EXCLUSIVE

Government to Accelerate Purchase of Five Warships

2-image-k130 korvette ein dahmer
Full speed ahead.

The German government is accelerating the purchase of five new warships in effort to finalize the deal before federal elections in September, according to Handelsblatt’s sources in the coalition.

A consortium of ThyssenKrupp Marine Systems (TKMS) and Lürssen will submit a bid on Friday to deliver five K130 corvette warships. The government aims to negotiate the required contracts in just two weeks, which is much faster than normal. Such negotiations typically take months due to the complexity of the contracts.

The German parliament’s budget committee is set to appropriate funds both to order the new warships and to upgrade already purchased corvettes in June. TKMS and Lürssen will also be responsible for the upgrade, according to documents obtained by Handelsblatt.

The contract is expected to nearly €2 billion ($2.1 billion) in total, significantly more than original estimate of €1.5 billion last October. TKMS and Lürssen declined to comment. The defense ministry acknowledge, however, that the timeline for the procurement is “ambitious.”

Luckily for the companies, Eckhardt Rehberg (CDU) and Johannes Kahrs (SPD) lead the budgetary committee. These politicians represent Wolgast and Hamburg, where coincidentally the shipyards from ThyssenKrupp and Lürssen are located.

The K130 corvette has not brought much joy to the German navy. In fact, the ship has been an unmitigated disaster. Five corvettes were previously delivered with delays of up to four and a half years and showed considerable design deficiencies. Gears broke, and the air in the ships was temporarily so toxic that the soldiers became sick.

In short, the K130 was not an example of the German naval industry putting its best foot forward. After the last ship was handed over in November 2012, the project was meant to end. But to the surprise of many – even in those in the ministry of defense – it was brought back to life. The navy needs new ships, and the German shipyards need work, was the justification among parliamentarians.

The award process, however, raises a number of questions. The procedure was not carried out by the defense ministry, but by the budget committee of the Bundestag, Germany’s parliament. The defense ministry, headed by Ursula von der Leyen (CDU), would rather have gone after the MKS 180. These powerful frigates are better suited to the operations of the navy than the smaller corvettes. However, the tender for these “multi-purpose combat ships” had been so delayed that the deal could no longer be decided before the Bundestag elections in September.

Without the K130 order, the shipyards threatened to go out of work. Luckily for the companies, Eckhardt Rehberg (CDU) and Johannes Kahrs (SPD) lead the budgetary committee. These politicians represent Wolgast and Hamburg, where coincidentally the shipyards from TKMS and Lürssen are located.

It was Mr. Rehberg and Mr. Kahrs who revived the K130 program last October. The five corvettes were to be acquired for €1.5 billion to meet security policy challenges, the politicians declared in unusual unity. Their colleagues from the defense committee were not included in the dealmaking at the time, which created some anger. The K130 process was hectic, according to the SPD’s defense spokesman, Rainer Arnold.

Even if the shipyards can count on the support of government leaders, the order could still fall through. The German Naval Yards (GNY), a competitor, says it was disadvantaged in the process and wants to file a lawsuit over the alleged preference given to TKMS and Lürssen by the government.

According to GNY Chief Executive Susanne Wiegand, her company will use all legal resources to achieve a fair awarding of the contract. “We have already filed a complaint,” she said. From GNY’s point of view, the new corvettes will differ considerably from the ships that have already been delivered. As a new project the order would have to go through the normal government procurement process, Ms. Wiegand explained.

A lawsuit could mean a period of legal uncertainty, both for the government and the shipyards and the order would have to be put on ice, at least temporarily. This could delay the delivery of the ships substantially, this time even if there aren’t any technical issues.

Martin Murphy covers the steel, car and defense industries for Handelsblatt. To contact the author: murphy@handelsblatt.com

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