Military Procurement

Playing Offense on Defense

Ursula von der Leyen is ready to splash out on some new warships. Source: DPA
Welcome aboard or walking the plank? Ursula von der Leyen.
  • Why it matters

    Why it matters

    The internationalization of the tendering process could hurt the German arms industry but also help to break the dominance of U.S. air defence suppliers.

  • Facts

    Facts

    • Recent procurements by Germany’s armed forces have been plagued by cost overruns and shoddy quality, including melting guns.
    • Historically, big arms deals have been the sole preserve of German companies.
    • But the ministry of defense has recently openly tendered for a new air defense system and new warships.
  • Audio

    Audio

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Germany’s military is not well known for its extravagant spending or surplus of hi-tech battle equipment. So when it places a big order, it causes a bit of a bang.

Recently, the defense ministry made its first big procurement deal in years, noting a long list of criteria for the new weapons systems: Better integration with Germany’s allies, lower costs and longer lifetimes. But conspicuously absent from the list was something that always used to be a big part in selection: Securing jobs at German defense contractors.

A new class of warship, the MKS 180, and the MEADS missile defense system will cost billions, but Defense Minister Ursula von der Leyen has decided to make a distinction between the needs of the military and those of the German arms industry.

Ms. von der Leyen apparently blames meddling MPs chasing fat contracts for their districts for several of the armed forces’ (Bundeswehr’s) recent equipment disasters.

“The Bundeswehr’s goal cannot be to subsidize the industry’s jobs,” said a source close to the defense minister.

And it certainly looks as if those days are over – or at least that’s the impression Ms. von der Leyen hopes to give.

The contract for the MKS 180, a versatile mid-sized warship, will be worth roughly €4 billion ($4.24 billion). It will be the first time such a large defense project for the Bundeswehr is tendered Europe-wide. The defense minister is breaking with the tradition of handing navy contracts to German shipyards in the hope that the increased competition will be to the military’s advantage.

The contract for the MKS 180 warship is one of the most exciting for the European defense industry in years.

“We need [the MKS 180] to be able to contribute substantially to NATO and the E.U. in the future,” said Vice Admiral Andreas Krause, who is the inspector of the German navy.

According to information obtained by Handelsblatt, several foreign firms have already expressed interest in building the warships.

The defense ministry is also making clear that it does not see the decision to buy MEADS, an air and missile defense system, as being motivated by industrial policy – at least not in the classic sense of securing domestic jobs.

Horst Seehofer, the conservative state premier of Bavaria, strongly supported the €4-billion project because the missile maker and successful bidder MBDA is partially located in his state. However, a source close to Ms. von der Leyen pointed out that MBDA is backed by U.S. defense giant Lockheed Martin.

Rival U.S. bidder Raytheon, who lost out on the deal, had also promised to guarantee many jobs in Germany.

Still, by opting for MEADS the defense ministry might spark new competition in the billion-euro air defense sector.

Presently, Raytheon is the premier supplier to western militaries with its Patriot missile defense system.

But should other European nations follow Germany’s lead, it could break this dominance. Experts like Christian Mölling from the German Institute for International and Security Affairs consider this likely.

The contract for the MKS 180 is also one of the most exciting for the European defense industry in years. According to sector experts, the French state shipyard DCNS and Spain’s Navantia are vying for it. But the biggest rival to domestic contenders Thyssen-Krupp Marine Systems and Lürssen is the German Naval Yards consortium, which is backed by British defense giant BAE Systems.

A French investor owns the consortium, but it operates three shipyards in Germany, meaning it could build the MKS 180 largely in its home country. Such considerations are, of course, meant to be irrelevant to the European tender.

“But it’s likely that a few politicians from districts along the coast demand a German solution,” said one well-informed source.

 

Till Hoppe is Handelsblatt’s foreign policy correspondent, Martin Murphy covers the defense industry. To contact the authors: hoppe@handelsblatt.com and murphy@handelsblatt.com

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