Like a thunderbolt in the middle of a hot Summer, German Naval Yards Kiel (GNYK) has achieved a master stroke. On August 3rd, GNYK signed an agreement with Thyssenkrupp Marine Systems (TKMS), where the Naval division of the troubled ThyssenKrupp is its subcontractor for the development and construction of the multi-purpose combat vessel MKS 180.
In a surprise move, former rivals become close partners.
Far from being only a tactical ‘coup’ limited to the biggest Naval program of Germany since the end of WWII, this move by GNYK could, according to the analysis of DefenceChronicles, have deep strategic consequences, if it clinches the deal.
The tactical gains…
GNY-K/TKMS : the pure German alliance
In the race for being more ‘German’ than the other competitor, German Naval Yards Kiel has clearly taken the advantage.
- The nationality issue. So far, the so-called ‘experts’ claimed that the alliance led by Damen was the only one, which could guarantee the defence of the German interests (jobs, technologies, sites). This assumption was based on the fact that the ‘Traditionswerft‘ Lürssen was a ‘partner’ of the consortium. This view has always been a quite short-sighted and biased analysis. First of all, Damen is THE Dutch Naval champion of the Netherlands: this status has been recognized by the Dutch Chief of the Naval staff, Admiral Kramer, in his interview with De Telegraaf (4th of May). Given the key-role of Damen (see below, the design issue) in the MKS 180 would-be work shares, the consortium could be considered as ‘half German’, despite the site of Hambourg, chosen for the final assembly of the heavy frigates. Then, and on the other side, the German Naval Yards are, as the name itself indicates, a pure German company made up of German shipbuilding sites inherited from TKMS (see below, GNYK/TKMS, a logic alliance). Since the withdrawal of its British partner, BAE Systems, GNYK is de facto the sole purely German company in the race. In a fair analysis, this fact can not be overshadowed by the foreign nationality of the owner of the Naval Shipyard, a long-standing entrepreneur and industry mogul in the Naval domain.
- The design issue. This is a crucial issue, as highlighted in the contract of coalition, the keystone of the current Government. Retaining the design offices, intellectual properties and technological expertise in the German ‘Standort’ is the goal pursued and defended by all the ruling political parties in Berlin. However, in their letter to MPs, Damen and Lürssen explained that the ‘design would come from the Netherlands’, so not from Germany. Lürssen, albeit a partner, is then reduced to the rank of a subcontractor, only tasked for the construction under a Dutch supervision. This supervision would be assumed by a yard which does not have this kind of recent experience. In previous articles, DefenceChronicles stated that ‘the last design of the yard for the last frigate dates back to 25 years and delivery of the lead ship, to 15 years’ and that it ‘must team up with an experienced foreign naval yard to produce navy standards combat ships’. In its side, Lürssen, along with TKMS, has experienced tremendous difficulties in two major programs of the German Navy : the K130 corvette and the F125 frigate. Technical failures and bad management have inflated the costs and imposed significant delays to both programs, leading the German procurement authorities to oust them from the MKS 180 race…Aware of this, German Naval Yards has cautiously chosen to partly rely on Alion, ‘the US Navy supplier for contributing cutting-edge engineering technology (…) to its MKS 180 offer’. So, the Kiel-based shipyard will enjoy not only of the expertise of TKMS in design but also that of Alion. Given the complexity and changes of the requirements of the German Navy and the technological challenges induced, these precautions are wise.
- The infrastructures’s issue. In its article posted on the 12th of June, DefenceChronicles insisted on this crucial issue. Promoted by Damen and Lürssen, Hamburg has a long-standing and diversified experience in Naval shipbuilding, but the least one can say is that the infrastructures of the site are far from being optimal for the specific MKS 180 program. Whether for shipbuilding capability, docks or crane, the site of Hamburg or any other one of Lürssen, is far from reaching the ankle of GNYK’s infrastructure, for the good reason that these were the former ones of TKMS for the design, construction, final assembly and support of the entire German surface fleet for decades.
GNYK/TKMS : the logical alliance
If TKMS and Lürssen are long-standing partners for the surface Fleet programs of the German Navy since decades (and recently for the 2nd batch of K130), the alliance between TKMS and GNYK is a logical and natural one.
First, the ‘DNA’ of GNYK widely comes from TKMS’s legacy : employees, technologies, infrastructures. Since the purchase of these assets, the leadership of GNYK has continued the path in investing (more than €200 million) in the infrastructures, recruiting trainees and engineers, and finally restructuring sites which needed to be consolidated.
Then, the sale of TKMS assets to Privinvest did not break the ties between the two companies : on the contrary, the relation has been maintained. In the recent past, the alliance has led, for example, to commercial successes in Algeria (2 Meko A200) and in Egypt (2+2 U209/1400).
Finally, the GNYK’s infrastructures, previously owned by TKMS but sold in 2010, are used by TKMS for the fullfilment of its orders in the surface fleet : 2 Algerian Meko A200, 4 Israeli Sa’ar 6 and parts of the 5 German K130.
…And the strategic perspectives
GNYK/TKMS : a logical but reversed alliance
The new alliance is not only logical and natural, but also, we believe, a revolutionary one.
After decades of domination of the German and export Naval market, the Naval division of the steel holding, run into deep troubles. Since the sale of its assets in 2010, TKMS has reduced itself to a design bureau and a small commercial branch but retained the prime contractorship ‘s capability for both submarines and surface fleet units.
But its unexpected and brutal elimination from the MKS 180 competition in March, along with troubled orders (Turkey in particular) or commercial defeats (Australia), had led experts to doubt about its capacity of still winning and fulfilling orders in time, requirement and budget.
Eight years on, roles are reversed : GNYK leads the alliance as the prime contractor of the most important and challenging Naval programs of Germany. This demonstrates, clearly, its new position in the German Naval industry and has shown to the market that TKMS could only be involved because of GNYK (and not vice versa). In a time where two activist hedge funds (Elliott and Cevian) put a growing pressure on ThyssenKrupp for divesting non profitable or troubled divisions, this alliance could spur the chances of German Naval Yards of being the pilar of a German Naval consolidation, which is today needed in face of the future Franco-Italian tied-up.
European Naval landscape
This new situation created by the master stroke of GNYK in Germany will have also European consequences, if it clinches the MKS 180 program.
First, it will boost (and retain) a purely German expertise in complex ships, a capability in jeopardy since the disasters of the K130 and F125 programs. This fact was highlighted by the launch of a European competition, for the first time in Germany for Naval domestic programs. Germany will still be among the three European shipbuilders capable of designing and building sophisticated grey vessels along with France (Naval group) and UK (BAES Systems).
Secondly, GNYK will certainly be tempted, one day or another, to formalize its alliance with TKMS, alone or with a partner (Rheinmetall ?), to assert itself as a dynamic and driving force for consolidating a fragmented European Naval market. BAE Systems, winner of the Australian competition (SEA 5000) and ‘darling’ for the Canadian one, comes back to the market; Damen and Lürssen have claimed their intention to seal a ‘Northern Alliance’ of private shipyards to counter the State-run French and Italian shipyards, while Saab has partnered with Damen for the submarine competition in Netherlands. With all these shipyards, GNYK has links and could play a role in its new position of prime contractor of complex surface ships.
 See our article posted on the 7th of May : ‘German-Dutch Naval projects : no pivotal role for Damen’ (https://www.defencechronicles.eu/german-dutch-naval-projects-no-pivotal-role-for-damen/).
 See our article posted on the 17th of April : ‘Exclusive : the Damen letter to the German MPs over the MKS 180!’ (https://www.defencechronicles.eu/exclusive-the-damen-letter-to-the-german-mps-over-the-mks-180/)
 See our articles posted on the 30th of March (‘MKS180 : the Damen coup under the EU flag’, https://www.defencechronicles.eu/damen-coup-on-mks180/) and the 2nd of February (‘Damen schelde, still a naval shipbuilder ?’, https://www.defencechronicles.eu/damen-schelde-still-a-naval-shipbuilder/).
 Analysis based on the article of Janes fighting ships, 9th June 2017.
 See our article posted on the 5th of March (‘Germany : the MKS-180 decision, an earthquake in Naval yards’, https://www.defencechronicles.eu/germany-the-mks-180-decision-an-earthquake-in-naval-yards/).