Ukraine war brings promise of profit for German arms firms

Leading firms in Germany – Russia’s third-largest trading partner – face massive losses and write-offs because of Vladimir Putin’s war on Ukraine. But not arms companies such as Rheinmetall.

Shares in the Düsseldorf-based company are up 51 per cent on pre-war levels and, on Thursday, its chief executive said sales were at an all-time high: up 4.7 per cent to €5.7 billion last year.

“In light of the changed political situation in Europe, many countries are now intensifying their efforts for security,” said Armin Papperger, Rheinmetall AG chief executive officer. “Security – as shown by the current conflict – is the bedrock 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 backlog also at record levels, the company is boosting its capacity with new production facilities – in Slovakia and Moldova – and new products.

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Last month it presented its next-generation Lynx, a light tank that one enthusiastic military blogger called “a well-balanced blend of lethality, protection, mobility and survivability”.

Last month, German chancellor Olaf Scholz announced a €100 billion special fund to boost Germany’s neglected military. With similar announcements from Denmark, Sweden and other EU countries, senior German defence ministry officials have told arms companies they will set aside standard procurement rules to get them to the top of the queue.

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

Political-military geography

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

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

Even before military spending tills began ringing in recent weeks, Europe was the only continent in a new study to buck an international decline in arms imports, which went up 19 per cent from 2017-2021.

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

In the institute’s analysis of 2017-2021 flows, US arms exports grew by 14 per cent and US firms increased their market share from 32 to 39 per cent. Russian arms exports shrank by a quarter in that period while France enjoyed a 59 per cent increase in exports. It has an 11 per cent share of the world market, making it the third-largest arms exporter, while Germany is in fifth place.

Beyond Berlin’s €100 billion one-off fund, nearly twice the annual defence budget, Berlin says it will boost annual defence spending to hit the Nato spending requirement of 2 per cent of gross domestic product.

Sanction circumventing

Top of its shopping list: up to 35 new F35 stealth bombers from US company Lockheed-Martin, at €100 million each, and 15 Tornado surveillance aircraft from the Franco-German Airbus.

At the same time, arms firms in France and Germany face accusations of circumventing EU sanctions to sell to Russia.

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

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

In 2020, meanwhile, German companies sold Russia about €366 million worth of products with both commercial and military uses, such as sensors, lasers and high-end electronics.

German broadcaster ARD says many Russian drones used in the Ukraine conflict contain engines, cameras and GPS modules from German firms, exported to Russia via Czech and Swiss middlemen.

While business is booming for German arms companies, Berlin has ordered its cartel authority to investigate claims of price-fixing and profiteering among oil companies.

Hours after news broke of the looming investigation, the price of a litre of diesel and unleaded petrol dropped by 4.2 cent and 3.3 cent respectively.

A litre of diesel and unleaded petrol were on Thursday selling for an average of 2.25 and 2.159 cent respectively. The Allgemeiner Deutscher Automobil-Club said that, despite the addition pressures caused by war, “there is plenty of wriggle room left” for further price cuts.