The K-defense industry, which has been in a holding pattern during the first half of the year, is set to enter a significant production and delivery phase in the latter half. The large order volumes secured in recent years are now poised to impact financial results.
As of June 9, major domestic defense companies have accumulated an order backlog totaling 100 trillion won. Hanwha Aerospace reported a cumulative order backlog of 39.7 trillion won in its ground defense sector by the end of the first quarter. During the same period, Korea Aerospace Industries (KAI) recorded 26.55 trillion won, LIG Defense and Aerospace reached 25.31 trillion won, and Hyundai Rotem's defense division stood at 10.1 trillion won.
A significant portion of this order backlog is expected to be reflected in revenues from the second half of this year through 2029. As large contracts signed over the past five years move into production and delivery phases, exports of tanks, guided weapons, and aircraft are ramping up.
Hanwha Aerospace recently signed an additional contract to supply 72 Cheonmu multiple rocket launchers to Poland in 2024, along with a contract to provide 54 K9 self-propelled howitzers and 36 K10 ammunition supply vehicles to Romania.
KAI is following up on a contract signed with Indonesia in 2021 for six T-50i advanced trainer aircraft, having delivered two units earlier this year, with more deliveries planned for the second half. Additionally, the follow-up deliveries of 48 FA-50 light combat aircraft to Poland, contracted in 2022, are progressing sequentially. The initial delivery of 18 FA-50s to Malaysia, contracted in 2023, is also scheduled for the upcoming months.
Hyundai Rotem signed a basic contract with Poland for 1,000 K2 tanks in 2022. To date, confirmed orders from the first and second execution contracts total 360 units, with follow-up contracts for the remaining 640 units still pending.
Expectations for improved financial performance are high. Cha Woon-sam, an analyst at Hana Securities, predicts that the combined operating profit growth rate for the five major defense firms will increase from 18.8% in the first half to 60.9% in the latter half.
The order volume is likely to grow further, as the achievements of the Lee Jae-myung administration's diplomatic efforts in the Middle East become evident.
Chief of Staff Kang Hoon-sik announced that an agreement was reached earlier this year to pursue a total of $65 billion in cooperative projects with the UAE, including $35 billion in defense-related initiatives. There is also a high potential for further collaboration in next-generation weapon systems, in addition to existing air defense systems like Cheongung-II.
Decisions on large projects, such as the Canadian submarine program, are expected soon. Industry experts believe that the ability to fulfill existing contracts will directly correlate with future competitiveness in securing new orders.
Choi Gi-il, a professor of military studies at Sangji University, noted, "The Middle Eastern market tends to keep negotiations under wraps, but results should be reflected soon. However, any issues during production and delivery could impact corporate credibility and future order competitiveness, so efforts to enhance execution capabilities must be prioritized."
* This article has been translated by AI.
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