According to the domestic investment banking (IB) industry on the 9th, an investment ecosystem is taking shape in the defense sector where companies invest in startups’ innovative technologies to build the backbone of the defense industry, export weapons, and subsequently expand into the MRO sector.
Currently, investment in the domestic MRO market is centered on large conglomerates acting as strategic investors (SIs). For example, Hanwha Aerospace announced on the 29th of last month that it would make an additional investment of 43 billion won in its wholly-owned subsidiary, Hanwha Aviation. The purpose of this investment is to participate in Hanwha Aviation’s rights offering. This investment is expected to expand Hanwha Aerospace’s aircraft engine leasing and MRO businesses.
Hanwha Aviation, which is in charge of new aircraft and engine leasing businesses, has recently expanded its presence in the global MRO market. Last year, the company acquired an aircraft engine MRO facility in the United States. Through this acquisition, Hanwha Aviation aimed to combine MRO capabilities with its engine leasing business to provide services covering the entire lifecycle of aircraft engines.
In addition, following the construction of an engine maintenance facility worth 580 billion won on Yeongjong Island in Incheon, Korean Air is investing 150 billion won to establish an MRO cluster. On September 30, Incheon City signed an investment and tenant agreement with the Incheon Free Economic Zone Authority, Yeongjong District, the Korea Land and Housing Corporation (LH), the Incheon Urban Development Corporation (iH), and Korean Air to develop the MRO cluster and foster mutual growth. Under the agreement, Korean Air plans to construct engine and parts maintenance facilities with a total floor area of 101,151 square meters, along with related infrastructure.
The Incheon Free Economic Zone Authority anticipates that the Yeongjong Aviation Industrial Complex, located adjacent to Incheon International Airport, will create synergies with Korean Air’s existing engine testing facility operating nearby. Furthermore, this development will enable Yeongjong’s aviation industry to expand beyond aircraft maintenance into high-value-added sectors, including engines and core components. It is projected that more than 2,000 specialized personnel will be stationed in the MRO sector alone.
Naval vessel MRO is also a key pillar. The global naval vessel MRO market is projected to grow at an average annual rate of 2% through 2030, reaching $65 billion (approximately 87.6915 trillion won). Accordingly, the government is partnering with local governments to establish a cluster aimed at developing related technologies and strengthening corporate capabilities. Specifically, the Defense Acquisition Program Administration (DAPA) and the regions of Busan, Ulsan, South Gyeongsang, and South Jeolla have agreed to establish a super-regional naval vessel MRO defense innovation cluster. A total of 49 billion won will be invested from this year through 2030.
Industry observers note that MRO investments are shifting export performance from one-time sales of finished products to long-term, recurring revenue. An official from the defense industry stated, “It is crucial to secure MRO facilities and build the capacity to win contracts, as demonstrated by the recent success of the domestic shipbuilding industry in securing MRO projects for U.S. Navy vessels,” adding, “We need a structure that actually secures long-term contracts and converts them into revenue.”
This business model is also attracting interest from financial investors (FIs). In fact, overseas, MRO specialists are becoming investment targets for private equity fund (PEF) managers. For example, last September, it was reported that aviation services provider AAR would acquire a 65% stake in MRO Holdings—an MRO company backed by Bain Capital—for $1.8 billion (approximately 2.4246 trillion won).
An industry insider in the investment banking sector stated, “From an FI’s perspective, this business is attractive because demand remains steady rather than fluctuating sharply with economic cycles,” adding, “It generates long-term cash flow and offers potential to increase enterprise value through further business expansion.”
