51-Day Strike Ends as Questions of DSME’s Financial Stability Mount
Daewoo Shipbuilding & Marine Engineering Co. and the union representing subcontractors reached an agreement at the end of the day on Friday ending a 51-day strike that threatened the financial stability of South Korea’s third largest shipbuilder. Faced with mounting losses and increasing costs for steel and other materials, DSMEs’ financial condition has continued to erode with the largest shareholder suggesting that the company might need to be restructured through bankruptcy.
Discussing the shipbuilder’s prospects as the strike dragged on, the chairman of the government-controlled Korea Development Bank told reporters, "If this situation continues, DSME will be unable to repay its principal and interest. Under the circumstances, we can't spend any more taxpayers' money in support and will have to do anything we can.”
KDB first stepped in nearly 25 years ago when the Daewoo Group began to experience financial difficulties. It ultimately became the largest holder of the shipyard’s bonds and has provided an estimated $8.5 billion in financial support to the shipyard. KDB supported the agreement more than two years ago to merge DMSE with Hyundai Heavy Industries. The merger was ultimately abandoned after the European Union ultimately opposed it saying the combination would give the company too much concentration primarily in the market for LNG carriers.
The government is now estimating that the strike which started on June 2 has cost the shipbuilder as much as $600 million. They were forced to delay construction on tankers and deliveries. A company spokesman had previously said that deliveries could be as much as six weeks behind schedule and that the company could incur financial penalties for failing to meet the delivery dates.
After an all-day negotiating session on July 22, the union reportedly accepted a 4.5 percent wage increase down from its original demands for a 30 percent increase. The union also said it had won better time-off benefits and certain job succession and seniority status for people working at subcontractors that have gone out of business. Union and government officials both said it was a meaningful agreement that also set a precedent to resolve future disputes.
The agreement came as pictures showed police buses parked at the shipyard. Earlier in the week government officials had alluded to potential police action to remove the strikers that were occupying one of the under-construction tankers. Media reports said the police were prepared to act if the negotiations broke down.
More than 96 percent of the union members ratified the agreement at the end of day Friday, while others said that no one was satisfied with the outcome. Left unresolved was the issue of potential damages and legal action against the union. DSME has reportedly filed a claim against the union while government officials said it would have to be resolved in the legal system. Union and company officials however agreed to additional negotiations regarding the damage claims.
“We will put all our capabilities into making up for the delayed production,” the company said announcing the agreement. However, DSME is due to begin a two-week summer holiday. Earlier the leaders of the shipyard said they were entering a crisis management period to address the company’s long-term financial struggles.