Korea's $4.7 billion stealth destroyer project stalls, raising fears of naval power vacuum

[EXPLAINER] 

A major Korean naval project to build homegrown stealth guided-missile destroyers faces repeated delays as the country's two largest shipbuilders, HD Hyundai Heavy Industries and Hanwha Ocean, have become locked in a battle over design rights, trade secrets and competitive bidding terms.

The first delivery of the Korea Destroyer Next Generation (KDDX) program, a 7 trillion won ($4.65 billion) project to build six 6,000-ton destroyers, has slipped from 2030 to 2032, just as the Navy begins retiring its Gwanggaeto the Great-class destroyers in 2028.

The program seems to keep slipping, so what is at stake for Korea's naval readiness and will the delays hurt the country's broader defense export ambitions?

Why does the KDDX program keep getting delayed?

The delays stem from a two-year dispute between HD Hyundai Heavy and Hanwha Ocean over design rights and trade secrets, and from the Defense Acquisition Program Administration's (DAPA) slow decision-making on how to structure the bidding.

The conflict centers on whether HD Hyundai Heavy's basic design constitutes a trade secret that should not be shared with its competitor. The dispute escalated after nine HD Hyundai Heavy employees were convicted of photographing and leaking Hanwha Ocean's concept design materials between 2012 and 2015, prompting DAPA to abandon a planned sole-source contract with HD Hyundai Heavy and shift to competitive bidding.

The Supreme Court finalized the convictions for eight employees in November 2022 and the remaining employee in December 2023. DAPA initially applied a 1.8-point demerit through Nov. 18, 2025, treating the leaks as a single security incident. In September 2025, DAPA decided to treat the two finalization dates as separate incidents, adding a new 1.2-point demerit period through Dec. 6, 2026.

What happened in the most recent bidding round?

HD Hyundai Heavy declined to register for the first round of bidding by the May 14 deadline, leaving Hanwha Ocean as the sole bidder.

DAPA was forced to scrap the round and reopen the tender, with the second round announced on Monday. Registration closes on May 28, and proposals are due on May 29. A prebid briefing is scheduled for next Tuesday at DAPA's offices in Gwacheon, Gyeonggi.

HD Hyundai Heavy filed a motion for an injunction at the Seoul Central District Court on March 24 to block DAPA from providing its design materials to Hanwha Ocean, arguing that disclosure of construction techniques, product specifications and pricing information would compromise fair competition. The company sought to withhold 12 of 195 design data categories as trade secrets.

The court rejected the injunction on May 8, noting that DAPA had already shared the materials on March 26 and was set to recover them around Friday. HD Hyundai Heavy filed an appeal on Friday.

Industry analysts attribute HD Hyundai Heavy's withdrawal to the company's need to conduct a comprehensive review of its bidding strategy, particularly given that the basic design materials have already been handed over to Hanwha Ocean, leaving many additional variables to examine . Some industry sources said HD Hyundai may be seeking to delay the process until its penalty points expire, as even fractional-point deductions can significantly affect the outcome.

HD Hyundai Heavy said it may still participate in the second round. If it declines again, DAPA would proceed with a sole-source contract with Hanwha Ocean.

"It is correct that we are currently preparing to participate in the bid," an HD Hyundai Heavy official said. "We need more time to comprehensively review the surrounding conditions."

"Hanwha Ocean will continue to do its best to win the KDDX project, as it has done up to this point," a Hanwha Ocean official said.

Why are the delays a problem for the Navy?

The original schedule had the first KDDX destroyer arriving in 2030 to begin filling the gap left by the Gwanggaeto the Great-class retirements starting in 2028.

With the program now slipping to 2032, the Navy faces a four-year capability shortfall during which it will have fewer destroyers in service than it does today. The Korean fleet currently operates one Jeongjo the Great-class destroyer, three Sejong the Great-class destroyers, six Chungmugong Yi Sun-sin-class destroyers and three Gwanggaeto the Great-class destroyers.

The KDDX program is also strategically significant as Korea's first fully domestic destroyer program, with both the hull and the combat suite — locally dubbed the "mini-Aegis" and designed to emulate its U.S.-made counterpart — built using indigenous technology. Hanwha Ocean handled the concept design, and HD Hyundai Heavy handled the basic design.

Could the delays have been avoided?

Critics argue the dispute reflects a broader failure of government oversight.

"The current KDDX destroyer program is a textbook case of government failure," said Choi Gi-il, a professor at Sangji University's Department of Military Studies. "The main reason is that DAPA failed to decide on the contract and bidder selection method. That delay was the single most decisive factor. For more than two years, DAPA was unable to determine the bidding and contractor selection process, and the rift between HD Hyundai Heavy and Hanwha Ocean has grown deeper as a result."

Choi argued that DAPA should have structured the program as a joint contract from the start. With the second-round tender already underway under a competitive bidding format, that option is no longer available.

"It is too late to apply for multiple awards. The train has already left the station," Prof. Choi said. "Both the government and the companies could have benefited. Hanwha Ocean and HD Hyundai Heavy could have both been winners."

Will the dispute affect Korea's defense exports?

The delays carry implications beyond Korea's borders. Korean shipbuilders are positioning themselves for the largest set of overseas naval contracts in the country's history.

Both HD Hyundai Heavy and Hanwha Ocean are pursuing the U.S. Make America's Shipbuilding Great Again initiative, the Trump administration's effort to revitalize U.S. naval shipbuilding through allied partnerships and capacity investment.

Hanwha completed its acquisition of Philly Shipyard, now rebranded Hanwha Philly Shipyard, in 2024 for approximately $100 million, while HD Hyundai has partnered with multiple U.S. shipbuilders on commercial and naval programs.

"One of the core strengths of K-defense has been its ability to deliver quickly, manage programs reliably and maintain close coordination between the government and industry," said Jang Won-joon, an associate professor at Jeonbuk University's Department of Defense Technology and Industry. "If the conflict surrounding this major naval shipbuilding program continues, overseas customers may begin to question the consistency of Korea's defense policies and its ability to manage large-scale procurement projects."

Are the two companies cooperating elsewhere?

The two companies have set their rivalry aside for Canada's Canadian Patrol Submarine Project, in which they have joined as a consortium, with Hanwha Ocean as the lead bidder. The 12-submarine procurement is valued at up to 60 trillion won, including 30 years of maintenance, repair and operations.

The Korean consortium is competing against Germany's ThyssenKrupp Marine Systems, with both teams short-listed in August 2025 and a final decision expected by June 2026. Hanwha is offering its KSS-III Batch II submarine, with the first vessels targeted for delivery before 2035.

Well, what happens now?

The second-round tender includes additional safeguards reflecting the contested process. Only companies attending the Tuesday briefing will receive access to classified design materials, and bidders must submit security and integrity pledges.

"The KDDX program should therefore be managed not simply as a competition between individual companies, but as a matter of national security, naval readiness and the long-term health of Korea's naval defense industrial ecosystem," Prof. Jang said.

BY KIM MIN-YOUNG [[email protected]]