Hyundai Heavy to pull out of onshore plant business

Hyundai Heavy Industries, the world’s largest shipbuilder, plans to integrate two onshore and offshore plant business units and begin voluntary redundancies to overcome its financial difficulties.

But insiders said the merger of the two units is an apparent move to gradually withdraw from the money-losing onshore plant business

“Top management ordered the business unit to stop activities to win new plant orders,” an industry source said.

The company’s drastic measure came after it posted a record high net loss of 1.46 trillion won in the third quarter of 2014. 

The onshore plant business unit posted the biggest loss, compared to other business units, failing in cost control of the $3.2 billion Jeddah plant project that the company won in 2012 from the Saudi Electricity Company, which led to a big loss for the shipbuilder last year.

With the merger, jobs of about 1,780 employees at the unit will likely be under jeopardy.

In a separate development, HHI confirmed it has recently launched an early retirement program for employees as part of its cost cutting reforms, industry sources said.

“It is true that the company has launched the workforce reduction program, but we cannot reveal any details,” a company spokesperson said.

Some local reports said HHI’s latest early retirement program targets employees who are 55 and older, which affects all support departments except the production unit, including marketing, finance and human resources.

About 3,000 employees, or 10.7 percent of the total employees, are eligible to apply for the program, the sources said.

The company declined to comment on the target number for the workforce reduction.

The move has been widely expected as the shipbuilder’s losses snowballed last year. In an effort to reduce the losses, HHI cut the number of executives by one-third in October last year.

The firm’s restructuring efforts could continue, considering the worsening business situation. A growing labor dispute is one of biggest challenges ahead.

Unionized workers at the HHI shipyard, located in Ulsan, voted against a tentative wage agreement on Wednesday due to complaints about the pay award agreed upon by the union and management, the company’s union said.

The union and management reached a tentative agreement on the pay raise on Dec. 31, which includes a basic pay increase of 37,000 won ($33) per month and a special bonus of 2 million won.

The 16,000-member union put the tentative wage agreement to a vote, but 10,390 unionists, or 66.47 percent, rejected it, with the voter turnout reaching 15,632 members, or 93.26 percent.

Additional negotiations on the pay increase are expected to take place in the near future.

The shipbuilder lowered its annual order target to $22.95 billion in 2015, down from last year’s orders worth $29.6 billion.

By Seo Jee-yeon (jyseo@heraldcorp.com)