And that necessity became even more pressing in 2020, when the German government selected the Dutch Damen shipyard for the German Navy’s F126 frigate program, instead of a domestic shipbuilder. Although Damen has partnered with German shipyards for the production of the vessels, the harsh reality remains: the design of the F126 will not be German, but Dutch. This in itself is a blow to the credibility of the German shipbuilding industry.
However, while local unions and even some of these companies regularly call for consolidation, and demand that the German federal government play a role in the process, it appears that such a project is entangled, despite the numerous expressions of goodwill. Bremen-based Lürssen and GNYK (itself the pooling of three shipyards in the Kiel region) announced in May 2020 an agreement to merge their naval activities under a single entity, following discussions with the German government.
Auf der größten deutschen #Werft #TKMS läuten die Alarmglocken. Der #Thyssenkrupp-Konzern plant nach Meldungen aus Gewerkschaftskreisen einen schnellen Verkauf der Marinesparte mit den Standorten #Kiel, Hamburg, Bremen und Emden. https://t.co/xCVfQES3FP pic.twitter.com/WB3itYzdCz— Kieler Nachrichten (@kn_online) February 5, 2022
Alarm bells are ringing on the largest German shipyard TKMS. According to reports from trade union circles, the Thyssenkrupp Group is planning a quick sale of the marine division with the locations Kiel, Hamburg, Bremen and Emden. (Twitter translation)
However, the details of this merger remain to be worked out, but it is to be noted that Lürssen launched a spin-off in October 2021: NVL (Naval Vessels Lürssen), a new entity designed to house all its naval activities. Such a move hints that Lürssen is positioning itself for a coming consolidation of the German naval shipbuilding sector.
Thyssenkrupp considers, once again, to part with TKMS
However, the fate of TKMS, the German shipbuilder holding the country’s strategic expertise in submarine technologies, could represent the tipping point of this long-awaited consolidation.
Indeed, while the Thyssenkrupp group has made several statements these past years about a possible divestment from its naval subsidiary TKMS, but never actually moved this way, the German consortium declared on December 2nd 2021 it was considering several options for TKMS. And the latest statement from Thyssenkrupp differs from the previous as the group now publicly acknowledges it could merge TKMS with a European shipyard as “a way of strengthening the position of German and European shipyards in the global market”.
This also echoes the fact that TKMS seems to remain on the sidelines of the discussions currently held between the rest of German naval shipyards. However, the group adds that its review of TKMS’ future is still at an early stage.
But the recent signature of a major €3bn contract with Israel for 3 new-generation submarines, on January 20 2022, could speed up Thyssenkrupp’s plans, as this new order allows TKMS to boast a serious – and attractive – order book. Furthermore, recent information about talks with Indonesia for Type 209/1400 or Type 214 submarines also reinforces the attractiveness of TKMS, while the inking of the Type 212CD (Common Design) program with Norway and Germany last year also adds to TKMS positive trend.
On the other hand, however, the launch on January 23 of an Israeli state commission to investigate suspicions of corruption related to past contracts with TKMS could also hinder Thyssenkrupp’s attempts to divest from TKMS.
Furthermore, the new coalition in power in Germany has announced a tightening of its export control policy, especially regarding non-EU, non-NATO countries... This could frighten potential partners and investors alike.
Which European partner for TKMS?
Let’s address right away the elephant in the room: while Naval Group’s previous CEO, Hervé Guillou, was openly in favor of a rapprochement with TKMS, this scenario seems highly unlikely today. Firstly, for political reasons: the French-German “tandem” faces major disagreements and challenges on strategic issues (such as the current Ukrainian crisis, but more broadly on the place of an EU’s strategic autonomy alongside NATO).
Secondly, current industrial cooperation between Germany and France is not running smoothly (negotiations on the FCAS program are tough, Germany has shut the door on France’s proposal for maritime patrol aircraft in favor of an off-the-shelf purchase of Boeing’s P-8 Poseidon, and the future battle tank MGCS is moving at very slow pace…).
And lastly, from an industrial point of view, the complementarity between TKMS and Naval Group is far from obvious. Both companies offer roughly the same range of products, and if one could imagine a “natural” division of tasks such as a specialization of TKMS in submarines and a specialization of Naval Group in surface vessels, it would be omitting that Naval Group produces submarines for one strategic reason: ensuring France’s nuclear deterrence.
Submarine and naval shipbuilding as a whole are key national technologies. A potential buyer or majority shareholder can only come from Germany. (Twitter translation).
In another vein, Kockums, now owned by Saab, is obviously out of the equation, considering how its takeover by TKMS ended in 2014. Navantia’s finances and business prospects do not seem to allow the Spanish shipbuilder to pursue such an ambition. Indeed, the Spanish public company has registered a total loss of more than €1.1bn in the last ten years, and struggles to secure substantial export orders. Furthermore, Navantia has just inked a MoU with Fincantieri to join force on common project and technologies, such as new-generation air defense destroyers.
Other European shipyards appear as more suitable suitors for a merger with TKMS. Fincantieri, to start with, has been reportedly in talks with TKMS, considering a rapprochement with the German shipyard. Furthermore, the two companies have been working together for years now to address the needs of the Italian submarine force, firstly with the Type 212A, and now with the Type 212NFS (Near Future Submarine) project.
Such a merger would fit well within Fincantieri’s current strategy to strengthen its activities in the military market, in order to balance the fall of the cruise market the Italian shipbuilder relied on for years for its development. Furthermore, a TKMS/Fincantieri merger would be part of a broader process of bringing together the Italian and German defense industries. Indeed, Leonardo completed on early January the acquisition of a 25.1% stake in Hensoldt from US private equity firm Kohlberg Kravis & Roberts, for €606 million in cash.
Nonetheless, there are real obstacles in the way to a Fincantieri/TKMS merger. Especially regarding Fincantieri’s own submarine ambitions. While, indeed, Fincantieri has relied in the past on transfers of technologies and technical assistance from TKMS to regain expertise in this area and build Type 212As, the Italian shipbuilder has been openly pursuing the goal to achieve strategic autonomy in the field of submarines. This ambition materializes itself in the Type 212NFS program, for which Fincantieri has made great efforts to emancipate itself from TKMS. It seems unlikely that the two shipbuilders would merge, and all the more so since there is currently no common project between the German and Italian Navy, which could serve as a building-block program.
In fact, the best partner for TKMS could be… Damen. Indeed, as previously mentioned, Damen is already the prime contractor for the German Navy’s future F126 frigates, and hs entrusted production to Lürssen. Moreover, Germany and the Netherlands inked on December 2020 an agreement to jointly develop their next generation air defense destroyers, to replace the F124-class (for Germany) and the De Zeven Provinciën-class (for the Netherlands).
Furthermore, Damen and TKMS activities are, for the most part, complementary, as the Dutch shipbuilder does not design nor produce submarines while TKMS already outsources part of the construction of surface vessels to other yards.
However, one would argue that, in the competition to build four new submarines for the Royal Netherlands Navy, TKMS currently competes against Damen, which has partnered with Saab Kockums for this contract. Moreover, according to Damen’s commercial manager for the Americas, Horacio Delgado Bravo, quoted by InfoDefensa on October 28 2021, Damen and Saab’s partnership regarding submarines is not limited to the Dutch tender. The two companies keep exploring jointly commercial opportunities in Latin America (but not only) for Saab Kockums’ A26, suggesting that Saab benefits from Damen’s commercial network.
Thus, all things considered, this partnership would be much deeper and stronger than previously thought, and would not be easy to break to make room for a Damen/TKMS merger.
Nonetheless, it must be pointed out that the Dutch Walrus-class replacement program is facing major hurdles. Last October, the Dutch MoD confirmed that the selection process would be delayed, and that thus the program was facing new delays, jeopardizing the (already ambitious) schedule of the whole project, the current Walrus-class submarines nearing the end of their service life.
In this context, a merger between Damen and TKMS would be an opportunity for the Dutch government to end the current competition in order to award a submarine order directly to the new Damen/TKMS entity. Such a radical move would make waves, but Canberra’s abrupt U-turn on its submarine plans with the AUKUS agreement has proven that it is possible.
The Type 212CD would make sense, in such a context: design and contractual works have reached an advanced stage, allowing the Dutch MoD to save much-needed time on its own program. And by bringing up the number of hulls in the class to 10 (4 for Norway, 2 for Germany and 4 for the Netherlands), economies of scale could bring costs down.
While, at this stage, the Dutch MoD does not open the door to such a move, it is to be noted that Vice-Admiral Arie Jan de Waard, director of the Defence Materiel Organisation (DMO), stated in an interview with Marine Schepen published on January 28 that he would welcome a consolidation of the Dutch and German naval industries, citing, among others,… Damen and TKMS!