PARIS --- In Italy, the acquisition by Leonardo of a 25% stake in the German defense electronics giant Hensoldt finalized last January triggered numerous reactions calling on increased cooperation between both countries in the defense industry.
Indeed, the choice of Leonardo over other bidders like Thales, Indra, and Saab demonstrates a certain level of confidence towards Italy on the German side: Hensoldt was created in 2017 out of Airbus’ former Defense Electronics division, historically based in Germany. Eager to protect this sensitive asset, the German government even acquired 25% of the company in December 2020, not a usual move in the Federal Republic. More recently, the selection of Avio Aero, an Italian subsidiary of US conglomerate General Electric, to provide the engine of the future Eurodrone, shows the alignment of Berlin and Rome as to the need to articulate European strategic autonomy with transatlantic security ties.
Beyond these matching strategic views, the current political context in both countries provides a fertile ground to the deepening and multiplication of such collaborations. In Italy, Mario Draghi is more committed to European cooperation than its predecessor Giuseppe Conte, while Olaf Scholz’ government seems less keen on Franco-German cooperation than Angela Merkel used to be. Generally speaking, the two countries also share a similar strategic posture, focused on fulfilling their role within NATO and policing their waters and territories rather than carrying major operations abroad, unlike France or the UK.
Quick review of existing German-Italian defense cooperation
While Italy and Germany are jointly involved in just a handful of PESCO industrial projects, they still share a basis of existing cooperation in the field, constituted by several important programs. The most obvious one is the Eurofighter Typhoon, with Airbus on the German side and Leonardo on the Italian side. Leonardo also worked with Hensoldt to modernize the aircraft with an AESA radar, as well as with an ECRS Mk1 radar for the German and Spanish jets.
Both countries are also involved in the Eurodrone program, for which an agreement was recently signed, with Airbus in the leading role and Leonardo providing Aerostructure components and onboard electronics, in addition to the engine made by Avio Aero, as mentioned above.
The two countries also cooperate in the field of missiles, both Airbus and Leonardo having stakes in MBDA. One could also mention the German-led IRIS-T short-range infrared air-to-air missile program, in which Italy has a 19% share. Speaking of missiles, Germany and Italy are the only European users of the AGM-88E Advanced Anti-radiation Guided Missile (AARGM), manufactured by Northrop Grumman.
Cooperation also takes place in space, with two PESCO projects: the French-led European Secure Software-defined Radio, with Leonardo and Rohde & Schwarz, and the EU Radio Navigation Solution, which aims to develop European military PNT capabilities on the basis of the Galileo system.
Outside of the PESCO framework, another important element of their cooperation in the space domain is Spaceopal, a joint-venture between Telespazio (itself owned by Leonardo -67%- and Thales -33%-) and the German Aerospace Center. The company has been the main operational services contractor for Galileo since 2010.
Finally, significant bilateral collaboration takes place in the maritime field: after providing four SSK U212A submarines to the Italian Navy thanks to transfers of technology from TKMS, Fincantieri is now developing four subs of its own as part of its “Near Future Submarine” program, which has been autonomously designed on the basis of the first batch.
Main current developments.
On top of these few collaborations, important developments could take place in three fields, namely fighter jets, ground weapon systems, and submarines.
Italy and Germany are quite complementary, the latter being a European leader in land systems and the former a major player in the naval defense industry. With regards to fighter jets, both countries are pursuing separate projects, with FCAS for Germany and the Tempest for Italy, but are not in the lead on either project.
While the Tempest program is yet to launch its demonstrator phase, German Airbus and French Dassault Aviation are struggling to find a common ground on intellectual property. The difficulties linked to these programs raise the question of a merger of the Tempest and FCAS, or on the contrary of a termination of FCAS. Both would likely bring Italy and Germany back together on the fighter jet front.
Furthermore, the acquisition by Leonardo of a 25% stake in Hensoldt, some have argued, creates a bridge between the competing European programs. It could even give rise to key developments in another field: land defense systems. This €606mn operation led Leonardo to try and find a buyer for its subsidiaries OTO Melara (producing artillery, tanks, and naval guns, among others) and Wass (mainly specializing in torpedoes). While Fincantieri has shown interest, two manufacturers seem to be holding the rope: Düsseldorf-based Rheinmetall and the French-German KNDS.
Fincantieri could also be the key to another major development in the consolidation of German and Italian defense industries: ThyssenKrupp has reportedly been in talks with several European firms for the sale of TKMS.
A key question encompassing all of the developments mentioned above is the articulation of a deepened German-Italian cooperation with other European partners, and France in particular. Three scenarios are outlined here, discussing the direction such collaborations could take in the near future and potential ramifications in the European defense industry. Obviously, the actual future developments will be more nuanced, probably corresponding to a combination of features found across the three scenarios presented below.
Will German-Italian cooperation replace the French-German partnership?
OTO Melara and Wass could be acquired by Rheinmetall, as reports indicate an offer was made to purchase 49% of both subsidiaries’ shares. This solution seems to be favored by the Italian Defense undersecretary Giorgio Mulè. Other sources hint at an offer alongside Fincantieri, which would get the maritime activities in the deal. Italy could manage to get a certain level of involvement in the MGCS once the prototype is achieved, but such a development would most importantly create a pole competing with KNDS, a company born out of the merger of Nexter and KMW.
Regarding fighter jets, the failure to find an agreement between Dassault and Airbus might push France to proceed on its own on a “Plan B”, as it did with the Rafale a few decades ago. At that stage, Germany could be tempted to join the Tempest program, with Hensoldt and Leonardo possibly cooperating to provide the future fighter with onboard defense electronics systems.
In the maritime field, Fincantieri would acquire TKMS. Fincantieri and Rheinmetall would therefore be at the core of an unprecedented bilateral consolidation between the German and Italian defense industries.
German-Italian rapprochement as part of a broader European consolidation?
In this scenario, KNDS would acquire OTO Melara and Wass, whose activities could either be simply absorbed, or rather serve to constitute a third “Italian” pillar for the company, in which the former Leonardo subsidiaries could be united to Nexter’s Italian naval ammunition subsidiary, Simmel Difesa.
In either case, such a move would launch the constitution of a new unified European pole of defense systems.
KNDS was presented as the “ideal option” in this operation by Leonardo CEO Alessandro Profumo. An Infantry Fighting Vehicle program could then be launched, prompting KNDS to cooperate with Leonardo and Iveco, who are already working on such a project to answer a need expressed by the Italian Army.
Returning to fighter jets, the FCAS and Tempest programs would eventually merge, meaning Leonardo and Hensoldt would likely have to battle with Thales to try and take the lead in the project for onboard electronics and advanced sensors.
Finally, a merger between Fincantieri and TKMS could prompt further three-sided collaboration with Naval Group, probably in submarines R&D, on the model of the French-Italian joint-venture Naviris. Such cooperation could also take place with other European partners following the same model, should Naval Group be reluctant to share knowledge in this strategic domain.
The status quo: No Italian-German rapprochement?
Despite all these possible paths for deepening collaboration, the status quo may very well ultimately prevail. Under pressure from various Italian politicians and the public opinion, the government could favor Fincantieri (possibly alongside other Italian offerors) over offers from KNDS and Rheinmetall for OTO Melara and Wass. Italy could still get involved on the MGCS, but merely as a secondary partner country.
The FCAS and Tempest programs would keep going their own separate ways, with Hensoldt and Leonardo remaining the only bridge between the programs. On submarines, TKMS ends up being acquired by a non-Italian company, which could be the Dutch Damen, as our Comité argued in a recent paper. A consolidation would indeed take place… on Germany’s Northwestern border.
Be it for land systems, submarines or fighter jets, those developments are marked by the fog of uncertainty, and their outcome is not easily predictable. The room for maneuver is limited on many aspects, with variables such as industrials’ willingness to find compromise in complex collaborations, such as FCAS.
While not being entirely in command in these industrial movements, a political impulse by the German and Italian governments would likely be a strong catalyst, if not a prerequisite, for any of the developments outlined above to materialize.