Europe’s industry is getting in shape, facing the mounting pressure of American and Asian competition. After a string of market restructurations in the aeronautical, space and industrial markets, the phenomenon is spreading to all segments. European distribution specialist Rubix is leading a vigorous strategy of mergers and acquisitions, to fuel its growth and prepare for the future. The European industrial defense world, which was long plagued by problematic levels of fragmentation, is undergoing a revolution, as French and German interests have teamed up to better serve national and European sovereignty interests.
Two leaders lined up to serve common interests
KNDS is a European defence industry holding, resulting from the merger between Krauss-Maffei Wegmann, a German armoured platform manufacturer, and Nexter Systems, a French formerly government-owned company. The first is known worldwide for the Leopard family of tanks. The second is known for its Leclerc MBT, and in India in particular, to supply various systems for aircraft, such as the THL 20 gun. This makes KNDS the result of complementary cultures and market stances. As such, it has achieved a level of industrial and military relevance which Europe had never enjoyed.
France and Germany, in quite different ways, keep their armies in good shape. Both countries stand out in Europe, with the level of effort they put into defense, both of themselves and of Europe. Germany is gradually coming to terms with the need to spend more in defense, while France regularly puts its armed forces to hard work. French defense firm Nexter has the luxury of having countless officers with rich field experience at hand, from whom they can draw operational feedback.
Thus, they can guarantee that their equipment is always adapted to the task, regardless of battlefield shifts – which have been numerous in recent years. German KMW, on the other hand, does not. It does, however, have world-famous engineers in generous numbers, and many foreign clients which have purchased their Leopard 2 tank.
KNDS therefore unites the two armament experts, both integrators and defense system architects, which produce their own equipment but also coordinate large programs with the help of European subcontractors, such as Italian Leonardo, European MBDA and German RheinMetall.
Remarkably enough, this new company was not formed under governmental pressure, at least from Berlin. The company was created voluntarily, after the shareholders identified the opportunity to get the best of both worlds and create a European industrial stronghold, instead of nonsensically competing amongst Europeans, as had been the norm until now.
Indeed, it became obvious to all shareholders that Nexter and KMW were natural partners, with the former specialized in weapons manufacturing, and the latter a specialist of mobility (KMW was initially specialized in locomotives), each with two centuries of experience under the belt.
The formation of KNDS is a true game-changer for Europe, with this new combination of military experience and expertise. Nexter brings forward in-depth connections with the military world and guarantees, through feedback, that requirements and specifications are actually validated, thanks to France’s constant military activity. Germany completes with a long-standing tracked armor culture, which fits perfectly well in the NATO environment. As such, both countries are among the few which field domestic equipment in their own armies. And, in the case of France, which actually use them in operational conditions.
The trigger for the creation of the new company was the need to develop the Main Ground Combat System (MGCS), a technological breakthrough in its own right. The future network-centric warfare system, which will link all units so as to dissipate the fog of battle, is so advanced that Paris and Berlin saw favorably that the natural partners should unite their forces to achieve it. KNDS’ will and intrinsic capacity to produce this new system does not preclude openness to partnerships with major subcontractors, such as RheinMetall.
What does this change for Europe’s sovereignty?
Mergers and acquisitions are common in many tech-hungry fields: space, aeronautics, electronics, missiles, and even, to some extent, naval industries. But land industries have traditionally remained fragmented, which exposes them to predatorily commercial interests bringing them down. As an example, British land industries have collapsed in recent years, as American interests were pushing in.
With the two giants working together, KNDS is far less exposed to take-overs than if they were standing alone. Germany was particularly exposed to this threat, given Berlin’s non-interventionist stance. As an example, German defense subcontractor RheinMetall is already penetrated by American capitals to the extent of 30%. The creation of the joint venture was therefore greatly beneficial to French and German governments, to the point that both chairmen were invited by the French National Assembly to present their project (transcript here, in French).
KNDS is Europe’s first concrete step towards a consolidated land defense
Consolidation is something new to the European market. While mergers and acquisitions have occurred in large numbers, they are in fact additional fragmentation, not consolidation. American group GDELS, owned by US firm General Dynamics, has acquired many companies in Europe, but only with the aim of acquiring rights to compete in otherwise domestic reserved government bids, such as Santa Barbara systems, or to grab specific technologies – not to increase European sovereignty. The American LAV, for instance, is a result of such strategies and was built on Swiss Mowag’s technology. Nexter, on the other hand, intends to become a cornerstone and the main servant of Europe’s defense consolidation.
Numerous political ramifications
A partnership between KMW and RheinMetall had been considered.
Germany’s own defense industry, much like Europe’s, is very fragmented. Naturally, melting together all players in the German defense world came to mind. KMW and RheinMetall were obvious candidates, but three major obstacles made the project unfeasible. Firstly, both companies have very different strategies and philosophies, which many consider incompatible. Additionally, such a merger would have had no added value, with neither side having something to bring to the other, unlike in the Franco-German partnership.
However, many details are still under discussion and the debate goes on in Germany, occasionally hampering the partnership and its development of the MGCS program. Lastly, came Germany’s political ambivalence around this matter. Thus, German Parliament Member Kiesewetter, after opposing the creation of KNDS which, according to him, was likely to deplete Germany’s strategic autonomy, is now a staunch champion of German-French cooperation and projects. After the idea was dropped, the KMW – Nexter Partnership was successfully implemented.
Tight space for German industrials.
German defense industrials often complain about the hypocrisy of their government, which enjoys the benefits of the high-tech industry, but do not want to be associated with anything military, for political reasons – something which led Frank Haun, KMW CEO, to consider his company to be “the mistress of politics”. Indeed, France has no qualms about leading military projects, whereas Germany has a long-standing anti-militaristic stance.
German parliament still pussyfooting
Berlin still has much to settle, before things can finally move forwards for Europe, as several macro-psychological hang-ups still get in the way. Parliament member and former Budget commission vice-president Johannes Kahrs was previously in favor of further building Europe on the Franco-German duo, as long as advances remained in limbo.
But when the time to talk went, and the time to walk came, German pride (as the “sole country for armor”) got in the way and gave him cold feet, leading him to balk at validating the MGCS budgets. This was all the more regrettable since workers unions, such as IG Metall, had understood the economic benefits for all, as early as 2015… Current incumbent Dennis Rohde will now have a chance to actually get things in motion, if the construction of Europe matters more to him than to his predecessor.
Political and operational goals
The spectrum is broad, and it includes the most extreme options: certain voices still call for the simple and outright suppression of armed forces altogether. Some European nations are content with off-the-shelf armed forces that spend their years in garrisons and in field exercises. Some antiquated views even call for the resumption of large battalions facing the East, in case the Soviets return.
But the prevailing view between Germans, French and their European partners, is an active, experienced and combat-ready Army which would enable Europe to matter in international disputes. Even Germany, through its Parliament, calls for more active participation in the world’s affairs, while remaining profoundly inclined towards peaceful resolution of conflicts. In the current state of affairs, Germany simply has no voice in the international fold, due to its utter lack of military potential.
Things will change, if and when Germany associates itself with a militarily active country (or becomes one). A spat recently occurred among German Parliament members, one of whom remarked that organizing military commemorations made little sense when the Bundeswehr was so poorly equipped. MP Kiesewetter insisted upon the need to maintain and uphold commemoration, while others insisted budget increases were the only valid point of focus.
Christian Lindner, head of the FDP, also represents a hope for this opportunity to be seized and this new dynamic to stand the test of time: his understanding of defense matters could be shortly come in handy to the political coalition which is forming and in which he is central.
As reported by Reuters Saine Siebold, “Defence State Secretary Peter Tauber told lawmakers the 2019 armed forces budget included significant increases, but hikes for the following three years under a plan approved last week by Chancellor Angela Merkel’s cabinet would leave the service short.”
Be it from an industrial or a military standpoint, much is to be hoped for, both by Germany and France, from this new form of trans-European partnership. All fields involved, from Defense capacities to political influence, and from jobs to technological advances, should see their interests served through KNDS.
Once Germany has settled its internal debates and strengthened its resolve in the matter, all of Europe – not just France and Germany – will finally benefit from a coordinated and optimized defense industry. But for that, German parliament members need the help of their industrial partners, to shed light on perspectives they are not usually called upon to consider.