In the global defense industry market, fortunes are diverging for Korea and overseas companies. Germany's Rheinmetall is expected to see its order backlog surge to double in a year, and the United States' Lockheed Martin set an all-time high for cumulative orders through the second quarter this year. In contrast, domestic defense companies have seen their growth slow.
According to business reports released by each company on the 24th, Rheinmetall, cited as the biggest rival to domestic defense companies, recorded an order backlog of €80.5 billion (about 131 trillion won) in the first half. That is up 44% from a year earlier and is at a record level.
Rheinmetall CEO Armin Papperger said on a conference call on the 6th that this year's order backlog could reach as much as €120 billion (about 194 trillion won). He projected it would surge to nearly double last year's €63.8 billion (about 106 trillion won).
Rheinmetall's orders have risen sharply thanks to European countries' increased defense spending over the past two years. As these countries support Ukraine in its war with Russia, stocks of 155 mm shells, tank rounds, and surface-to-air missiles have run low, prompting large boosts to defense budgets to secure defensive weapons. As a result, Rheinmetall's weapons and ammunition order backlog alone exceeded €25 billion (about 42 trillion won).
Orders have continued this year. Early this year, Rheinmetall signed shell supply contracts with Denmark, Romania, Poland, and Ukraine. Last month, it won the British Army's self-propelled gun program. It also prevailed in Romania's armored vehicle program and Germany's infantry fighting vehicle program, where it competed with Hanwha Aerospace. The vehicle systems institutional sector's first-half order backlog was €28.8 billion (about 48 trillion won), up 41% from a year earlier.
To sustain growth, Rheinmetall has recently been building or expanding plants in Germany, South Africa, Hungary, Ukraine, and Lithuania. In Spain, it acquired ammunition maker Expal. The goal is to produce 1.5 million 155 mm shells annually by 2027.
A defense industry official said, "Rheinmetall is aggressively expanding its footprint, even acquiring German Naval Yards Kiel (GNYK), a shipbuilder specializing in warships."
Rheinmetall is not the only one with a sharply higher backlog. Lockheed Martin of the United States, the world's No. 1 defense company, posted a record order backlog of $230.4 billion (about 326 trillion won) in the second quarter this year. JPMorgan projected Lockheed Martin's backlog would grow from $194 billion (about 275 trillion won) last year to $240 billion (340 trillion won) this year.
France's defense and aerospace electronics corporations Thales is also expected to see its order backlog expand from €45.3 billion (about 74 trillion won) last year to €50 billion (about 82 trillion won) this year. General Dynamics of the United States, which faced off with Hanwha Aerospace for the U.S. Army's next-generation self-propelled gun program, is expected to see its backlog expand over the same period from $103.4 billion (about 145 trillion won) to $142 billion (198 trillion won).
By contrast, Korean defense corporations' order growth has stalled. As of June, Hanwha Aerospace's defense institutional sector order backlog was about 38 trillion won. That is slightly up from 37 trillion won at the end of last year and 7 trillion won higher than a year earlier. Even adding Hanwha Systems' defense institutional sector backlog of 8.5 trillion won, the total is only similar to Rheinmetall's vehicle systems institutional sector alone.
Hyundai Rotem's defense institutional sector order backlog fell 2.1% from 10.1 trillion won at the end of last year to 9.9 trillion won in the first half. Korea Aerospace Industries (KAI)'s domestic defense and completed aircraft backlog declined from 16.5 trillion won to 15.2612 trillion won. LIG Defense&Aerospace (LIG D&A) also fell from 25.3 trillion won to 24.5 trillion won.
All are higher than the same period last year, but they have slipped this year. Defense industry officials explained that while deliveries under existing contracts were made, new contracts did not increase.
Some domestic defense companies are pursuing mergers and acquisitions (M&A) to boost their order competitiveness in the global market. The strategy is to highlight that they can supply everything at once, from conventional weapons systems to advanced equipment such as satellites and aircraft. The nature of bidding has also shifted to "package deals" that bundle self-propelled guns, tanks, airborne weapons, and radar systems.
Hanwha Aerospace, after acquiring Daewoo Shipbuilding & Marine Engineering (now Hanwha Ocean), is pushing to acquire Poongsan and KAI. The choice aims to secure competitiveness against local corporations not only in Europe but also in North America.
In particular, in advanced markets such as Europe and the United States, joint development is cited as a way to increase orders. The strategy is to be treated as a local company and get inside the supply chain. LIG D&A signed an MOU with Rheinmetall for joint development of an air defense network, and other corporations are exploring cooperation with local firms.
President Lee Jae-myung also proposed at a NATO defense industry forum held in Türkiye in July, "Let's elevate cooperation to a 'Korea-NATO Defense Industry Partnership 2.0' to research, produce, and operate weapons systems together."
A defense industry official said, "With the existing approach of selling finished goods to Europe, it is becoming realistically difficult to break into local markets," adding, "Many corporations see partnering with local companies and entering Europe's supply chain as the only way to win orders." Another official emphasized, "We need to actively leverage the advantages of Korean defense, such as interoperability with NATO weapons systems."