Rheinmetall chief urges Europe to build defence tech champions

Apr 1, 2024 4:01 pm | News

Unlock the Editor’s Digest for free

The chief of Germany’s largest military contractor Rheinmetall has urged European countries to ditch their preference for national champions and build bigger, more specialised defence groups to compete with US rivals.

Armin Papperger also said in an interview that if Europe wanted closer defence collaboration, countries needed to specialise in different types of military technology.

“It does not make a lot of sense if we, say, pick the second- or third-best technology because one nation wants that” for nationalistic reasons, he told the Financial Times. “That is the most difficult discussion they are having at government level.”

“We need big companies in Europe,” added the 61-year-old Bavarian.

Efforts by EU leaders to beef up defence co-operation have been stymied by the industry’s fragmentation. European arms companies compete against each other, military budgets are controlled at national level and individual countries are keen to maintain control of strategic supply chains, plants, jobs and technological edge.

One example of successful cross-border co-operation is Europe’s biggest missile maker MBDA, which is owned by the UK’s BAE Systems and European aeronautics group Airbus, which each hold a 37.5 per cent stake, with the balance held by Leonardo of Italy.

Europe’s rush to re-mobilise its armies has been a boon to companies such as Rheinmetall, which also makes infantry fighting vehicles, combat drones and the smoothbore gun that sits on the Leopard 2 tank.

The Düsseldorf-based company founded in 1889 did business with Russia until the German government withdrew its export licence in 2014 following the Kremlin’s annexation of the Ukrainian peninsula of Crimea.

Since Russia’s full-scale invasion of Ukraine in 2022, Rheinmetall’s share price has surged more than fivefold and the company expects to have a backlog of orders from Nato members and its allies worth €60bn by the end of 2024. Papperger last month sold shares worth almost €5mn — just over 6 per cent of his total holdings in the company.

Rheinmetall has revived its ambitions to further consolidate the region’s sprawling defence industry. Last year, the company completed the €1.2bn takeover of its Spanish rival Expal, which cemented its leading position in the munitions supply chain. On March 18, it agreed to buy Reeq, a Dutch maker of unmanned ground vehicles used for combat, for an undisclosed sum.

A loud and controversy-prone figure in an industry that typically operates under the radar, Papperger, who also called for the EU to consider an equivalent to Israel’s Iron Dome defence system, is bullish on Germany’s military reawakening, or “Zeitenwende” as Chancellor Olaf Scholz has called the country’s epochal shift since Russia’s full-scale war on Ukraine. A text message from defence minister Boris Pistorius was now enough for Rheinmetall to decide to ramp up production, Papperger told German newspaper Spiegel earlier this year.

While other German defence contractors have complained about the lack of concrete orders from Berlin, Papperger said Rheinmetall had been able to ramp up capacity quickly — the company will next year produce 700,000 rounds of artillery shells compared with 70,000 a year before 2022 — thanks to investments in new production lines before war returned to Europe.

“I always thought that life is dangerous and that the world is dangerous,” said Papperger, who has been with Rheinmetall since 1990. “That’s why we invested early,” he added, pointing to investments in Hungary, Australia and the UK.

Localising and growing production capacity in many countries was important for future orders, he added. “You have to give something back to the countries . . . this is what I discuss at the moment with prime ministers.”

If Donald Trump became US president, “the pressure will be higher” on Germany, said Papperger, but the race to rebuild the country’s military strength would continue regardless of who ended up in the White House.

“The US focuses more on the Asia-Pacific area than on Europe,” he said. Were the “very risky situation” in the region to spark a full-blown armed conflict, “the US will focus on Asia, and then Europe will be totally alone”.

In recent decades, European leaders had taken it for granted that the US would come to the continent’s rescue in case of a military threat but “that will no longer happen”. Papperger said. The US — where Republican lawmakers have blocked military aid to Ukraine — had sent a “very clear message”, which was “we do no longer pay for you”.

But US defence capabilities faced their own challenges, with Papperger singling out growing political polarisation. “A big task for the next US president will be to bring the two parties more together. It’s bad if the biggest economy in the world — and the biggest defence power — is a split nation,” he said.

feed from www.ft.com