War in Ukraine holds promise of profit for German arms companies

Major companies in Germany – Russia’s third-largest trading partner – are facing massive losses and write-offs due to Vladimir Putin’s war on Ukraine. But not arms companies such as Rheinmetall.

Shares in the Düsseldorf-based company rose 51% from pre-war levels and on Thursday its chief executive said sales were at a record high: up 4.7% to 5, 7 billion euros last year.

“In light of the changing political situation in Europe, many countries are now stepping up their security efforts,” said Armin Papperger, Managing Director of Rheinmetall AG. “Security – as the current conflict shows – is the foundation of our life in peace and freedom. Rheinmetall has a special obligation here.

It’s not just sales that are up at Rheinmetall: with its order book also at record highs, the company is increasing capacity with new production facilities – in Slovakia and Moldova – and new products .

Last month, it showed off its next-generation Lynx, a light tank that one enthusiastic military blogger described as “a well-balanced mix of lethality, protection, mobility and survivability.”

Last month, German Chancellor Olaf Scholz announced a 100 billion euro special fund to bolster the neglected German military. Along with similar announcements from Denmark, Sweden and other EU countries, senior German Defense Ministry officials have told arms companies they will set aside standard procurement rules for place at the top of the list.

Anticipating sustained commercial activity, Rheinmetall last week signed a memorandum of understanding with MBDA Italy, a world leader in missile systems, to find what they call “disruptive technologies” in air defense.

Politico-military geography

“The situation is delightful for Rheinmetall, they probably never even dreamed of something like this 100 billion euro fund,” said Greenpeace Germany disarmament expert Alexander Lurz. “Now they just have to wait for the orders to come in.”

Military analysts say the conflict in Ukraine has fundamentally changed the political-military geography of Europe, with Russia’s invasion nullifying previous NATO commitments on the location of combat forces in Europe and levels of support. military equipment on the ground.

Even before military spending started ringing in recent weeks, Europe was the only continent in a new study to resist an international drop in arms imports, which rose 19% between 2017 and 2021.

“The severe deterioration of relations between most European states and Russia has been an important driver of the growth of European arms imports, especially for states that cannot meet all their needs through their industries. national arms,” ​​said Pieter Wezeman, co-author of a new study. this week from the Stockholm International Peace Institute.

In the institute’s 2017-2021 flow analysis, US arms exports increased by 14% and US companies increased their market share from 32% to 39%. Russian arms exports fell by a quarter during this period, while France recorded a 59% increase in exports. It holds 11% of the world market, making it the third largest arms exporter, while Germany is in fifth place.

Beyond Berlin’s 100 billion euro one-off fund, nearly double the annual defense budget, Berlin says it will increase annual defense spending to meet NATO’s spending requirement of 2 % of gross domestic product.

Circumvention of sanctions

At the top of the list: up to 35 new F35 stealth bombers from the American Lockheed-Martin, at 100 million euros each, and 15 Tornado surveillance planes from the Franco-German Airbus.

At the same time, arms companies in France and Germany are accused of circumventing EU sanctions to sell to Russia.

According to a French report this week, Paris has approved the export of 152 million euros worth of military equipment for Russian tanks and fighter jets since 2015, including thermal imaging cameras and navigation systems.

Among the main suppliers are Thales and Safran, companies in which the French state is the largest shareholder. France’s defense ministry insists the exports were legal because the contracts were signed before the EU imposed sanctions on Russia for annexing Crimea.

Meanwhile, in 2020, German companies sold about 366 million euros worth of products for commercial and military use to Russia, such as sensors, lasers and high-end electronics.

According to German broadcaster ARD, many Russian drones used in the Ukraine conflict contain motors, cameras and GPS modules from German companies, exported to Russia via Czech and Swiss intermediaries.

With business booming for German arms companies, Berlin has ordered its cartel authority to investigate allegations of price-fixing and profiteering between oil companies.

A few hours after the announcement of the imminent investigation, the price of a liter of diesel and unleaded gasoline fell by 4.2 cents and 3.3 cents respectively.

A liter of diesel and unleaded gasoline sold on Thursday for an average of 2.25 and 2.159 cents respectively. The Allgemeiner Deutscher Automobil-Club said that, despite the additional pressures caused by the war, “there is plenty of room” for further price cuts.

James R. Rhodes