EOS and Hyundai Join Forces for Remote Weapon Systems

Electro Optic Systems Holdings Limited (ASX: EOS) has executed agreements with Hyundai-WIA, a Korean corporation, relating to the joint development, marketing, production and support of remote weapon systems.

Under the agreements, Hyundai-WIA will produce remote weapon systems [RWS] in Korea.  Initially these will be drawn from the current EOS product range, but the parties expect new and upgraded RWS products to issue from joint development programs in the near term, to address emerging global market requirements.  The collaboration will draw heavily on the deep technology and production capabilities of both companies.

The EOS Defence Systems sector is concentrated on the development, marketing, production and support of remote weapon systems (RWS) for global markets.

Hyundai-WIA is a subsidiary of Hyundai Motor Group [HMG], a major Korean corporation with diverse technology, manufacturing and service businesses and with global revenues of US$99 billion [2010].  Hyundai-WIA is a HMG subsidiary focussed on defence products and with global revenues of US$6 billion.  It is based in Changwon, Korea and employs around 6,000 staff.  It is a leading innovator in defence products and manufacturing technology.

The Chief Executive Officer of EOS, Dr Ben Greene, said:

"Our partnership with Hyundai-WIA, one of the world's leading companies, will provide Korean and export customers with access to world's best practice in defence technology, product development and military production.  Hyundai-WIA and EOS will move quickly to establish RWS production in an existing Hyundai-WIA plant in Korea.  A key element will be pooling EOS and Hyundai-WIA technologies in product development, quality improvement and production engineering.  We expect to achieve more competitive products through these arrangements."

"EOS is now a major step closer to a business model adapted to volatile global demand during a sustained period of unpredictable government budgets.  The partnering arrangements deliver production capacity which is scalable at low cost, and simultaneously improves production quality, market access, fixed costs and delivery risk."

The arrangements with Hyundai are similar to those announced 19 May 2010 when EOS and Northrop Grumman Corporation agreed to jointly develop, produce and support RWS for the USA and certain export markets.  Those arrangements included EOS and Northrop Grumman teaming to compete for the US Army CROWS program requirement for RWS.

In December 2011 EOS announced amended collaboration arrangements with the re-location of EOS' own RWS capabilities in the USA from Tucson, Arizona to Huntsville, Alabama.  This places them alongside those of Northrop Grumman to allow EOS and Northrop Grumman to address even more efficiently RWS opportunities in general, and CROWS requirements in particular.  The CROWS program award by the US Army is expected by October 2012.

EOS now has completed agreements with partners in both the USA and Northern Asia to produce, support and enhance its RWS products.  These partners have significant investments in scalable production capacity and the incremental cost of adding RWS capacity is relatively small.  Importantly, these plants have the necessary infrastructure for production of modern military equipment, including next-generation systems for quality management, record-keeping, government accounting and supply chain management.

EOS believes its partnering arrangements offer advantages to both customers and partners:

  • Scalability.  The arrangements employ existing large-scale, proven production facilities that are equipped, qualified and staffed to high standards.
  • Quality.  Our partners have excellent quality systems, sophisticated automation, supply chain management and production practices.  Quality will improve.
  • Market Access.  With production located in key future markets, EOS gains access to those markets notwithstanding strong requirements for local content.
  • Risk Reduction.  Partners which are manufacturing specialists reduce risk to EOS, and risk in EOS production, since EOS can focus on a smaller scope.
  • Capital.  The arrangements allow EOS to undertake rapid surges of capacity with significantly less capital required for scaling production.
  • Cost reduction.  The new production arrangements reduce cost and make EOS products more competitive.

As pressure on Australian manufacturing industry increased over the past two years due to currency appreciation and labour market constraints, EOS has migrated to a production approach where its Australian plant in Queanbeyan has retained only around 65% of its historical scope of work.  EOS expects improved competitiveness and market access will support sales growth and offset the effect of transfer of some production activities offshore.

Source: Electro Optic Systems Holdings Limited
Date: Jul 6, 2012