East/West Divide Grows In the International Navy Shipbuilding Business

By Stew Magnuson
The United Arab Emirates’ new corvette-class ship sat along the dock at a recent trade show. Its manufacturer, Abu Dhabi Shipbuilding, wanted to show off its indigenously built vessel and it was the main attraction at the first ever NAVDEX exhibition, a new section to the Middle East’s largest arms show, IDEX, in Abu Dhabi, United Arab Emirates.

But little of what the company featured came from the UAE. The design of the planned fleet of six Baynunah-class ships originated at Constructions Mecaniques de Normandie of Cherbourg, France. The fire control and command and control for the weapon systems came from Italy. The Exocet and SeaSparrow missiles were built in France and the United States, respectively. South Africa’s SAAB Avitronics supplied the laser warning system. German companies provided the decoy system, the sonar, the underwater communications and the engines.

And the list of international suppliers went on.

Despite the current economic slump, the worldwide market for navy ships is expected to grow, market analysts said. Visiongain, a London-based firm, predicts global expenditures to rise 5.2 percent annually, doubling from $75.5 billion in 2011 to $124.6 billion in 2021.

“In spite of the declining defense spending in the West, the procurement of major naval vessels is likely to continue,” the firm’s Warships and Naval Vessels Market, 2011-2021 report predicted.

The shipbuilders that came to IDEX are gearing up for the global competition. And as the UAE navy’s new ship illustrated, it’s not all about hulls. While there has been a lot written about the decline in the U.S. shipbuilding industry, with many yards closing up or consolidating over the past few decades, the demand remains for high-tech subsystems that turn a steel shell into a warship.

“The drive towards standardization and modularization of systems is likely to offer considerable opportunities for companies that can supply such solutions,” the report continued.

Daniel Harrison, industry analyst manager at Visiongain, told National Defense that there is a clear East/West divide when it comes to the naval market. Lower cost labor and materials required to build hulls is found in non-U.S. and European countries.

“In contrast, the advanced western technologies that transform any hull into a formidable war fighting vessel are still predominantly supplied by western contractors. The retraction in defense budgets globally — which has had the effect of slowing the procurement of new platforms and shifting to lower cost retrofitting and upgrading or even converting existing platforms — has clearly created stronger market opportunities in this area,” he wrote in an email.

Patrick N. Bright, chief analytical officer at the Seattle-based firm AMI International, said, “Indonesia can build a hull. Turkey can build a hull. They haven’t taken that next step to build a radar or a missile.”

About 60 percent of the cost of a new naval ship is found in these subsystems, he noted.

While some countries may prefer to buy an “all French” or “all U.S.” vessel to make purchasing simpler, increasingly the world is becoming “flat,” when it comes to navy or coast guard ships, analysts said. Nations like the UAE are choosing components from a virtual United Nations of suppliers.

Harrison said a good analogy can be found in the automobile world where parts are increasingly coming from a variety of global suppliers, and they all are put together in one assembly line.

Indonesia, Turkey, Vietnam, Malaysia, along with the United Arab Emirates, are some of the countries that are developing their shipbuilding industries. It is a crowded field, and there is a lot of overcapacity, Harrison said.

However, Bright said, “Building frigates and submarines is a totally different ballgame. So realistically, some of these countries will not be building combatants for another 20 or 30 years.”

Several manufacturers came to the NAVDEX-IDEX show to see if they could crack the Middle Eastern market. Many of them were from the “East” side of the divide. All said they primarily sold their products to their home navies.

Maxim Uvarov, lead specialist at Zelenodolsk Design Bureau, who manned the Russian Technologies State Corp. booth, said his home country was its biggest customer, but noted that United Shipbuilding Corporation of Russia has exported 150 vessels. Most, but not all, are former Soviet Union allies. Kuwait and Slovenia are more recent customers.

Herman Kwon, deputy general manager in Hyundai Heavy Industry Co. Ltd.’s naval shipbuilding division, was the lone South Korean representative. He didn’t anticipate signing any contracts at the show. The shipbuilding giant, better known for its commercial vessels, is one of five South Korean manufacturers that vie for naval contracts with their government. That is not a lot of naval work to go around, he acknowledged.

“It’s not that profitable,” he said. Hyundai has recently manufactured boats for New Zealand, Venezuela and Bangladesh. The company offered a hybrid patrol vessel for coast guard missions, a fast attack craft, and had literature promoting the one Aegis destroyer it has built for the South Korean navy (although it could not sell the American-made anti-ballistic missile system without the permission of the U.S. government).

S.K. Dutta, additional general manager of Garden Reach Shipbuilders and Engineers, of Calcutta, India, had a similar refrain. There are four major shipbuilders in the nation all competing for Indian navy contracts. Garden Reach offers missile corvettes, fast patrol vessels, anti-submarine craft, and a variety of support vessels. It has had a few overseas customers, namely Mauritius and Singapore. Most of the subsystems come from Russia, which has had a long military relationship with India.

“We have the capacity to expand, but the modular, small ship market is saturated,” Dutta said.
Bright said this about sums up the current state of the international naval shipbuilding market. There are many players, but they are all fighting over niche markets: namely the smaller countries where there is no indigenous industry.

“Korea and Russia do have some export potential, but they are to places like Bangladesh, Indonesia, and places of that nature,” Bright said. Even countries like Indonesia and the United Arab Emirates with nascent shipbuilding capacities will be buyers for some years because it will be decades before they can build sophisticated ships. Harrison said most of these yards will have to continue to rely on commercial ship contracts for profits.

In short, U.S. shipyards may be in decline, but no single company or country will be getting rich from building naval ships alone.

And Bright didn’t see any of these nations, even China, catching up to U.S. and European nations when it comes to selling lucrative, high-tech subsystems. Chinese engineers are talented at reverse-engineering anything they can get their hands on, but as long as Western countries continue to invest in research and development, they should stay one step ahead, he added.

“As long as we continue to develop and stay ahead of the game, they may never catch us,” he said of the Chinese.

Despite the makings of a new Middle Eastern shipbuilding industry, Western companies still see the region — with its oil wealth and need to invest in weapons as a hedge against instability — as a potentially lucrative market.

Lockheed Martin came to Abu Dhabi to promote its concept for marrying the Aegis Ballistic Defense System it manufactures to its new Littoral Combat Ship.  

The company is one of two manufacturers of the U.S. Navy’s new LCS, which is designed to operate in shallow waters and at speeds of up to 50 knots. It calls the international version of the LCS, the “Surface Combat Ship.”

George Elghossain, director of international business development at Lockheed Martin, touted the ship as the “fastest combatant in the waters today.” The mission modules allow for counter-mine, maritime interdiction, surface warfare and anti-submarine operations. But Lockheed Martin was there to sell the anti-ballistic missile mission concept for the vessel.

Aegis is a sea-based system that is designed to shoot down short-, medium- and long-range ballistic missiles, and provide early warning through its radar.

“We are also hearing, for example, that some people in the region have developed an anti-ballistic missile that can also hit a ship. So if you have a ship in the water, you need a very sophisticated weapon system and combat system to defend against” that, he said.

He also mentioned as a selling point how a U.S. Aegis-equipped ship shot down a defunct U.S. satellite in space in 2008.

Elghossain acknowledged that potential customers may want to add components of their own choosing. The open architecture makes it affordable to integrate any electronic system into the ship, he said.

“As you go into the international markets, many of our customers want to use their own indigenous designed equipment,” Elghossain said. The electronic architecture makes it easier, and less expensive to maintain and upgrade, he added.

It’s “a very capable ship at half the price of a destroyer,” Elghossain added.

That may be so, but meld an LCS with an Aegis system, and it becomes an expensive boat, said Bright.

“I just don’t know who else other than the Saudis have that kind of money,” he said. Israel considered the LCS for such a mission, then officials there started looking at the price tag and they lost interest, Bright said. Other countries that face a perceived ICBM threat such as South Korea and Japan already have Aegis systems. There are nations that have the money, but no neighbors threatening to lob missiles across their borders, he added.

Also at the show trying to drum up business for a high-tech boat was the Italian shipbuilder WASS, part of the Finmeccania Company. It had an artist’s rendering of a 45-foot vessel called the Black Kite, which it described as an “ultra high speed class of catamaran” that could travel 80 knots. The design was inspired by racing boats rather than traditional navy vessels, said Filippo D’Antoni, senior vice president of sales at WASS.

It is partnering with an Abu Dhabi company, Alfattan Shipyard, to produce the boat, which is still a concept. No prototypes have been built. Like the LCS, the Black Kite is designed with an open architecture, so a potential customer could transform it to take on different missions, including anti-submarine warfare. It could carry two anti-sub torpedoes, D’Antoni said.

“We expect this country to be the launching customer,” D’Antoni said of the UAE. “We have a lot of interest from many other countries.” WASS wanted Alfattan’s assistance in not only producing the boat locally, but marketing it in the region, he added.

Boats such as the proposed Black Kite and ships such as the Lockheed Martin LCS have open architectures to allow customers to more easily add subsystems. The “plug-and-play” buzzword is easier said than done, noted Bright.

Firms that specialize in integrating all these different systems will also have plenty of business if the trend continues, the analysts said.

Maurizio Di Martino, senior combat system engineer at Abu Dhabi Systems Integration, said companies like his are the ones that have the headaches when it comes to melding the communications, weapons, sensors and all the other electronic components into one ship.

He was responsible for ensuring that the UAE’s new corvette-class ship’s components worked in harmony.

“We advise. We recommend, but ultimately the UAE navy decided what subsystems to integrate,” he said. “It’s tough work.”

Topics: Shipbuilding, Surface Ships

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