After several difficult years, marked by the refusal by the Bundeswehr to turn to the KF41 Lynx and the KF51 Panther, the German Rheinmetall is now in a much more favorable dynamic, with the delivery of the Lynx to Hungary, and above all, the important contract in preparation around its two flagship armored vehicles, for the Italian Army, in partnership with Leonardo.
Despite these apparent difficulties, Rheinmetall has, over the last five years, been one of the defense companies in Europe having recorded the strongest growth in its Defense turnover, increasing from $3,4 billion in 2018 to $6,1 billion in 2023, an increase of 80%, much higher than the 22,3% of BAe, the 15,2% of Airbus Defense, the 13,4% of Thales and even the 41% of the Italian Leonardo.
And the dynamic does not seem destined to fade, the German group having recently announced an increase of 33% in its turnover in the first half of 2024. With this in mind, its CEO, Armin Papperger, did not hide his satisfaction, nor the ambition he now has for his group: reach a turnover of €40 billion in 2030, and establish itself as the leading European defense company on that date.
In this section:
The strongest growth in the European defense industry in 2023
It must be said that, in recent months, good news has come one after the other for the Düsseldorf group. First, about the KF41 Lynx infantry fighting vehicle, while the assembly plant built in Hungary started its activity, to supply some 218 armored vehicles to the Hungarian armies at a rate of 50 units per year.
The Lynx should also undergo its trial by fire by the end of 2024, with the delivery of the first examples promised to Ukraine. It is also still competing in Greece and the United States.
The second growth driver of the German group is the Skyranger 30 anti-aircraft system and 35, already chosen by several European armies, including the Bundeswehr for 49 examples, in order to replace the Gepard. Here again, several examples are intended for Ukraine, to densify anti-missile and anti-drone defense around critical installations and/or units in combat.
Artillery represents a third point of support for the group's sales growth, the latter notably supplying the L/52 tube used by the Pzh2000 and the RCH-155 ordered by the Bundeswehr, Ukraine and a big favorite in Switzerland . It is also Rheinmetall which manufactures the barrel of the new Leopard 2A8 from KNDS.
However, it is the upcoming signing of the partnership with Leonardo, for the design and construction of 200 combat tanks and more than 500 infantry fighting vehicles for the Italian armies, which marks a turning point in Rheinmetall's ambitions. This contract, estimated at more than €30 billion, will, in fact, allow it to launch the construction of its new KF51 battle tank Panther, which he presents as an alternative to the future Leopard 2AX, Abrams M1E3 and even MGCS.
This dynamic enabled Rheinmetall to record the strongest growth among major European defense companies in 2023, with an increase of 21%, compared to 10% for Thales, 9% for BAe, 7% for Airbus and -4%. for Leonardo.
Rheinmetall targets a turnover of €40 billion in 2030, and first place in the defense industry in Europe
Above all, it allows Armin Papperger, its CEO, to now openly display the ambitions targeted by the aggressive strategy he has implemented since he took the reins of the company in 2013.
Indeed, during the presentation of the group's half-year results, showing very comfortable growth of 33%, it indicated that it intended to cross the milestone of $10 billion in turnover in 2024, compared to €7,1 billion in 2023 (Defense + civil), an increase of 40%.
But Rheinmetall's ambitions are not limited to this objective. Indeed, its CEO has revealed the medium-term objective of the Düsseldorf company: to achieve a turnover of €40 billion in 2030, four times more than the target for 2024. This figure corresponds, today, to the total turnover of all French and German defense industries combined.
This assumes linear progression of more than 30% per year, for the next five years, an objective which seems to apply more to Tech startups than to a company founded in 1889. However, the recent successes commercial relations of the group make, if not certain, at least credible, such ambitions, which would propel the company to the top of the European hierarchy of defense companies, as well as into the TOP 5 of Western defense companies.
An industrial and commercial strategy at odds with European defense industries, personified by its CEO, Armin Papperger
To achieve this, Armin Papperger intends to rely simultaneously on the increase in demand for armaments in Europe and around the world, as well as on an aggressive external growth strategy, allowing the group to extend its technological, industrial and geographical scope.
The fact is, since his arrival at the head of the company, he has never stopped taking the systematic opposite approach to the traditional functioning of Western defense companies.
First, by dissociating itself from the strictly national vision of most of these companies. Thus, Rheinmetall has established itself strongly, from an industrial point of view, in many countries of customers and prospects: in Great Britain in 2019, by taking over BAe's armored vehicle activity, in the United States with American Rheinmetall, in South Africa… Rheinmetall has also entered into several joint ventures to increase its local presence, such as in Hungary, Ukraine and, recently, in Italy.
Above all, Rheinmetall does not hesitate to invest massively its own money to develop new weapons systems. Thus, its three flagship products of the moment, the KF41, the KF51 and the Skyranger, were developed mainly with its own funds, without public orders or safety net.
This strategy is the opposite of those applied by the vast majority of European, and even Western, companies operating in the defence sector over the last thirty years, which most often refuse to invest more than a few million euros in the development of equipment or technology using their own funds.
A 130-year-old industry managed like a Startup
The fact is that Armin Papperger has shown over the past ten years that a new path could be traced for the management of the defense industry, without involving national armies in advance.
This is not, in itself, a first. Certain companies, particularly in the naval field such as TKMS with the Type 209/214 submarines and the Meko corvettes, or Naval Group with the Gowind corvettes and the Scorpene and Blacksword Barracuda submarines, had shown that it was possible to develop certain major equipment, only for export.
However, Rheinmetall's CEO has implemented a strategy that leverages the markets to support its growth, through the acquisition of companies, as well as the development of new equipment, in anticipation of the market phase.
In doing so, the company was able to develop its own equipment, even before the German armies were aware of the need, such as the SHORAD Skyranger anti-aircraft system, or the KF51 intermediate-generation battle tank. Panther.
At worst, even if the Bundeswehr resisted the company's appeals, as was the case in preferring the Puma to the Lynx, and the Leopard 2A8 to KF51, these developments in equity give the company perfect freedom of action, to establish the necessary partnerships with other countries, as was the case for Hungary, Ukraine and Italy.
This capital capacity, which is closer to managing a startup than a 130-year-old company, also allows the group to plan horizontal growth by intervening in new areas through certain partnerships and joint ventures, particularly with American companies such as Lockheed Martin or Israeli companies such as Rafael (EuroSpike).
A threat to German and French defense industries?
The ambitions displayed last week by Armin Papperger, far from being fanciful, are therefore based on a strategy launched many years ago, which now seems to be showing its full effectiveness.
The fact remains that if Rheinmetall were to actually achieve its objectives by 2040, this would very likely profoundly upset the industrial and defence balances in Germany, as well as throughout Europe.
It is therefore very likely that the Düsseldorf group will seek, once again, to take control of KNDS Deutschland, through an offer that the Baude family will have a hard time refusing, especially coming from a national and European giant like this one. Other major German players, such as Hensoldt and TKMS, could, in turn, be absorbed by Rheinmetall in the coming years, even if the German federal state invests in it.
In doing so, Rheinmetall would become a national giant, like BAe in Great Britain, or Leonardo in Italy, however surpassing these two companies to take the first step of the European podium of defense industries.
However, if Rheinmetall achieves a dominant position like this, while relying on the investment strategy implemented over the last ten years by Armin Papperger, the German group would simultaneously have the financial, industrial and technological means to steer German defence industrial policy and to accelerate and extend its ambitions.
In doing so, French groups outside the Rheinmetall perimeter would be hit hard by the global competition from this new giant, which is much more dynamic and proactive than BAe, Airbus and Leonardo can be today, particularly in the commercial and industrial agreements that could be concluded with potential future customers.
It is also very likely that, in such a scenario, European programs like MGCS will be abandoned by Germany, to favor the rapid construction of a new tank based on the KF51 and the Leopard 2AX, more quickly developed, and much less expensive, therefore ready for the international market.
Conclusion
If, for several years, the strategy applied by Rheinmetall and its CEO, Armin Papperger, could seem disorganized, even aggressive, in particular in the framework of the MGCS program, and if commercial successes were slow to come, it now appears much more structured and planned, while successes have been coming one after the other in recent months.
Above all, this strategy, which does not hesitate to take the direct opposite view of the customs and practices of the European defence industry, by managing its activity like a Startup, and not like a century-old group, could well allow it to take, as announced this week, a dominant and unchallenged position in Europe, directly threatening the strategic markets of other European companies, particularly in France.
In fact, if the growth trajectory targeted by Rheinmetall were to be confirmed in the coming months, the major French defense industrial groups, such as Thales, Naval Group, Safran, KNDS France, MBDA and Dassault Aviation, would certainly only have a narrow window in which to transform their own strategies, in order to deal with it, in particular by relying on the markets to finance internal and external growth, and to reverse the paradigms which today make public procurement the immovable starting point for any initiative.
It remains to be seen whether the conservatisms, which are known to be very powerful within the French BITD, will be able to step aside in the face of this need, or whether the latter will gradually see its external markets swallowed up by the pace imposed by Rheinmetall in all areas of the defence industry.
Article from August 26 in full version until October 12, 2024
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