Naval shipyards: trust by domestic order

One of the biggest Naval procurement programs in Europe and the biggest in Germany since the end of the World War II, the future MKS 180 frigates, sheds the light on a key issue, often neglected: the strategic importance of the domestic order for the shipbuilding industry in a country.

Everybody knows in the Defence sector that there is a precious link between a national order coming from the national armed forces and the export market: how trustful can be a shipyard on the export market without any domestic order and the full support of its Navy?

 

Trust by domestic order: that’s how it works!

 

The Chief of the Royal Dutch Navy, Admiral Kramer has recently recognized and praised this link between domestic order and export in his interview with De Telegraaf (4th of May): “As a first customer for innovations, the Navy has always been essential to the Dutch maritime sector (…) And we will continue to do so. This is crucial for the survival of the Dutch military-maritime industry.  » (De marine is als eerste klant bij innovaties altijd essentieel geweest voor de Nederlandse maritieme sector (…) En dat blijven we. Dat is cruciaal voor het voortbestaan van de Nederlandse militair-maritieme industrie.”).

The title of the press article was crystal clear: “Marine wil ’eigen’ boten ( “the Navy wants its own ships”). Consequently, the replacement of the “M” frigates will be made on a pure national basis (at Damen) with the Belgian Navy following the Dutch leadership.

The Dutch Defence White Paper released on the 26th of March gives a legal basis of this national procurement: “In the case of tendering processes, we will interpret Article 346 of the TFEU (Treaty on the Functioning of the European Union) broadly and thereby take the security interests of the Netherlands into account” (page 15).

Such developments can be observed elsewhere in Europe:

  • In Italy, the Naval Law in Italy has been drafted for the Italian companies (Fincantieri for the shipbuilding of the PPAs, the auxiliary vessel and the LPD, Leonardo for the equipments and MBDA Italia for the weapon systems associated).
  • In Spain, the Armada will award Navantia big contracts for the F-110 and the LPD.
  • Even UK which has in the recent past be often very liberal in the procurement policy, has given the T-45, the two Aircraft carriers and the T-26 to BAES’s Scottish shipyards and the next competition on the T-31 will be given to a British consortium (led by BAES or Babcock).
  • In France, Naval group is on monopoly for the Surface Fleet (currently for the ‘FREMM’ and in the next future for the ‘FTI’ program) and if tenders have been floated for the ‘small Navy’ (4 BSAH, 4 B2M and 3 PLG), French Naval Yards have clinched the deals.

This long-standing support of the European navies to their domestic shipbuilders and suppliers of systems and weapons, has not only enabled the industrial basis to stay national but also to export. The domestic orders have generated a flow of export orders for all the European shipyards : on the contrary, those which do not enjoy the full support of their domestic navies, struggle for survival.

The survival of the ‘Construction Méccaniques de Normandie’ (Cherbourg) and Ocea (Saint-Nazaire and La Rochelle) in France is only due to the fact that their stakeholders have been responsible investors and their commercial teams, excellent salesmen. But in the European defence industry, these are two French exceptions which confirm the rule: the domestic order eases the export.

The support of the Navy is key in the fields of production guarantees, sea trials, training, support  and upgrades. The recent contract clinched by Fincantieri in Qatar (August 2017) would have been impossible if not fully supported by the Marina Militare in all these domains. The French Naval successes in Brazil, Australia and Egypt owe a lot to the expertise of the Marine Nationale.

 

Germany changing the rules!

 

To this regard, the German procurement policy can be viewed as a stunning exception in Europe.

Historically, the Naval sector has always been considered as strategic for the ‘Standort Deutschland’ (localization of Naval shipyards & skills in Germany). Even in a country where the export has always been considered as a ‘needed evil’, the policy has always been to favor the Naval domain.

Mr. Genscher, the long-standing Minister for Foreign Affairs, said that ‘alles was schwimmt, geht’s” (everything that floats is OKAY) and this policy still goes on : see the recent green light given by the current coalition to Lürssen for its – controversial – Saudi patrol boats or the authorization given to TKMS for the delivery of submarines to the Egyptian Navy or kits of U-214 to the Turkish shipyards, not to mention the special case of Israel.

But this policy has dramatically changed with the MKS 180 program.

First, when Mrs von der Leyen decided to open up the competition of the biggest German Naval program to European shipyards. This has been viewed – rightfully – as an earthquake in the discrete German Naval sector, but the worst was to come when, secondly, TKMS and Lürssen have been excluded (in March) from the MKS180 competition.

Yes, as DefenceChronicles said it in a recent article, TKMS and Lürssen have badly managed two major programs: the K130 and the F125, and the 56-page report of the MoD to justify its decision, albeit classified, is widely known as being very critical towards both shipyards. But the decision of the MoD reversed a long tradition: for the first time, the traditional German shipyards were out of a national competition with no chance to come back, and if the rumors of a divesting of TKMS by ThyssenKrupp is unfounded, IG-Metall Küste was quite right in saying that the exclusion of TKMS and Lürssen have weakened their export positions, especially for TKMS currently negotiating a frigate deal with the Egyptian MoD.

 

The worst still to come?

 

But if the sum of these decisions was not enough to worsen the situation of the Shipyards, the worst could still to come if the bargain between Netherlands and Germany would come through.

The big deal that one suspected to be clinched between both countries – German submarines for the Netherlands and Dutch-designed frigates for Germany under the umbrella of a G-to-G agreement – is over. The German MoD said it very clearly on the 16th of April: “Das Ministerium strebe auch kein Government-to-Government-Abkommen » mit den Niederlanden über den Bau des MKS 180 an ».

But this project could revive if the German MoD decided to award the MKS 180 program to Damen to ease later the sale of German submarines to the Netherlands.

Such a policy would lead Germany in a situation where the prime contractorship of the complex surface ships would be left to a foreign shipyard with no guarantee of clinching the submarine deal in the Netherlands.

Neither TKMS, Lürssen or German Naval Yards could hope to be awarded a major surface fleet contract on the export market. If a foreign Navy can still be seduced by a competitive technological and commercial offer, the other competitors will stress that these shipyards does not have the support of their Navy, thus disqualifying the shipbuilder.

Because that’s how it goes: domestic order is key to win a foreign order.

Is the German Mod still aware of this?

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