U.K. Oiler Buy Shows Strength Of S. Korean Shipbuilding

Defense News

02/27/2012

U.K. Oiler Buy Shows Strength Of S. Korean Shipbuilding

By ANDREW CHUTER and WENDELL MINNICK

LONDON and TAIPEI — Spool back a decade and the thought of finding a “made in South Korea” label on a fleet of British naval vessels would have been almost unthinkable.

Not any longer, though. Last week, Britain’s Ministry of Defence decided to buy four military oilers from Daewoo Shipbuilding and Marine Engineering (DSME) to meet its Military Afloat Reach and Sustainability (MARS) program requirements in a deal worth 452 million pounds ($710 million).

Coming hard on the heels of the South Korean company’s December win in Indonesia to build three submarines, the U.K. deal is further evidence that the Asian nation’s prowess in civil shipbuilding export markets is transferring to the military sector.

The $1.1 billion submarine buy is the largest defense export deal ever secured by South Korea. It contributed to an overseas military sales record for the Asian nation last year of about $2.4 billion.

Low labor costs and the ability to undertake complex systems integration are a powerful combination, said Guy Stitt, president of naval analysts and adviser group AMI International.

“DSME labor costs are approximately 40 percent lower than typical European shipbuilders,” Stitt said. “Yet the company has also proven itself by providing quality design, engineering and construction capabilities. DSME’s Okpo shipyard constructs some of the most complex commercial ships in the world and their FPSO [floating production, storage and offloading] ships are a significant achievement in systems integration.”

Sang-Tae Nam, DSME president and chief executive, has no doubt that the deal to supply the Royal Fleet Auxiliary with the oilers strengthens the company’s credibility in the export market.

“It shows a level of confidence in our ability to build ships on time, cost and performance,” he said. “This significant win in the U.K., coupled with our recent Indonesian submarine order, helps to further broaden our international business credentials.”

Tony Beitinger, AMI’s vice president of market intelligence, said it’s not just oilers and submarines where DSME has been active in military markets.

“DSME has for the first time marketed frigate and offshore patrol vessels in the international naval market. We saw these designs at the Latin America Aerospace and Defense show [in Rio de Janeiro] last year,” Beitinger said.

The AMI executive said the South Korean naval maritime export push isn’t just confined to DSME. The Indonesian Navy has acquired the Makassar-class landing platform dock from Daesun Shipbuilding & Engineering LPD.

Makassar vessels have also been offered to Malaysia for its Multi-Purpose Support Ship program.  Henjin Heavy Industries has similarly proposed a version of its Dokdo amphibious landing ship.

Decline in British Shipbuilding

One executive in the U.K. acknowledged the Ministry of Defence decision to go for the South Korean offer was pragmatic.

“We always thought [the MoD] wanted a decision in favor of the South Koreans,” he said. “But if you are being pragmatic, it was probably the sensible thing to do. They will get four excellent tankers at a good price and in a low-risk program.”

Despite the fact no British yards submitted bids in the final stage of the tendering, MoD ministers had been expecting a backlash from the decision to go overseas for the vessels at a time when the government is advocating a rebalancing of the economy toward manufacturing as unemployment rises.

It’s not the first time the RFA will have operated foreign-built ships, but it is probably the largest sale of its kind to go to a non-British yard.

The silver lining for the British maritime industry, though, is the design of the 37,000-ton vessels comes from local naval consultants BMT Defense Services. The U.K. government estimates local companies will benefit from up to 150 million pounds of associated contracts.

The days of Rule Britannia and the world-leading naval shipbuilding industry that went with it are long gone, though, and reaction here to Daewoo securing the deal was relatively muted.

The temperature went back up, however, when the Daily Mail reported that losing Italian bidder Fincantieri had offered to build one of the oilers at BAE Systems yards in the U.K.

Defence Procurement Minister Peter Luff denied the company had made any such offer and said even if it had, the Italian bid was short on some fundamental requirements and hundreds of million of pounds more expensive.

Jim Murphy, the opposition Labour Party’s shadow defense minister, was one of the few to publicly protest the deal.

“The government do not have an active defense industrial strategy. I’d like to see more of our defense industry with a ‘made in Britain’ stamp on it. The country will want the government to do more to support British industry,” he said.

The problem for Labour is that the party conceded some time ago that buying foreign-built ships for some naval roles was acceptable.

The last Labour Government’s defense industrial strategy in 2005 advocated buying non-complex naval vessels like oilers from overseas.

The A&P Group and BAE Systems, at one point in support of DSME, were involved in earlier phases of the bidding.

“BAE Systems did not take part in the MARS competition once MoD made clear that they required a derivative of a commercial ship and, through an international com- petition, sought an available commercial design, which we did not have,” Britain’s largest shipbuilder said last week.

The last time oilers were ordered for the RFA — which replenishes Royal Navy warships at sea — Wave-class vessels were built by BAE.

This time around, DSME beat out rival bids from South Korea’s Hyundai Heavy Industries and Fincantieri.

The vessels are replacing old single-hulled oilers that no longer meet International Maritime Organization pollution standards. The first of the double-hulled vessels is scheduled to be delivered to the RFA in 2016 and, for the moment at least, the oilers are the only visible part of a MARS program that at one time was to cover 11 logistics ships at a cost of around 2.5 billion pounds.

The original requirement for six oilers was reduced to four at the time of the British government’s 2010 strategic defense and security review in line with heavy cuts to the Royal Navy’s fleet of surface warships.