is planning comprehensive talks with Kawasaki Heavy Industries Ltd. and Mitsui Engineering & Shipbuilding Co. on a major shipbuilding tieup, industry sources said Wednesday.

The alliance, which would have some 350 billion yen in combined sales, would be Japan’s largest shipbuilding union, outperforming the 300 billion yen in sales by industry leader Mitsubishi Heavy Industries Ltd.

The three leading heavy engineering and shipbuilding companies are exploring the idea of integrating their shipbuilding businesses and plan to conclude the talks by the end of this year, sources said.

IHI President Toshifumi Takei on Tuesday discussed the formation of an alliance with Toshio Kamei, president of Kawasaki Heavy Industries, which teamed up with Mitsui Engineering in September in commercial shipbuilding operations, according to the sources.

IHI and Kawasaki Heavy said in separate statements that they are considering every option, including spinning off their shipbuilding operations. Mitsui Engineering added that its alliance with Kawasaki Heavy is not exclusive.

Among the rest of Japan’s seven shipbuilders, NKK Corp. and Hitachi Zosen Corp. are also discussing tieups, the companies announced Tuesday.

Japan’s shipbuilding industry is undergoing a wave of consolidation prompted by increasing competition from South Korean shipbuilders.

IHI and others in the potential alliance believe teaming up will help them regain price competitiveness against their South Korean rivals, who have steamed to the top of the world rankings in terms of tonnage of orders received, due in part to the weakness of their currency, the won.

IHI, however, has already formed an alliance with Sumitomo Heavy Industries Ltd. and is looking to spin off its shipbuilding business.

The two have basically agreed to integrate their warship businesses and have set up a joint company to develop and sell warships to the Maritime Self-Defense Force. They are also considering integrating commercial shipbuilding operations.

Whether the three-way alliance will be realized is still uncertain, but IHI may also involve Sumitomo Heavy in the talks if the profitability of Japanese shipbuilders continues to deteriorate, the sources said.

Shipyard partnership

Major steelmaker NKK Corp. and Hitachi Zosen Corp., a leading manufacturer of heavy machinery, will consider forming a partnership on shipbuilding operations, the firms said.

The two firms announced Tuesday that they will consider ways to reduce marketing, design, procurement and manufacturing costs. They intend to draw up specific plans to take effect within a year.

A partnership could lead to integration of the companies’ shipbuilding divisions, industry sources said.

The Japanese shipbuilding industry is undergoing a wave of consolidation prompted by increasing competition from South Korean shipbuilders.

In addition to the potential NKK and Hitachi Zosen tieup, Ishikawajima-Harima Heavy Industries Ltd. has joined with Sumitomo Heavy Industries Ltd., and Kawasaki Heavy Industries Ltd. tied up with Mitsui Engineering & Shipbuilding Co.

Mitsubishi Heavy Industries Ltd. continues to run independently.

NKK and Hitachi Zosen hold a combined revenue of approximately 160 billion yen from their shipbuilding divisions, the third-largest in Japan following Mitsubishi Heavy and the pairing of Kawasaki Heavy and Mitsui Engineering.

Hitachi Zosen is currently collaborating with Mitsui Engineering on defense contracts but the relationship is likely to be dissolved if Hitachi Zosen proceeds with the NKK partnership, the sources said.