The order backlogs of seven major domestic defense corporations jumped more than 24% in one year, surpassing 110 trillion won. The war between Russia and Ukraine has continued for more than four years, and now the protracted conflict between the United States and Iran has led countries to increase defense spending. Demand for domestic defense companies is expected to keep rising for the time being.
On Apr. 6, a compilation of business reports from seven domestic large defense-related corporations showed that, as of December last year, the combined backlog for their defense institutional sector (excluding aviation) totaled 113.334 trillion won. That was up 24.4% from the December 2024 backlog of 91.1054 trillion won.
By corporation, Hanwha Aerospace's ground defense stood at 37.22 trillion won; Hanwha Systems' defense at 9.3026 trillion won; Hyundai Rotem's Defense Solution at 10.5181 trillion won; LIG Defense & Aerospace (LIGD&A, formerly LIG Nex1) at 26.2526 trillion won; and Korea Aerospace Industries (KAI) at 16.51 trillion won (excluding the airframe parts business).
In addition, Hanwha Ocean's special ship business unit had an order backlog of 7.9506 trillion won, and HD Hyundai Heavy Industries' special ship field totaled 5.5801 trillion won. Special ships refer to warships and submarines and are all classified under the defense institutional sector.
The reason domestic defense corporations have seen workloads increase in recent years is that overseas exports are rising rapidly.
Demand for ground weapons and air-defense systems has surged due to the Russia-Ukraine war and the U.S.-Iran conflict, but the corporations able to quickly supply high-quality products are limited. For a long time, the United States, Israel, and Germany were regarded as representative "advanced defense nations" in the global market, but recently Korean defense corporations' technological prowess has earned high marks, leading to successive wins in bidding competitions.
There are many projections that orders for domestic defense corporations will continue to grow this year as well. The reason is that weapons demand has continued since last year in regions such as the Middle East, Southeast Asia, and Latin America.
Hyundai Rotem last year signed a framework agreement with Peru to sell 54 K2 tanks and wheeled armored vehicles and other ground equipment worth 3 trillion won. A framework agreement carries legal force that leads to an actual execution contract. KAI plans to finalize this year the export of 16 KF-21 Korean fighter jets to Indonesia.
These contracts have not yet been included in the order backlog. Considering projects such as Canada's maritime patrol submarine program now in the bidding stage, the backlog is likely to expand further.
Thanks to ample order backlogs, defense corporations are expected to continue the trend of improved results this year.
According to FnGuide, the securities market's compiled consensus (outlook) for Hanwha Aerospace's first-quarter sales this year is estimated at 6.3478 trillion won, with operating profit at 828.2 billion won. Those represent increases of 15.7% and 47.7%, respectively, from a year earlier.
Hanwha Aerospace delivered all 212 units from the first contract batch of K9 self-propelled howitzers for Poland last year, and deliveries of 152 units in the second batch begin this year. The K9 self-propelled howitzer plants built in Australia and Egypt will also go into operation. The remaining order backlogs are 700 billion won and 1.94 trillion won, respectively.
LIGD&A's first-quarter sales outlook was tallied at 1.0589 trillion won, up 16.6%. Deliveries begin for the Cheongung-II medium-range surface-to-air missile batteries to be supplied to the United Arab Emirates (UAE).
KAI, which rolled out the first mass-produced KF-21, will begin deliveries to the Republic of Korea Air Force starting this year. KAI is projected to post first-quarter sales of 1.1124 trillion won and operating profit of 88.3 billion won.
During the same period, Hyundai Rotem's sales outlook was 1.4096 trillion won, with operating profit at 226.5 billion won. Those figures were up 19.8% and 11.7%, respectively, from a year earlier. Deliveries under Poland's second K2 tank contract will begin, and as early as the second half, mass production will also start for the new K2 tanks to be used by the Republic of Korea Army. The scheduled quantity for this year is 10 units.
A defense industry official said, "From 2021 to 2022, Korea's defense sector grew significantly through export projects to Poland, and exports are now increasing based on the Middle East and Southeast Asia." The official added, "Accelerating technology development in areas such as artificial intelligence (AI), big data, and unmanned weapons to preempt the future-war market, and strengthening competitiveness in naval and aerial weapons are the tasks ahead."