Krauss-Maffei Wegmann

Rebirth of the Panzer

KMW leo tank PR
Hopefully you'll never see a "Leo" tank pull up behind you.
  • Why it matters

    Why it matters

    Military conflict in the Ukraine and rising tensions across the world are helping boost profits at German defense companies.

  • Facts

    Facts

    • KMW and its main product, the Leopard 2 tank, were seen as outdated but there is now new demand,
    • The company is in merger talks with French tank manufacturer Nexter.
    • KMW is the only Western manufacturer of battle tanks today.
  • Audio

    Audio

  • Pdf

They are tucked away somewhere in Germany – mothballed, but well maintained and oiled and now their moment has come again. Leopard 2 battle tanks: the lumbering, seemingly outdated machines made by German defense group Krauss-Maffei Wegmann, are now in demand again.

The German military, the Bundeswehr, has asked Krauss-Maffei Wegman, or KMW, to pull 100 monthballed Leopard 2 battle tanks, sometimes known as Panzers,  back into service.

“It’s up to lawmakers to decide whether to do the upgrade,” Frank Haun, the CEO of tank manufacturer,  told Handelsblatt.

Less than two years ago, KMW and its main product, the Leopard 2, were seen as dinosaurs. The Bundeswehr had downgraded much of its tank fleet and Greece and Spain were the company’s last two customers in Europe.

“There aren't that many companies in the world that make battle tanks anymore. We are the only ones in the West."”

Frank Haun, CEO, Krauss-Maffei Wegmann

The Leopard 2, weighing more than 50 tons, had been used in Afghanistan but even there, demand had fallen. The only business potential was in the Middle East, but Germany citizens could hardly be expected to approve of selling tanks to Saudi Arabia.

The tide turned with the war in Ukraine. Now Germany and other countries are suddenly interested in upgrading their tank fleets. By all accounts, Poland is also considering modernizing its 130 Leopards and Lithuania is buying German armored howitzers.

“Our waiting room is filling up,” said officials at KMW in Munich.

This marks a sea change for the Leopard, the arms industry and its most prominent representative, Frank Haun.

KMW has been in merger negotiations with French tank manufacturer Nexter for months. “If possible, we will sign the contracts in July,” said Mr. Haun.

The head of KMW is confident about the future.  Economics Minister Sigmar Gabriel, a member of the center-left Social Democratic Party SPD, had strongly opposed  exporting arms into crisis regions but he has recently eased his stance.

 

Defense Exports 2014-01

 

The recently published numbers for 2014 seem to confirm that: The value of approved arms exports shrank by €1.8 billion in 2014.

Mr. Gabriel considers small weapons and tanks particularly sensitive products and is particularly strict when it comes to export licenses for handguns.

Saudi Arabia was turned down when it tried to order Leopard tanks, but Berlin has fewer qualms when it comes to Qatar. Two-and-a-half years ago, the Federal Security Council approved the sale of 62 Leopards and 24 armored howitzers to the emirate. Now Qatar wants to buy another three dozen tanks, said officials in Berlin.

Mr. Gabriel has a difficult balancing act to perform. On one hand, as head of the Social Democrats (SPD) he needs to be cautious, and even limit the amount of arms deliveries abroad. On the other hand, as economics minster, it is his remit to support and promote German industry.

The government intends to declare tank production a key technology, which will make it possible to promote the development of new models. This commitment is important, because KMW and its partner, Rheinmetall, are strongly dependent on political support.

The Bundeswehr armored division is upgrading too. KMW and Rheinmetall have just delivered the first Puma armored personnel carrier. Markus Grübel, state secretary in the Defense Ministry, said that developments in Ukraine and Russia have shifted the emphasis to national defense.

 


Video: KMW’s latest tank explained.

 

The German government is still finalising details of the repurchase and upgrading of the 100 old Leopard tanks, bargaining with the industry over the price of the vehicles, which have 1990s-level technology. The Defense Ministry will probably have to pay more than half a billion euros or about €6 million per tank, to bring the engines and electronics up to date.

Initial plans for a successor are already on the drawing board. It could be ready for delivery by 2030 or perhaps 2035, said an industry insider. Mr. Haun is convinced that the contracts will be going to his company.

“There aren’t that many companies in the world that make battle tanks anymore. We are the only ones in the West.”

But after the merger with Nexter, the “Leo 3” will not be a purely German project. France and Germany could share the costs of a new generation of tanks with other countries, such as Italy and Great Britain.

Mr. Haun feels well prepared for the merger with the French company. He already has €4.5 billion in orders, he said, and he expects sales of about €2 billion a year in the next two years.

 

Markus Fasse is a Handelsblatt editor specialized in the aviation and automobile industry. Till Hoppe is Handelsblatt’s foreign policy correspondent in Berlin. Martin Murphy specializes in the automotive, defence and steel industries. To contact the authors: fasse@handelsblatt.com; hoppe@handelsblatt.com; murphy@handelsblatt.com

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