The nation's troubled shipbuilders are gearing up for another painful surgery in the second half of the year, as empty order books and pressure from creditors are forcing them to move up management restructuring and layoffs.
Korea's three biggest players - Hyundai Heavy Industries (HHI), Daewoo Shipbuilding & Marine Engineering (DSME) and Samsung Heavy Industries (SHI) - all reeling from debt and a slow global economy, are fast-tracking their turnaround plans at the request of financial authorities.
"To effectively respond to an unexpected drought in orders, [shipbuilders] need to start restructuring in advance," Financial Services Commission Chairman Yim Jong-yong said during a regular monthly press briefing held Monday.
The first shipbuilder to make a move is HHI. According to its creditors and sources from inside the company, HHI will announce plans to spin off all its business divisions except for shipbuilding and offshore engineering at the end of this month. The shipbuilding and offshore plant businesses will be a holding company for six subsidiaries comprising other divisions.
HHI will cut the number of executives by roughly 35 percent, from the current 180 to 120. The company had already laid off about 60 executives last year. About 4,300 other employees will be subject to workforce restructuring, 70 percent of them in manufacturing. Three thousand employees, mostly clerical workers, were let go last year.
The target employees, this time, will not all be laid off but will take turns working part time. The company will minimize its acceptance of voluntary resignations, due to excessive retirement bonuses it needs to pay out.
"Under the current financial situation, the company does not have the ability to give out retirement bonuses worth 40 months of wages, so it is impossible to keep accepting voluntary resignations," a source from HHI said. "Even if we accept voluntary resignations, retirees will get bonuses worth about 20 months of wages."
The series of cost-cutting measures are a response to a longer-than-expected drought in orders. Industry sources project HHI's revenue this year to be around 20 trillion won ($18 billion), 20 percent lower than last year's 25 trillion won.
"We used to win orders of about 10 to 20 ships every year, but this year, we only won orders for two ships over a six-month period," an HHI spokesperson said. "We have 11 docks to build ships, and under normal operations, at least 80 ships should be in the manufacturing process. But now, only about 10 ships are under construction."
Rival DSME will be cutting its workforce this year as well, moving it up from the original schedule of next year. The shipbuilder will take applications for voluntary resignations from 1,000 employees while spinning off 2,000 of its manufacturing support team workers into a separate company, slimming its 12,600-person workforce to less than 10,000 employees.
SHI is speeding up its turnaround plan to secure over 1.45 trillion won by selling assets unrelated to production including real estate. As for workforce cuts, the company plans to let go of 30 to 40 percent of its workers by 2018.
Source: Korea Joongang
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