Armament: The demand for air defense systems is increasing – Economy
Lars Windhorst took a helicopter tour of the shipyard and liked what he saw. Flensburger Schiffbau Gesellschaft (FSG) has been building ships for 150 years. The shipyard crisis, however, shook that company vigorously and plunged it into bankruptcy. Windhorst took over FSG with his Tennor Holding in 2020. The shipyard is doing better now, and now the investor, who made the headlines with his 374 million euro investment in the Hertha BSC Berlin soccer club, flew in to celebrate the 150th anniversary of FSG. He is not worried about the future either, said Windhorst. Especially since there is this 100 billion euro program with which the federal government wants to upgrade the armed forces.
“I would like the FSG to play the most prominent role possible in naval orders,” said a smiling Windhorst to the NDR broadcaster’s camera. The FSG has already built three task force suppliers for the Bundeswehr; the last, however, as early as 2013. Well, Windhorst speculates, there will certainly be a need for one of these huge supply ships again. “We have the quality, the know-how and the capacity to produce and deliver immediately,” advertised Windhorst during his visit to Flensburg.
Almost 800 kilometers to the south, in Nuremberg, Klaus Richter thinks aloud that it would be a good idea if the 100 billion euros were not only used to fill up the Bundeswehr’s ragged stocks, but also to invest in new technologies right away. For example in missile-based air defense systems such as those manufactured by Diehl. The former Airbus manager Richter has been CEO there for almost a year. The Franconian family group is one of the largest German armaments manufacturers, even if the business with guided missiles, fuses, medium and large caliber ammunition, military surveillance and training systems, infrared modules and special batteries as well as cabin equipment for army aircraft accounts for just under a quarter of total sales. “We’re not armaments manufacturers,” says Klaus Richter. “Our business is three-quarters civilian. We’re a fairly broadly diversified industrial company.”
A particularly large amount of the 100 billion euros could end up in Bavaria
Such reflexes are well known: for decades the label “armaments company” has been tainted with yuck. Accordingly, nobody wants to pin it to their factory gates. That may change, the more politics and society in view of Russia’s attack on the Ukraine give national military defense a new meaning. One recognizes, says Diehl boss Richter, “that democratic freedom is associated with a certain need for security.” And from a purely economic point of view, there is a rather unexpected 100 billion euros in the jackpot. The relevant companies are now working feverishly on plans to skim off as much of it as possible. The question will be what the money will end up being spent on.
A lot of it could end up in Bavaria. 70 companies in the Free State represent about 30 percent of the German ones defense industry. The tank builders from Krauss-Maffei Wegmann in Munich are among them, Airbus Defense in Manching near Ingolstadt, Hensoldt AG in Taufkirchen, which specializes in radar and sensor technology, Aeromaritime in Neufahrn, which specializes in safety technology for the navy, and Diehl from Nuremberg.
Although people there are optimistic about the development of the Defense division, they are still far from any kind of euphoria. Confidence is rooted much deeper. Even before the Ukraine war, Diehl received an order from Egypt for air defense systems with a total volume of three billion euros at the end of 2021. This is already being processed, with one of these systems being delivered to the Ukraine instead of Cairo, in agreement with both governments. And because the war there has attracted renewed attention to securing the NATO and EU external borders, Eastern European countries in particular have recently shown great interest in the corresponding Diehl weapon systems.
Diehl makes most of its sales in the automotive industry
Ideally, the Bundeswehr would also use the opportunity not just to replenish the old stocks of Patriot missiles, but to buy new air defense technology. Diehl is considered a world leader in the development of such systems, and work is currently underway on weapons to stop hypersonic missiles traveling at 2,000 to 3,000 meters per second. It will still be a few years before these are ready for series production, says Diehl boss Richter. However, the federal government’s 100 billion package will “ensure movement in the next twelve to 18 months”.
So Diehl expands the Defense division, invests in research, development and production and hires specialist staff. However, this also applies to other divisions of the industrial group, which employs a good 16,100 people, two thirds of them in Germany. In 2021 they generated sales of 3.17 billion euros, 6.3 percent more than in 2020. That was more than expected in view of the pandemic and supply bottlenecks; In 2022, sales are expected to increase by up to 15 percent. Above all, however, the family business wants to bring in more profit than the 19.4 million euros before taxes and interest (EBIT) last year, which at least left the operating loss zone.
The metal division generates the largest share of the Diehl business, namely 27 percent of sales, with products for the automotive industry. Diehl is particularly innovative in the field of battery technology. The metering division, which mainly supplies energy and water metering technology, is also growing. The Controls subgroup supplies electronic and mechatronic products, for example for cooling machines or heat pumps. With all this, Diehl is following the future trends of electromobility, energy saving and resource protection, said CFO Jürgen Reimer. Only the business of the aviation division has almost halved due to the pandemic and has reached its low: Diehl mainly manufactures cabin interiors and toilet systems for Airbus.