Dusseldorf The ongoing war in Ukraine is boosting business for manufacturers of tanks, armament electronics and air defense systems. And the big orders are yet to come.
The expectations are reflected in the share prices of Rheinmetall and Hensoldt. They are the stocks with the best increase in value over the past year. Previous forecasts assume that this development will continue.
The Russian attack on Ukraine has shifted priorities in federal politics. Just three days after the outbreak of war, Chancellor Olaf Scholz announced a special fund of 100 billion euros for the Bundeswehr.
This is intended to pay for armament projects in the coming years. Some of which have long been decided, which were previously considered unfinanceable.
“Under extreme conditions and under great time pressure, we made decisions that were hardly imaginable in security and defense policy in our country over the past three decades,” wrote Federal Defense Minister Christine Lambrecht and the Inspector General of the Bundeswehr, Eberhard Zorn, in a joint statement Announcement shortly before the turn of the year. For example, the budget committee for 2023 was able to submit “an unprecedented number of procurement projects for a decision”.
Bundestag has approved armaments projects in the tens of billions
The industry is satisfied for the time being. After “initial problems with the budget allocation”, Hans Christoph Atzpodien, General Manager of the Federal Association of the German Security and Defense Industry, sees the way for procurement decisions as “largely paved”.
So far, however, more money for defense has only been budgeted for a temporary period: “From the point of view of the Bundeswehr’s needs, it is crucial that the repeatedly promised budget increase in the defense budget towards the repeatedly promised two percent of gross domestic product will already come in 2023.” Otherwise, the special fund “could not fully fulfill its purpose”. The money must be used up by 2026.
For this year, the Bundeswehr has already received approval from the Bundestag for armaments projects in the tens of billions. This gives German industry a certain planning security beyond 2023. But: A large part of the special fund will flow into the USA. For example, in the procurement of 35 “F-35” fighter jets from the US manufacturer Lockheed Martin.
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Money still flows to Germany. Rohde & Schwarz receives an order worth billions for 20,000 tap-proof digital radios. Almost 120,000 assault rifles are to be ordered from Heckler & Koch for a good 270 million euros.
The armaments projects mean a positive economic trend for the entire defense technology industry in Germany. In addition to large companies such as Airbus Defense and Space, Rheinmetall, Hensoldt, Krauss-Maffei Wegmann, Diehl Defense and Thyssen-Krupp Marine Systems, this also includes many small and medium-sized companies.
The Militarization Information Center estimates that there are around 1,350 medium-sized defense companies in Germany, each with up to 1,000 employees and an annual turnover of up to 300 million euros.
Less dependent on the controversial export business
Companies such as the Siemens conglomerate, vehicle manufacturer MAN and automotive supplier ZF Friedrichshafen are also benefiting from a revitalized armaments business. Before the turn of the century, the defense business, often regarded as “dirty”, was already on the cross-off list for many.
Orders that go to Germany or Europe should also alleviate the problem of this “dirtiness” for the industry. Exports to countries like Saudi Arabia and Qatar are highly controversial. The industry itself and politicians argued that the armaments industry would not have survived without these deals.
In the course of the modernization and digitization of defense systems, new companies could enter the market. The young company Helsing, for example, is showing great ambitions, with more than 100 million euros in investor money to take enemy reconnaissance to a new level.
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Key development projects will focus on artificial intelligence, satellite communications, networked systems, encrypted communications, and human-autonomous machine collaboration.
Atzpodien meanwhile sees a risk for industry and defense capability: “Not least in the area of military goods in Europe, we have a significant dependence on Chinese raw materials,” he warns, referring to the Taiwan conflict. As long as you still have the leeway to free yourself from such dependencies, you should do so.
Another risk was recently revealed by the debate about the operational readiness of the Puma infantry fighting vehicle: In times of crisis, the armaments companies are in the public eye – and with them every manufacturing problem.
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