO.

Alongside these upgrades, the company is bolstering its special purpose shipbuilding capabilities. A fourth dedicated shipyard, which has been under construction since last September, will double Hanwha’s simultaneous submarine construction capacity from two to four vessels once operational.

While current U.S. Navy MRO contracts have narrow profit margins, they are a strategic entry point for building trust and expanding into the broader U.S. shipbuilding and defense market, according to a recent Federation of Korean Industries report authored by Ryu Min-cheol of Korea Maritime & Ocean University.

"The number of U.S. Navy logistics support vessels slated for MRO this year is expected to range between 12 and 15," Kim said. "As the Navy expands its fleet and existing vessels continue to age, the overall demand for MRO work is expected to grow steadily."

Hanwha Ocean's Kim Dae-sik, managing director of maintenance, repair and overhaul (MRO) business [HANWHA OCEAN]

Hanwha Ocean aims to secure five or six of those contracts in 2025 and gradually raise its annual targets in the years that follow. Kim added that the company is receiving a steady stream of inquiries and is currently evaluating potential projects based on production capacity and project scope.

On top of its own shipyards, the Geoje-based shipbuilder aims to tap into capabilities from Korean component, equipment and weapons system suppliers.

“OEM shortages are becoming more severe,” Kim said. “U.S. Navy officials who visited us said they hope Korea’s manufacturing capabilities can help resolve this issue. We believe we are well-positioned to respond: Within a 50-kilometer (31-mile) radius of our Geoje base, over 1,000 shipbuilding-related suppliers are clustered, offering infrastructure that’s arguably unmatched globally.”

U.S. Secretary of the Navy John Phelan, third from left, and Hanwha Group Vice Chairman Kim Dong-kwan, fourth from left, along with other officials, pose for a commemorative photo in front of the USNS Yukon, which is undergoing maintenance at Hanwha Ocean’s Geoje shipyard on April 30. [HANWHA OCEAN]

“It is important for us to demonstrate that we can handle the large volume of naval maintenance, which is expected to rise as the U.S. Navy’s fleet continues to age and pressure mounts to maintain balance with China,” Kim said. “For example, the Wally Schirra project was executed in partnership with another maintenance company while the USNS Yukon is undergoing overhaul work in collaboration with smaller regional shipbuilders.”

U.S. shipyard investment is ongoing
Still, Hanwha is aware that long-term success in the United States will require a domestic footprint. As part of that strategy, the company acquired Philly Shipyard last year for $100 million and is working to raise its stake in Austal, an Australian defense shipbuilder with production sites in Alabama and California.

On June 10, the Committee on Foreign Investment in the United States approved Hanwha's plan to raise its stake in Austal to 19.9 percent. Hanwha has indicated that a full acquisition is under consideration, pending regulatory review from Australian authorities.

“Both the Jones Act and the reintroduced Ships for America Act are focused on protecting and revitalizing the U.S. shipbuilding industry,” Ryu noted. “As a result, any attempt to place naval orders overseas will likely face opposition from U.S. lawmakers, domestic yards and labor unions.”

Hanwha is also prioritizing workforce development in the United States. Acknowledging persistent labor and skill shortages in the U.S. shipbuilding industry, Hanwha aims to bridge the gap by establishing a hands-on training pipeline. Under the proposed program, personnel from Philly Shipyard would be sent to Geoje to gain direct exposure to advanced shipbuilding processes and technologies that are not readily available in the United States.

Looking ahead, the company hopes to transition from one-off repair contracts to a lifecycle service model, providing continuous maintenance and upgrades throughout a vessel's operational life.

“It’s similar to a subscription model, like water purifier services,” said Kim. “The Navy would pay a regular fee for routine inspections, part replacements and upkeep. This model is already being adopted by the Korean Navy. In fact, last year, Hanwha became the first Korean shipyard to win a long-term maintenance contract for a submarine propulsion system under this new approach.”

BY LEE JAE-LIM [[email protected]]