Germany cancels 18 billion euro frigate order, opting for cheaper TKMS vessels

Germany is abandoning a costly plan to acquire six F126 frigates, a decision that deals a blow to the defense contractor Rheinmetall. Citing delays and escalating expenses, Berlin is now reportedly opting for eight MEKO A-200 multi-role frigates from TKMS, a move expected to cost around 11.6 billion euros. This contrasts sharply with the potential cost of continuing the F126 program, which could exceed 18 billion euros for German taxpayers.

German defense officials assert that the new MEKO frigates align with the navy's operational needs and offer advantages in maintenance and crew training. The shift in procurement has had an immediate effect on the stock market. TKMS shares saw an approximate 11% increase on June 24, while Rheinmetall's stock plummeted by 13.6%. This decline means Rheinmetall's shares are trading below 1,000 euros again, half their peak value from October of the previous year.

An analyst from JPMorgan estimates the lost contract could have been worth around 12 billion euros for Rheinmetall, warning that the company might struggle to meet its annual contract targets without this order. Rheinmetall itself declined to comment on the situation.

The original F126 project, involving six frigates, was initially budgeted at approximately 10 billion euros. However, issues with the Dutch contractor Damen Schelde Naval Shipbuilding (DSNS) regarding timelines and costs led to a review. Rheinmetall's CEO had previously discussed potentially taking over the project, but this would have driven the total cost over 18 billion euros. The German government would also have had to forgo potential compensation claims against DSNS.

While the German Parliament's Budget Committee still needs to approve the decision, it is expected to pass. Members of the Bundestag from both coalition parties had previously pressured the defense minister to reconsider the F126 project, arguing that the smaller MEKO-200 frigates from TKMS are more suitable. The F126 frigates are considerably larger, weighing 4,200 tons and measuring over 120 meters, while the MEKO vessels are 66 meters long with a displacement of 10,500 tons. Estimates suggest that up to 2.3 to 2.4 billion euros have already been spent on the F126 project.