War games

Airbus Strikes Back on Defense Disaster

A400M DPA
The elusive Airbus A400M.
  • Why it matters

    Why it matters

    Germany is suffering a shortfall in military equipment, which means it cannot pull its weight on the international stage.

  • Facts

    Facts

    • The Airbus A400M military transport plane was due in 2009, but is yet to be delivered.
    • A recent report has found major failings in the defense ministry’s project management.
    • In 2013 Germany’s defence budget was equivalent to 1.3 percent of GDP.
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    Audio

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When Germany’s defense minister, Ursula von der Leyen, arrived in Iraq last month to herald the arrival of German weapons for Kurds fighting Islamic State, it should have been an important marker on Berlin’s path to greater international engagement. After all, the country was reversing a previous policy not to supply arms to conflict zones.

Instead, it turned out to be a farce. While the minister made it, the weapons and paratroopers did not. They were stuck in transit due to a lack of transport and equipment failures.

As such, it laid bare just how un-battle ready Germany is. Ms. von der Leyen was forced to admit that her country is not really up to meeting its North Atlantic Treaty Organization commitments, due to its military equipment shortfalls.

Since then the government and the defense industry have been involved in a tit-for-tat about who exactly is to blame.

Ms. von der Leyen has been critical of the industry for its tardiness in delivering equipment and for spiraling costs. The company that has come in for the most criticism is Airbus, the European multinational defense and aerospace giant, which supplies around half of the equipment for Germany’s armed forces, the Bundeswehr. After all, German troops are stilling waiting on a A400M military transport plane, which was supposed to be delivered in 2009.

Airbus’ chief executive, Tom Enders, is now fighting back against this government criticism. At a security conference organized by Handelsblatt this week in Berlin, Mr. Enders rejected the idea that industry was fully to blame for equipment failings and had harsh words for the way Berlin had dealt with the issue.

“In no other major European country is there as much antagonism between the defense industry and politicians,” he said on Tuesday.

Mr. Enders admitted that the industry had made mistakes, but he also said that the government shared the blame on the delays in the A400M, for example.

“We accepted conditions that we should not have accepted,” he said. That included very ambitious budgets and targets, as well as a string of special features for different clients, including the French.  The upshot is that Airbus will make a loss of around €4 billion on the aircraft.

“We will never sign another contract like the A400M one. That is for sure,” he said.

“In no other major European country is there as much antagonism between the defense industry and politicians.”

Tom Enders, Airbus Chief Executive

His criticism is borne out somewhat by a report released last week into nine major weapons projects. The study, commissioned by Ms. von der Leyen and carried out by KPMG, was critical of the ministry’s procurement methods.  It singled out poor project management at the ministry as one of the major causes of the problems.

Mr. Enders was stating something that has long troubled others in the industry: There is deep disappointment with the government’s often contradictory weapons policy. Germany is the third-largest exporter of military equipment, behind the United States and Russia, but industry watchers argue that Berlin risks driving away larger players like Airbus and endangering smaller producers that have nowhere else to go.

The frustration with the government is not only directed at Ms. von der Leyen, who is a member of the center-right Christian Democrats and is often mentioned as a potential successor to Chancellor Angela Merkel.

The main target of the industry’s anger had been her cabinet colleague in the left-right coalition, Sigmar Gabriel, economics minister and leader of the Social Democrats. Mr. Gabriel has sought to restrict arms exports from Germany. He called the weapons export policies of his predecessors a “scandal” and vowed that selling arms to non-NATO countries must only be an exception. Mr. Gabriel has already stopped the sale of weapons parts to Canada because it was going to be used for the production of tanks that would then be sold to Saudi Arabia.

This stricter approach is also having an impact on Airbus. Mr. Enders said that Berlin is blocking the delivery of military helicopters it produces in France to Uzbekistan, because they include German components.

The company is “seriously thinking” about switching all production to France, rather than relying on the components made in Germany. “With these uncertainties in export policy, we are left with little choice,” he said.

However, the industry’s anger is currently firmly directed at Ms. von der Leyen after her comments last week that only a small portion of the German defense industry’s output were to be classed as “key technologies” that for security reasons must be purchased from domestic sources. These include surveillance and security, but the minister said she considered others, such as armored vehicles or submarines, areas in which German firms are global leaders, to be open for competition from abroad.

For many in the industry, her comments were considered a “slap in the face” and are not being taken seriously.

 

Ursula von der Leyen and Tom Enders face off. Source: Handelsblatt

 

The defense industry, which employs around 90,000 people, warns that the mixed signals coming from the ministers could cost jobs.

The companies need to be able to plan ahead for investment purposes. Yet the uncertainty created by the fact that their most important client, the defense ministry, is not committed to purchasing from them makes this extremely difficult.

Unlike big companies, such as Airbus, the smaller producers in Germany cannot simply move production abroad.

“If this is implemented, then the small- to medium-sized producers will die a slow and painful death,” one senior executive, who wished not to be named, told Handelsblatt.

In general, the industry is now demanding a clear position from the government.

“A joint definition of future key technologies in a Europe that is moving closer together has particular importance,” said Claus Günther, chief executive of Diehl Defense, and security spokesman for the Federation of German Industry.

It seems that the barrage of criticism has had some impact on the defense minister’s thinking. Ms. von der Leyen has now said she will consider including submarines on her list.

However, the defense industry complains that the problems go deeper. They say that Ms. von der Leyen has avoided contact with them for months.

Mr. Enders is demanding a better exchange of views between the ministry and the defense companies: “A healthy industrial base in Germany and Europe can only be maintained if industry and politicians talk to each other and not past each other!”

 

Till Hoppe is based in Berlin and covers foreign affairs, Markus Fasse is a correspondent in Munich where he covers the automobile and aerospace industries, Klaus Stratmann is based in Handelsblatt’s Berlin bureau and covers politics and energy. Siobhán Dowling is an editor with Handelsblatt Global Edition. To contact the authors: hoppe@handelsblatt.com, fasse@handelsblatt.com, stratmann@handelsblatt.com, dowling@handelsblatt.com.

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