Arms Exports

On the Defensive

Will the Cougar soon be German-free? Source: EADS/Eurocopter
Will the Cougar soon be made without any German parts?
  • Why it matters

    Why it matters

    If the federal government keeps blocking military suppliers’ exports, “German-free” defense products manufactured elsewhere will gain market share at Germany’s expense.

  • Facts

    Facts

    • German Economy Minister Sigmar Gabriel wants to limit weapons exports to countries with questionable human rights records.
    • Smaller defense suppliers are having their orders cancelled.
    • Many defense industry suppliers produce harmless products, such as seats.
  • Audio

    Audio

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The officials did not mince any words. “Your proposal has been rejected,” read the letter from Germany’s Federal Office for Economic Affairs and Export Control to Philipp Schack.

When he tried to learn more, he received no answer. Mr. Schack, the managing director of the mid-sized business Tital in the Sauerland region of Germany, had applied for an export license for his titanium casings.

It was supposed to be a purely routine bit of admin for the manager, whose company makes one-third of its €70 million sales with supplies for the defense industry. But not this time. The problem was that while the casings for the thermal imaging systems are delivered to France for use in Airbus Cougar helicopters, the customers waiting to buy the Cougars are in Uzbekistan.

The former Soviet republic is not considered a flawless democracy, and German Economy Minister Sigmar Gabriel wants to restrict defense industry exports to countries with questionable human rights.

“The French company withdrew an order for more than €3.5 million, they didn’t want to have German suppliers anymore.”

Philipp Schack, managing director, Tital

Mr. Gabriel, who is also vice chancellor and head of the center-left Social Democrats (SPD), got into an intense dispute with the French government over the matter. Paris was not happy that Mr. Gabriel had blocked orders for small parts.

Airbus CEO Tom Enders publicly complained about it and the Cougar helicopter case was also brought up with the German Chancellery.

Mr. Schack has plenty of reason to complain. Shortly after he had to stop the delivery of the casings, the French company Sagem got in touch with him and withdrew an order for more than €3.5 million – an order that was a done deal, according to Mr. Schack.

“The reason they gave was that they didn’t want to have German suppliers anymore,” he said. “Suppliers in Germany can no longer produce anything under these conditions.”

Mr. Gabriel’s restrictive export policies have weakened an important pillar of many companies in the industry and have inspired the term abroad of products being manufactured “German-free.”

On top of that, the radical restructuring of the German armed forces is stoking a feeling of insecurity, as Mr. Gabriel battles with Defense Minister Ursula von der Leyen over whether or not armored vehicles, submarines and small arms should continue to be supported as key German technologies.

Well-known arms manufacturers such as Airbus, Rheinmetall and Krauss-Maffei Wegmann are already reacting by cutting jobs in Germany or looking for partners in more favorably disposed countries, such as France.

The developments have affected many small to mid-sized businesses, which are not as well equipped for doing business abroad. They account for an estimated half of the value added in the industry and almost 100,000 jobs in Germany.

License to Sell-arms-exports-germany-2013-defense-military-spending-Nato-EU

 

Most of these companies do not produce the weapons that are so frowned upon in Germany. Only about one in five employees in the industry is actually building tanks or assault rifles. The overwhelming majority of firms provide the large systems suppliers with harmless products, such as seats.

Andreas Sedlmayr is the third generation to lead the family business Autoflug. His 250 employees produce, among other things, the seats for the A400M transport aircraft and the Puma armored personnel carrier. “We find ourselves at a crossroads,” he said. “Now the course will be set for how much defense technology we still want to have in Germany.”

The worst thing for businesses is that they don’t know if Mr. Gabriel will persevere with his strict line on exports in the face of resistance, especially from the conservative Christian Democrats, and whether he will come to an agreement with Ms. von der Leyen.

“At the moment, we feel a little abandoned,” said Mr. Sedlmayr. If armored vehicles no longer count as military core capabilities in the end, it would send a dramatic signal,” he said. “We need security for long-term planning. For us it is crucial to know what orders we can count on in 10 years.”

“We are asked what is going on in Germany, for example, by customers in India.”

Ulrich Bernhardt,, head of fluid logistics firm WEW

Ulrich Bernhardt already feels the pervading insecurity when it comes to the bottom line. The banks are only lending to his fluid logistics business WEW under bad conditions. The interest rates recently went up from 3.5 to 5 percent, he said.

“If the exports are questioned in general and many procurement projects are delayed, then the institutions will naturally question the business model,” he said. That won’t immediately put the 120-man company WEW at risk, but it will gnaw at its profitability.

The company delivers special containers for drinking water storage to the German Bundeswehr and the U.S. Army, and is the leading company in its niche market. News of the German defense exports debate has spread around the world. “We are asked what is going on in Germany, for example, by customers in India,” said Mr. Bernhardt.

For foreign competition, this is a perfect opportunity to increase their market share at Germany’s expense.

 

 

Till Hoppe is a correspondent in Berlin for Handelsblatt. To contact the author: t.hoppe@vhb.de

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