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by Klaus Schachinger, Euro on Sunday
DGermany is rethinking. Russia’s invasion of neighboring Ukraine to overthrow the democratically elected government there and bring the country under Moscow’s control radically changed Germany’s defense strategy. Chancellor Olaf Scholz (SPD) announced in a special session of the Bundestag that every member country of NATO would be defended as well as oneself.
“One thing is clear: we must invest significantly more in the security of our country in order to protect our freedom and our democracy in this way,” said the Chancellor. The federal government wants to provide the Bundeswehr with a special fund of 100 billion euros. The sum, which is designed for several years, should already be available in the federal budget for 2022.
The sum is twice as high as the current budget of the Bundeswehr. Scholz now wants to “invest more than two percent of gross domestic product in defense every year.” In doing so, Germany is fulfilling a long-standing request from NATO, but above all from the USA. Experts expect implementation from 2024.
Although Germany’s armament budget has risen from 32 billion euros to 50 billion since 2014, this has done little to change the Bundeswehr’s problems: cumbersome procurement, a lot of bureaucracy, complicated awarding of contracts and equipment from assault rifles, from ships, submarines, helicopters or tanks, which is only conditionally usable. And that despite the fact that manufacturers such as Rheinmetall, Krauss-Maffei Wegman, thyssenkrupp, HENSOLDT and Airbus are sought-after specialists around the world. The equipment and structures of the Bundeswehr, especially the notorious procurement office “BAAINBw” in Koblenz, must be comprehensively modernized in order to be able to finance all renovations and projects from the budget afterwards.
True flood of orders
The idea for a special fund and the list for urgent investments was already formulated last autumn. A third of the sum is to flow into international projects such as the European air defense system FCAS (Future Combat Air System), which Munich-based MTU Aero Engines is developing together with SAFRAN Aircraft Engines in France. The drive for the Next Generation Fighter (NGF) also comes from the two companies. Until Europe’s new jet, which is being developed in the lead by Dassault, can take off – probably only after 2030 – Eurofighters and F35 jets from the US company Lockheed Martin are to replace the aging Tornados of the German Armed Forces. The helicopters from the 1970s are to be replaced by US helicopters.
The shares of German defense companies such as Rheinmetall and HENSOLDT and the stocks of US giants such as Lockheed Martin and Raytheon Technologies gained double digits. With high inflows into their funds, providers of certificates and ETFs on defense indices also benefit from the upside potential.
Lockheed Martin, developer of the F-35 Lightning fighter jet, also owns US helicopter manufacturer Sikorsky. Engine developer Pratt & Whitney, MTU’s civil aviation partner, is part of the portfolio of Raytheon Technologies of Farmington, Connecticut.
In Berlin, the Ministry of Defense led by Christine Lambrecht (SPD) invited representatives of defense contractors to a meeting. Some had prepared very well. Rheinmetall offered the federal government a package with ammunition, helicopters, tracked and wheeled armored vehicles worth 42 billion euros, as boss Armin Pappenberger reported to the “Handelsblatt”. The Dsseldorfers are in negotiations with the federal government on many issues.
The group indicated that the utilization of production capacity could be significantly increased. Most plants work in one shift. Around the clock is also possible, says Pappenberger. In this way, the production of tank ammunition could be increased sixfold in six to twelve months to up to 240,000 units per year. For the Puma infantry fighting vehicle, Rheinmetall announced the delivery of 229 vehicles worth almost 3.7 billion euros. 34 Pumas could be delivered in the current legislative period. There was also a request from the Ukraine and the federal government was examining it, said Rheinmetall.
Hensoldt from Taufkirchen near Munich is a former division of Airbus Defense and Space. The company, which financial investor KKR took public in 2020, develops radar and sensor technology for electronic warfare from the ground and from the air. With HENSOLDT’s passive radar, which is unique worldwide, it is possible to detect fighter jets undetected.
Like the radar specialist, Europe’s aircraft manufacturer Airbus is also involved in the European air combat system FCAS. In addition, Airbus is leading the development of the Air Combat Cloud, the Internet-based system for supporting the NGF fighter jets, and the Eurodrone in a consortium.
INVESTOR INFO
Lockheed Martin’s fighter jets, including the F-35, provided around 40 percent of the $67 billion in revenue for 2021. The Rotary and Mission division develops the Blackhawk and Seahawk military helicopters and accounts for a quarter of sales. Satellites and communications systems provide one-fifth. Missile systems generate 15 percent of the proceeds. A moderate decline in sales and twelve percent more profit, 7.1 billion dollars, are expected for 2022.
In addition to the engine division Pratt & Whitney (30 percent of sales) and the services division Collins Aerospace (30 percent), Raytheon Technologies also includes Missiles & Defense and Intelligence & Space, which produce missile systems as well as laser and cyber weapons and each account for a fifth of sales . Analysts expect sales of a good $69 billion in 2022, seven percent more. There should be a profit of seven billion dollars, plus eight percent.
Rheinmetall is one of the largest manufacturers of military equipment in Europe. The group now wants to hire up to 3,000 employees. The camps were filled in 2021 with steel, aluminum and special chips for a billion euros. Analysts expect sales of around 6.3 billion euros in 2022, a good tenth more than in 2021. Net profit is expected to increase by more than 30 percent to 414 million euros. It is quite possible that the estimates will be increased.
Investor KKR, which brought the radar specialist HENSOLDT to the stock exchange in 2020, is using the price increase to place around ten million shares. That’s a share of almost ten percent. Previously, KKR held 18.8 percent. The state-owned KfW Bank holds a blocking minority of 26.4 percent. Analysts expect 1.7 billion euros in proceeds for 2022, almost 16 percent more than in 2021. Net profit is expected to increase by 14 percent to 133.3 million euros. Higher forecasts are possible. Keep.
A good 35 percent of last year’s revenue of 4.2 billion euros comes from engines for military jets that MTU is developing together with its French partner Safran, as well as engines for civil aircraft that are being built by the Munich-based company together with the Ratheon subsidiary Pratt & Whitney. The stable business with maintenance and services for civil jets provides the lion’s share of revenue and profit. MTU is thus also benefiting from a recovery in air traffic. promising.
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