Hanwha Aerospace offered more favorable terms in the 6 trillion won bid for Romania's next-generation infantry fighting vehicle (IFV) program but still lost out to a German rival. The defense industry interprets this as Europe's "security barrier" hardening further after the Russia-Ukraine war.
According to the defense industry on the 2nd, Romania's Ministry of National Defense said around 11 p.m. on the 29th (local time) that it signed four weapons contracts in total with German defense company Rheinmetall Group through the European Union (EU) defense financing program "European Action on Security (SAFE)." SAFE is a long-term, low-interest loan support policy the EU created to help member states rearm.
The contracts Rheinmetall Group won are as follows: ▲ 298 next-generation infantry fighting vehicles (IFVs) and variants (€3.337 billion, about 5.9 trillion won) ▲ ground-based anti-aircraft gun systems and very short range mobile air-defense systems (€981.95 million, about 1.7 trillion won) ▲ maritime patrol vessels and diver support craft (€920 million, about 1.6 trillion won) ▲ 35 mm air-burst ammunition (AHEAD) (€449.75 million, about 800 billion won). The total contract value comes to €5.688 billion (about 10 trillion won).
Hanwha Aerospace in particular put considerable effort into the IFV supply. To win this project, Hanwha Aerospace initially proposed a 72.7% local production rate in Romania and even pledged to transfer technology for key components to localize up to 80%.
In Feb., Hanwha Aerospace broke ground on "H-ACE Europe," a production facility in Dâmbovița for K9 self-propelled howitzers and K10 ammunition resupply vehicles. By contrast, Rheinmetall cited its IFV production facility in neighboring Hungary and proposed a local production rate of 40%, about half that of Hanwha Aerospace.
Hanwha Aerospace also led on price competitiveness. According to a proposal disclosed by Romanian defense outlet Defense Romania, Hanwha Aerospace offered to supply 298 units of its in-house developed IFV "Redback" for a total of €2.8 billion (about 4.9 trillion won). That is about €9.5 million per unit.
Rheinmetall agreed to sell 232 units of its IFV "Lynx" for €2.59 billion. At €11 million per unit, it is €1.5 million more expensive than Hanwha Aerospace's Redback.
Because of this, the defense industry says the outcome of this bid was effectively predetermined. Romania's decision last year to pursue the IFV program through an expedited procurement method using the SAFE program, and to revise related regulations to allow selection of a contractor by private contract, is seen in the same vein.
A defense industry official said, "The fact that Germany took all the other projects besides the IFV program can only be seen as 'favoring one side,'" adding, "Because EU funds were used, it was inevitably advantageous to Germany, an EU member state."
◇ Snapshot of the EU security barrier in the Romania bid… "Strong 'sales diplomacy' needed"
Analysts say Hanwha Aerospace's setback in the Romania bid showcases the EU's security barrier. European countries are prioritizing procurement of weapons systems from countries in the same region for political reasons.
Shin Jong-woo, secretary-general of the Korea Defense and Security Forum, said, "Hanwha Aerospace's Redback beat Rheinmetall's Lynx and was selected for the Australia program, so its performance should already be considered top tier," adding, "Romania's choice of a German firm over Hanwha Aerospace, which was ahead in localization and performance, is interpreted as a political move to balance cooperation with fellow European countries."
Hanwha Aerospace's failure to win this order carries significant implications for other domestic companies. Korean defense firms have recently been focusing their efforts on the European market. Many argue that to overcome the thickening security barrier, government support must accompany more sophisticated diplomacy and sales strategies.
Hyundai Rotem is in talks to export K2 tanks to Romania and Sweden. In Oct. last year, senior government officials including Romania's Minister of Economy visited Hyundai Rotem's Changwon plant. Hyundai Rotem is building K2 tank facilities at the Bumar plant under Poland's state-run defense company PGZ, with plans to use it as a forward base in Europe.
A defense industry official said, "No matter how well corporations make products and offer good terms, large weapons contracts can only fail if the government does not stand at the forefront."
Meanwhile, Hanwha Aerospace plans to pursue projects in Romania such as the unmanned ground vehicle (UGV) program. The Romanian UGV program is expected to proceed through competitive bidding rather than a private contract.