It was announced in the past ten days that the German shipbuilder TKMS, a member of the ThyssenKrupp group, had signed a major contract with Egypt for the sale of 4 (+2) MEKO 200 class frigates. The announcement came from the TKMS CEO, simultaneously declaring the contract was signed and had been cancelled under pressure by the Saudi Authorities, the real payers of the deal.
Those MEKO ships, according to rumours, would have been of the class sold by TKMS to Algeria and South Africa some years ago. They are typical of the TKMS naval export products policy, commercially matched to customers requirements more than complying with the German and NATO navies ones. Which might well explain why TKMS was ousted by the German MOD from the future German Navy project of frigates (MKS 180) for inadequate technical proposal. A major blow to the traditional and powerful n° 1 supplier of the Bundesmarine since more than 50 years. Two main defaults make those MEKO unsuited to the New European Defence Naval posture:
- they are short of military standards, at least as regards Damage Control;
- their combat systems, made of a variable mix of sensors, CMS and weapons, sometimes individually not proven in NATO ships and never proven as a whole combat system.
It is understandable that for price reasons or other, some foreign customers may accept that. But not the European partners: those queer commercial success weaken de facto the European naval efforts to design and build up as many as possible war efficient frigates. It may be good for the instant TKMS business and workload.
On the long run, it is pooring Germany, where TKMS continuing to play an “export first” cardmay kept itself ousted of the MOD orders, in Europe too where ground is lost on the development of a single family of platforms and systems. In this regard the example given by the U.S Navy is quite relevant: no deviation for export, if any, from the U.S.N ships… except some key equipment not supplied.
A look at the past: a stream of suitors
In the German shipbuilding sector, including luxury yachts, change of ownership has been common practice in the past decades. Last summer, once again the German media made the announcement that TKMS shipyard was on sale, as had been before:
- HDW in Kiel, the much-touted submarines builder sold to One Equity Partner, a U.S pension fund speculating on a massive submarines’ sale to Taïwan, opting out some years later and handing over to Thyssen Krupp in 2005;
- Bremer Vulkan in Bremen ,partially sold to Lürssen in 1987, bankrupt in 1996;
- the biggest part of the HDW Kiel shipyard (Kiel Gaarden), dedicated to surface ships, sold in 2009 to the (UAE) Abu Dhabi Mar, now German Naval Yards (GNY) after association with Nobiskrug in Rendsburg and Lindenau in Kiel; GNY is owned by the Industry Mogul Iskandar Safa (Privinvest shipbuilding);
- Blohm& Voss in Hamburg , the famous Meko frigates builder, sold by TKMS in 2011 to Star Capital Partner, a British investor, resold to Lürssen in September 2016.
In June this year, ThyssenKrupp (ThyssenKrupp Marine Systems, TKMS) came on stage, a daily German paper disclosing that, « already before the exclusion from the MKS 180 business, TKMS was delivering losses to the ThyssenKrupp Group. Since years, the ThyssenKrupp CEO Hiesinger wanted to get rid of TKMS…Now the selling plans are again on the table… Discussions are launched with German Naval Yards, but as well with other shipyards.«
This ‘shareholders dance’ over the past 20 years in the German military shipbuilding could make anyone feel dizzy. It could also be seen as inconsistent with the need of a major western Navy for a strong, sustainable and reliable shipbuilding and ship repair industry to maintain a national naval power. Some naval observers make it result principally from a few typical features:
- A loss-making activity, either from lack of orders or for a commercial gap between contractual prices and final costs, as it could be the case with the TKMS submarines.
- A green light by the Federal authorities given to those deals, the Bundesmarine floating in the current of a totally liberal market, although part of the NationalDefence systems.
- Speculation of traders on the prospect of big Defence deals on the export market, the German shipyards being principally export oriented.
Under the risk to fall out of the NATO umbrella, at least the U.S part of it, the European nations feel it necessary and urgent to build up an independent European Defence.
So, we found it appropriate, at Defence Chronicles, to look at the present state of this versatile German naval shipbuilding industry and try and know how it can meet the Defence naval requirements of the EU where the Bundesmarine is first rank, behind the UK Royal Navy and the French Marine Nationale.
A clear picture of the shipyards today in Germany
Military and civilian customers clearly make the difference between the German Shipyards, except luxury big yachts generally built by fast patrol boats or corvettes yards.
A brilliant civilian shipbuilding
We must keep apart those shipyards in Germany dedicated to non-military shipbuilding although they play a significant role in the Baltic maritime and shipbuilding German culture:
- the prominent Meyer Werft in Papenburg (3,800 staff), also owner of the giant Finish Turku yard since 2015, one out of the 3 world leaders in giant cruise ships (Fincantieri, STX France, Meyer)
- the Hong-Kong based Genting (1,700 man power), owner and manager in Germany of the MV Werften group of 3 shipyards in Mecklenburg-Pomerania, all building cruise and leisure ships, also of the Lloyd Werft in Bremerhaven ( ship-repair).
A typical mix of yachts and navy ships: Abeking& Rasmussen
This family yard near Bremen is limited in length to 80m. It is doing extremely well with a mix of luxury yachts and small naval ships, particularly mine-sweepers/minehunters (360 units sold to German Navy and export over 90 years).
A military shipbuilding in disarray
The naval military business players in Germany arepart of 3groups scattered over the Baltic Landers:
a. Submarines first !
With a workforce around 3,400, TKMS is primarily a conventional submarines designer and builder in its Kiel facility (2500 staff). The order book accounts for 26 submarines.
Out of them 6 for Turkey, 2 for Egypt and 3 for Israël are almost finished, whereas from 2019 up to 2028, 15 submarines will be built in Kiel: 2 more for Egypt, 4 for Singapore, 4 for Norway, 2 of the same class for the Bundesmarine and 3 more for Israël (committed by the Government but still not signed). As a result, the TKMS docks at Kiel will be occupied by 8 to 9 submarines from 2019 to 2024.
It should be good news for the TKMS owner and the guarantee of a nice sale tag. However, the company is said to lose money on the ending contracts, principally from penalties for delay and technical non-performances (Turkey). It probably means that Kiel requires human and equipment investments that possibly ThyssenKrupp was not willing to pay for in the past ten years.
In 2017, ThyssenKrupp bought out the remaining 49 % (155 M€) of Atlas Elektronik which is a major naval system company, principally for underwater warfare technologies. Very likely Atlas, if sold one day by ThyssenKrupp, would be separate from the TKMS shipbuilding activities, which are said to account for a 700 M€ turn over in 2017.
b. Bad seas for surface ships?
TKMS also has surface ships Prime Contractor activities in its Hamburg premises (workforce around 900 in 2017) but no longer a construction capability after it sold the Blohm& Voss shipyard now in hands with Lürssen and Kiel Gaarden to Abu Dhabi Mar.
There is no other export order today than the 4 Israeli corvettes constructed at GNY-Kiel and, for the Bundesmarine, the final delivery of the F 125 (first and third of class, late by 3 years and denied of commissioning,a few months ago, for non-compliance withspecification) and 5 K130 shared with Lürssen and GNY-K.
The exclusion of the Bundesmarine MKS 180 new frigates deal (first four: 3,5 G€, two additional: 1,5 G€) sounded like a death sentence to the TKMS surface activity.
Will the buyer be a winner?
In 2014, when the submarines business was still bright, with the Australian Sea 1000 submarines prospect promising and before the Atlas purchase, ThyssenKrupp was said to offer it to Rheinmetall for 2 G€. At the end of the negotiation, Mr. Hiesinger had refused the deal for a gap of €100 M. How much is TKMS worth today, even if split into 3 parts: surface, submarines, Atlas?
That is the question for possible buyers in Germany.
- Lürssen, the family shipyard extremely good since decades at Fast Patrol Boats in its Bremen yard, extended to frigates size after the purchase of some Bremer Vulkan facilities and increased its frigates capacity in 2017 by purchasing the Blohm&Voss shipyard in Hamburg. With a workforce around 3,000, Lürssen is due to deliver 2 F 125 frigates to the Bundesmarine in 2019-20 and is heading the K130 corvettes batch 2 (5 units). After being discarded from MKS 180 in a consortium headed by TKMS, Lürssen comes back in the race through Blohm& Voss associated to the Dutch Damen, one of the 2 remaining contenders in the MKS 180 competition. At the end of 2017, Lürssen was awarded acontract of 2,3 to 2,6 G€ by the Australian MOD for the supply of 12 OPV’s to be built in Australia, an excellent opportunity after the freeze of its €1.4Bn contract with Saudi Coast Guards. The turn-over in 2017 is said to be around 700 M€. One may keep in mind that some years ago Lürssen had been a contender for the purchase of part of TKMS and might well desire to become now the surface ships supplier n° 1 in Germany. All will certainly depend upon the MKS 180 issue which also, as regards Lürssen may be linked to its association with Damen, welcome or not!
- German Naval Yard (GNY), last but possibly not least, is the smallest in manpower (around 950 staff) but owns the largest docking, berthing and cranage capacity in Germany for the simple reason it is the former Kiel HDW large scale shipyard, with related equipment. Fitted twenty years ago to produce the most advanced container ships in the world, which never filled to the order book, due to a deadly hit by the Eastern competition. A small piece of the yard, at that time, dedicated to submarines, made the profit of the whole Kiel Gaarden quite acceptable. This part was retained by TKMS when the rest was sold to Abu Dhabi Mar, now Privinvest. It would be natural, from the simple industrial point, to relink the sectors of submarine and surface fleet contructions. Today an important part of the Kiel GNY workload is based on construction work of warships for export, subcontracted from TKMS (Israel corvettes of the ‘Magen‘ class) or clinched through its own commercial networks and built in its yards in close co-operation with TKMS (Algeria yesterday and Egypt tomorrow?). The MKS 180 competition will be decisive for boosting its own prime contractorship capabilities on highly complex heavy frigates. So far, GNY-K is the most suitable partner for TKMS both in Germany and on export markets.
The MKS 180 program: the kick-off for naval consolidation in Germany
If ThyssenKrupp wishes to sell, it would try to get the best price for the submarines business and to get rid of the surface sector in honourable conditions. But, all in all, the MKS 180 by its size, will by no doubt give the kick off to the naval consolidation in Germany.
In its role, the German MOD wants the best at a reasonable price for MKS 180. The European naval allies too. They above all need a credible frigates partner in Germany, experienced in integrating European sensors, weapons and systems and prepared to the updated or new ones.
It will be impossible to the German Government not to sustain its national yards, even if Mrs. Von Der Leyen claims the European contenders in MKS 180 have all chances.
For GNY-K, so far, the sole German proposal, all is a matter of consistency: is the German Governement consistent with its policy of favoring national champions (OHB in the space sector, Diehl in the missile domain, Rheinmetall in the land systems, TKMS in naval field)? The last events have shown that the future of TKMS could not be separated from GNY-K.
 Handelsblatt 7/11/2018.
 Translated from Handelsblatt 8/9/10 June 2018.