Germany

GERMANY: TKMS’ FUTURE IS NOW ON THE LINE…

OIDA Strategic Intelligence – Commentary

• Everyone is keen to push for the sale of TKMS activities (from politicians to shareholders) and ThyssenKrupp CEO Heinrich Hiesinger appears to be attentive to the market about TKMS activities;
• Without the Naval Surface Vessel division, the submarine activity is not profitable;
• If TKMS is sold, the buyer will benefit from synergies, from cutting-edge knowledge and from a non-competitive German market. The buyer will also collaborate with important naval equipment suppliers such as Atlas Elektronik GmbH and its main subsidiary AEUK.
• Losing the MKS 180 contract means that TKMS has lost potential sales abroad and credibility regarding the fact that it has not been chosen by the German Navy.

OIDA Strategic Intelligence – Our Offer

• Understanding and identification of potential industrial synergies (product portfolio), value chain tracking (with subcontractors and suppliers)
• Identification of past/present/future business opportunities and monitoring of order intake • Key figures on actors (company profiling on Abeking& Rasmussen, Atlas Elektronik GmbH, Fassmer, German Naval Yards, Lürssen, Meyer Werft, TKMS but also Damen, Fincantieri, Naval Group, Navantia, Saab, Thales Underwater Systems and Ultra Electronics) AND markets (submarine, surface vessels, etc)
• Key figures on partnerships and monitoring of export customers
• Monitoring interest of TKMS’ sales offshoots.

What is going on?

ThyssenKrupp is stepping away from the shipyard business after having lost the MKS 180 contract (3.5bn€ /£3.07bn). This decision comes from the German Federal Government, as it loses out on constructing the MKS 180 ship to its rivals German Naval Yards and the Dutch Damen (DSNS). The German Federal Government plans to spend 3.5 billion Euros on four units and then an additional 1.5 billion Euros (£1.32bn) for two more units later on. This ship will likely receive interest from other foreign navies. TKMS’ other contracts are now on the line such as Egypt’s order of frigates.

The MKS 180 frigate is the most expensive and prestigious construction in the history of the German Navy. This loss can be perceived as a first foot in the door for foreign constructers into the German ship making industry. This could be the beginning of the end for national German ship making. However, it is conceivable that TKMS might build parts, and deliver components for the MKS 180.

TKMS is a leading company in terms of military ship and submarine making for the German navy. Until today it has had a near monopolistic position fostered by the German government. However, this contract was advertised Europe-wide instead of being nationally awarded. Indeed, government members are now pushing for a European consolidation and seem to be ready to let TKMS go. Shareholders are putting pressure on CEO Hiesinger to dispose of the TKMS holding which weighs on ThyssenKrupp results.

Concerning the MKS 180 bid, TKMS presented the highest price and doubts had arisen about if the ship maker could build such a large ship at all due to recent logistical and financial set-backs (late delivery of the K130 Corvettes, massive defects on the F125 Frigate).

Following this commercial failure several scenarios are under discussion: collaborating with competitors, selling off the branch, or, if no agreement is reached, giving up completely the company. Discussions with Naval Group and Lürssen Group are being considered as well. However for experts, if the Naval Surface Vessel division is sold, the Submarine business will most likely be on the line. The ship market is small, and the two intertwine on an engineering and purchasing level. Negotiations with Rheinmetall failed some years ago due to elevated prices.

Damen (DSNS), German Naval Yards and Lürssen have shown signs of teaming up, not only for the construction of the MKS 180, but to also to work as a consortium for other future projects.

Written by Benjamin Voisin (Finance Analyst) & Alexandra Stafferton (Junior Analyst) for OIDA Strategic Intelligence

AIRBUS RESCUES THE C SERIES

October was an interesting month for Canadian C Series manufacturer Bombardier, when it announced that European company Airbus is set to acquire a 50.01% interest in the C Series Aircraft Limited Partnership (CSALP) with no upfront cash investment. Bombardier will own 31% and Investissement Québec (IQ) approximately 19%. The C Series is a single-aisle aircraft designed for the 100 to 150-seat market segment. The agreement will see Airbus supporting the C Series with sales and marketing support, managing procurement (such as leading negotiations to improve CSALP level supplier agreements), and offering customer support.

The Boards of Directors of Airbus and Bombardier have approved the transaction together with the Government of Québec. Like any transaction of this kind, it is subject to regulatory approvals and conditions with no guarantees that the transaction will be completed and the conditions will be met. The transaction (expected to be finalized in the second half of 2018) is a lifeline for the C Series, which has been plagued with a number of issues such as delays and cost overruns.

Airbus has an extensive global reach and it should come as no surprise that this partnership will stimulate confidence in the C Series. At the Dubai Airshow this month, EgyptAir signed a letter of intent to purchase up to 24 CS300 aircraft – 12 CS300 with purchase rights for an additional 12 aircraft, which if exercised could see a deal valued at US$2.2 billion. According to various media sources, earlier this month Bombardier stated that an unidentified European customer planned to purchase 31 C Series aircraft with options for an additional 30. With Bombardier failing to close on a major deal since Delta Airlines C Series order in April 2016, these two new potential deals foretell a positive turnaround.

The C Series has had a rough ride in the U.S. due to Boeing’s trade complaint, which has resulted in a 300 per cent import duty tariff. Bombardier’s decision to hand over control of the C Series to Airbus is a smart move and a financial respite. Québec’s Deputy Prime Minister, Minister of Economy, Science and Innovation and Minister responsible for the Digital Strategy, Dominique Anglade, stated that the arrival of Airbus as a strategic partner would ensure the sustainability and growth of the C Series programme.

Those in the aviation industry and analysts alike are watching closely as to what move competitor Boeing will make. Boeing’s, (the largest aerospace company in the world), attempt to block the C Series from the U.S. market may have been a misstep. The tables could turn with the Airbus deal ultimately damaging Boeing in the long run especially if the C Series is assembled within U.S. borders in Alabama. Analysts predict that the deal could prompt Boeing to form a stronger alliance with Brazilian aerospace company Embraer.

 

Written by Sylvia Caravotas (Satovarac Consulting) for OIDA

RHEINMETALL DEFENCE GETS IT RIGHT WITH RDM

Rheinmetall Defence group has an impressive list of divisions and subsidiaries across international borders dealing in weapons and ammunition, vehicle systems, and electronic solutions. Even though the subsidiaries are responsible for their own respective market segments, Rheinmetall Defence has managed to strategically increase its overall global reach through these subsidiaries.

As a subsidiary of Rheinmetall Defence, Rheinmetall Denel Munition (Pty) Ltd (RDM) is jointly owned by Rheinmetall Waffe Munition GmbH of Germany (holding 51% of shares with 3 board members) and Denel (Pty) Ltd. of South Africa (holding 49% of shares with 2 board members). RDM was established in September 2008 when Denel divisions Somchem (Somerset West and Wellington sites), Swartklip, Boksburg, and Naschem were integrated into RDM. Surprisingly, the South African National Defence Force (SANDF) accounts for only 6% of RDM’s business and they acquire the majority of their munitions from the company. RDM’s big business lies in exports.

With 1 416 employees, RDM specializes in ammunition and develops, designs, and manufactures large and medium calibre munitions excelling in the field of artillery, mortar, infantry systems, and plant engineering for various filling and lapping facilities. Currently, RDM’s order book accounts for one and a quarter years of production. RDM has been growing at 20% per year and continues to invest in upgrading its facilities with the next three years seeing another R550 million investment (it has invested R1.1 billion to date). RDM is also conscious of the environment and is involved in protecting wildlife and sustaining biodiversity at three of its four production sites.

PRODUCT PORTFOLIO

Around 70% of RDM’s current production comprises artillery rounds and mortars. In addition to producing a wide variety of ammunition such as the 105 and 155 mm artillery shells; 60, 81, and 120 mm mortars; 40 x 51 mm grenades; and 76/62 mm shells, RDM also manufactures bombs, rocket, and missile subsystems.

  • Artillery ammunition (105mm and 155mm)
  • Mortar ammunition (60, 81, and 120mm)
  • Missile subsystems (propulsion units, warheads, etc.)
  • Minefield breaching systems
  • Ammunition for naval applications
  • 40mm infantry ammunition and pyrotechnics
  • Propellants and raw materials
  • Ammunition and metal components

CUSTOMERS

RDM’s largest export markets are the Middle East, Asia-Pacific, and Europe. RDM has been a supplier to Denel Dynamics for all rocket motor propellants (such as the A-Darter and Ingwe). RDM also provides Tawazun Dynamics (a joint venture between the United Arab Emirates (UAE) Tawazun Holdings and Denel) Al Tariq bomb kit with insensitive explosive filling for the Mk 81 and Mk 82 bombs. RDM is also the sole supplier of propellants for Forges de Zeebrugge FZ 70 rockets.

In North Africa following four years of construction, RDM is in the final stages of commissioning a universal filling facility able to fill a variety of munitions including medium and large calibre ammunition and aircraft bombs. In the Middle East, RDM in conjunction with Saudi Military Industries Corporation successfully built an ammunitions factory. Denel’s 2015 annual financial report showed a strong increase in booked orders with a current value of more than R3.1 billion (major booked multi-year projects from Singapore, Saudi Arabia, and UAE).

Potential future business includes a €28 million contract for Plofadder mine clearing systems and a €65 million contract for ammunition from an international customer. RDM CEO, Norbet Schulze, told DefenceWeb that RDM expects to win a R500 million contract from the Middle East for 40 mm grenades by the fourth quarter of 2017.

RDM is looking to expand into a R4.5 billion company and judging by its financials, it continues full steam ahead. There is no doubt of the positive impact Rheinmetall Defence had in its involvement with Denel as prior to RDM’s formation, Denel’s munition divisions were making a loss of R159 million. RDM’s launch in 2008 impressively resulted in a R89 million profit in 2009.

 

Written by Sylvia Caravotas (Satovarac Consulting) for OIDA

BLOG POSTS

ADDRESS

Porte de l'Arenas, Hall C - CS13326
455, Promenade des Anglais
06206 Nice cedex 3, France
Website: https://oidagroup.com
Email: contact@oidagroup.com

DISCLAIMER

Please note that this website should not be used as an investment tool nor does it provide any investment advice. OIDA Strategic Intelligence SASU can accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect, inaccurate or omitted and publicated in this website.