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.
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