June 24 (Reuters) — Germany has decided to cancel a major frigate program due to delays and rising costs, which caused shares of its leading defense company, Rheinmetall, to drop significantly on Wednesday. The project...
June 24 (Reuters) — Germany has decided to cancel a major frigate program due to delays and rising costs, which caused shares of its leading defense company, Rheinmetall, to drop significantly on Wednesday.
The project aimed to produce six F126 frigates, but it has faced numerous issues. Germany was considering hiring Rheinmetall's NVL division after the original supplier, Dutch Damen Schelde Naval Shipbuilding, failed to meet deadlines and budget requirements.
The German defense ministry announced the cancellation, stating that continuing the program would have increased the cost for the six ships to over €18 billion ($20.4 billion), much higher than the initial estimate of around €10 billion.
Instead, Berlin plans to purchase eight smaller Meko A-200 frigates from Thyssenkrupp Marine Systems (TKMS) with a budget of €11.6 billion, confirming earlier proposals.
This decision was influenced by "significant delays, substantial cost overruns, and unforeseen risks," according to the defense ministry.
Rheinmetall, which is the largest ammunition manufacturer in Europe, saw its shares fall by as much as 16.7%, reaching their lowest point in almost 15 months. Conversely, TKMS's stock rose by 8.2% at 1000 GMT.
Since placing the F126 order in 2020, over €2 billion has already been spent. Rheinmetall had proposed to take over the project for a total of €12.8 billion, as reported by German magazine Der Spiegel.
EXPENSIVE CHANGE IN PLANS
The defense ministry had indicated in March that it intended to purchase four Meko A-200 frigates from TKMS as a temporary solution to fulfill NATO anti-submarine commitments starting in 2028, with deliveries expected by the end of 2029.
On Wednesday, the ministry stated its goal of acquiring a total of eight Meko frigates "primarily for anti-submarine warfare," with an estimated cost of €6.3 billion for the first four and €5.3 billion for an option on four more, if decided by the end of 2026.
Rheinmetall’s CEO, Armin Papperger, mentioned in May that they anticipated finalizing the F126 deal in the second quarter.
TKMS expressed satisfaction in its contribution to strengthening the German navy, noting that preparatory work began in February. They plan to deliver the first Meko A-200 frigate in 2029 and could involve other German shipyards if the option for four additional ships is taken.
Rheinmetall did not provide any comments.
Amid ongoing complex rearmament efforts in Europe, where Berlin and Paris have canceled their joint fighter jet project and delayed their tank program by nearly a decade, the Franco-German tank manufacturer also announced plans for a dual IPO in Frankfurt and Paris, which could be worth around €15 billion, according to sources.
In a sign of heightened competition, both TKMS and Rheinmetall are vying to acquire the smaller company German Naval Yards Kiel.
($1 = 0.8814 euros)