Korea loses Canadian submarine bid to Germany's TKMS

Germany's TKMS has been selected as the preferred bidder to build Canada's next submarine fleet, edging out Korea's Hanwha Ocean for a contract worth up to 60 billion Canadian dollars ($44 billion), in a decision that keeps Ottawa's undersea capability inside NATO's established submarine partnership.

Prime Minister Mark Carney announced the decision at Halifax, Nova Scotia, on Monday, Canadian local time, before flying to Turkey for the NATO summit, which begins on Tuesday.

"This project is about much more than acquiring submarines. It builds Canadian industrial capacity," he said. The winner will supply up to 12 conventionally powered submarines to replace the Royal Canadian Navy's aging Victoria-class boats.

Carney outlined the terms of the selection in his speech.

"In the event that negotiations with TKMS are unsuccessful, Canada retains the right to designate Hanwha's KSS-III, currently the reserve supplier, as the preferred supplier and enter negotiations with them," Carney said in his speech. "This was a difficult, close decision between two highly qualified suppliers. Both the TKMS and Hanwha platforms met the capabilities of the Royal Canadian Navy, and both put forward strong proposals to maximize benefits for Canadian workers and businesses."

The designation opens final negotiations rather than sealing a contract, a process analysts say could take years to complete.

Hanwha Ocean's campaign had been formidable. The campaign would have been Korea's first major submarine export to a Western navy. TKMS, by contrast, has sold boats to some 20 navies.

The decision landed in a geopolitical moment that favored the German offer. Russia's invasion of Ukraine has pushed NATO into its largest rearmament since the Cold War, and the alliance's members have committed to lifting defense and security spending to 5 percent of GDP by 2035, a target Canada has embraced under pressure from the United States.

Carney made the announcement on the eve of the NATO leaders' summit in Ankara, Turkey, where the submarine purchase gives Ottawa a headline example of its commitment. Melting Arctic ice has meanwhile opened Canada's northern waters to growing Russian and Chinese activity, sharpening the navy's need for boats that can patrol under ice across three oceans.

The German Type 212CD is built jointly with Norway, and Germany and Norway offered to cede one production slot each so that Canada could receive four boats by 2036. A Canadian order brings the combined fleet to 24 submarines operated by three NATO navies, with interchangeable parts, training and crews, folding Canada into an existing alliance program rather than establishing a new supply line across the Pacific.

Berlin said the bid would add 86 billion Canadian dollars to Canada's GDP over the life of the deal. Korea's own government had seen the risk coming, with Industry Minister Kim Jung-kwan warning last month that Canada might weigh NATO cooperation above industrial merits, saying the Korean package was "objectively superior" but that Ottawa might not decide on those merits alone.

"Advancing the CPSP supports Canada’s broader commitments to sovereignty, continental defence, and collective security with allies, including through the North Atlantic Treaty Organization (NATO) and the North American Aerospace Defense Command (NORAD)," the official website of the Prime Minister of Canada posted on Monday. 

Hanwha Ocean, bidding with HD Hyundai Heavy Industries, offered the KSS-III Batch II, a class already in service with the Korean Navy, and promised the first four boats by 2035 and all 12 by 2043, faster than the German schedule.

The Korean shipbuilder pledged more than 70 billion Canadian dollars in trade and investment and more than 25,000 jobs a year in Canada between 2026 and 2044, blanketed Canadian airports, television and transit with advertising, and sailed a KSS-III submarine to British Columbia in May to demonstrate the boat's range. TKMS's chief executive called the marketing blitz unlike anything the industry had seen.

For Korea, the defeat stings beyond the single sale. Seoul has set a goal of building the world's fourth-largest defense industry, and a Canadian submarine deal would have marked its deepest move into a Western, NATO-aligned market, much as its tanks and howitzers entered Europe through Poland.

Hanwha Ocean acknowledged the defeat in a statement Monday, saying it had poured everything into the bid with the government's full support but "could not overcome the wall of the NATO alliance."

"Having approached this with the conviction of doing all that is humanly possible, we are left with deep disappointment, but we believe this result is due entirely to Hanwha Ocean's own shortcomings," added the company, "Hanwha Ocean will closely analyze the challenges identified through this competition and work out clear solutions, and we will, without fail, find a way for Korea's naval defense industry to leap further in the global market."

The sting was acknowledged in Ottawa as well, with Carney going out of his way to address Seoul directly.

"I had a long conversation, a cordial conversation with President Lee [Jae Myung] on the weekend, a leader I hold in extremely high regard," said Carney on Monday. "[I] understand the disappointment particularly given the strength of the bid and these are tough decisions."

BY KIM MIN-YOUNG [[email protected]]