Tank and weapon manufacturers: How the defense industry is doing

Ukraine is now also to receive “Leopard” tanks from industry. The companies should also quickly increase their Bundeswehr stocks. How is the industry doing – and what role does it play for the economy?

The Ukaine is also to receive main battle tanks from stocks of German industry – older models of the “Leopard 1” type. The federal government wants to close the gaps in the Bundeswehr, which are caused by the announced deliveries of the latest tanks of the type “Leopard 2 A6” from the troops’ stocks, as quickly as possible. Defense Minister Boris Pistorius (SPD) held talks with representatives of German armaments companies this week.

According to earlier information, the Rheinmetall Group alone has a total of 88 “Leopard 1A5” tanks. In view of the support for the Ukrainian military, it is now a matter of “starting production of the replacement for the Leopard tanks,” said SPD defense politician Wolfgang Hellmich. What other companies play a role in the industry? How big is it, what significance does it have for the German economy? And how did it develop recently?

A total of around 135,000 employees

According to estimates by the German Economic Institute (IW), more than 55,500 people worked for producers in the German armaments industry in 2020. That was almost two percent less than in 2015. Sales from business with tanks, warships or combat aircraft also fell from 11.69 billion to 11.28 billion euros. “However, this is only a part of the defense industry – there are no suppliers, service providers and parts of the electronics industry,” says IW defense expert Klaus-Heiner Röhl in an interview tagesschau.de. If you add these, the numbers are significantly higher.

According to the Federal Association of the German Security and Defense Industry (BDSV), the armaments industry employs a total of around 135,000 people in Germany and generates around 30 billion euros in added value directly and indirectly every year. This makes the German armaments industry “the strongest in Europe,” said BDSV general manager Hans Christoph Atzpodien to the “Redaktionsnetzwerk Deutschland”. However, when looking at the 100 arms companies with the highest sales in the world in 2021, this is not initially noticeable.

With just four companies, Germany has a global market share of 1.6 percent on the list of the Stockholm Peace Research Institute (SIPRI). Rheinmetall is in 31st place. Forty of the 100 leading companies worldwide, on the other hand, come from the USA, which clearly dominates the global armaments business with 51 percent of sales. However, Great Britain with sixth-placed BAE Systems and France with Thales (16th place) and Dassault Aviation Group (19th place) as well as Italy with Leonardo (12th place) are ahead of Germany in terms of market share.

Concentration on the coast and in southern Germany

The fact that Germany is not so far ahead when it comes to end manufacturers is due to the fact that the industry is structured very differently in this country, explains Röhl. “We have a lot of medium-sized companies that are often suppliers and are therefore involved in the end devices of other European manufacturers.” According to the industry expert, many parts in tanks or weapon systems come from German mechanical engineering, which is by far the strongest in Europe. The Militarization Information Center estimates that there are around 1,350 medium-sized defense companies in Germany, each with up to 1,000 employees and an annual turnover of up to 300 million euros.

According to Röhl, the armaments industry is relatively insignificant within German industry. “But we have regional concentrations – especially naval shipbuilding on the coast, which is enormously important for shipyard locations like Kiel”. In addition, the Munich area is another center where the family company Krauss-Maffei Wegmann (KMW), a leading manufacturer of ground vehicles and part of the trans-European holding KMW+NEXTER Defense Systems (KNDS), Hensoldt as an armaments electronics group and the defense division of Airbus are based . A larger KMW plant is also located in Kassel. Düsseldorf is the location of Rheinmetall, the largest German manufacturer of tanks and combat vehicles, which has developed into a global group, particularly through acquisitions abroad.

Together with the Diehl Group, which produces defense technology such as guided missiles, semi-finished products, fuses and electronic controls, these four companies form the five largest armaments groups in Germany. According to the information service Defense News, the Franco-German Airbus group is at the top with sales of around 10.85 billion dollars. Globally, the armaments division of the world’s largest aircraft manufacturer Airbus, which accounts for around 18 percent of total sales, is in 15th place.

partnerships and growing services

“Although Airbus is more of a civil aircraft manufacturer, it is by far the largest company in the defense industry in Germany because aircraft in military aerospace have so much higher sales values ​​than tanks, weapons or ammunition,” says expert Röhl. The area makes up about 40 percent of total sales in the industry. For example, handgun and small arms manufacturers such as Heckler & Koch would have to produce numerous rifles to achieve the volume of business for one tank. At the same time, several combat vehicles would have to be produced to match the value of a Eurofighter aircraft.

According to the IW expert, the arms industry is also characterized by partnerships: “Full competition simply doesn’t work in the arms industry because some things are only developed once and the state is the only client.” For example, Germany and France are jointly planning a new main battle tank as the successor to the “Leopard 2”. KMW and the French Nexter, which have merged to form KNDS, as well as Rheinmetall have been commissioned.

Another feature of the branch of industry: “The share of services in the branch has continued to rise,” says Röhl. Things that were previously done by the armed forces of the Bundeswehr themselves have now been outsourced – such as maintenance. There are also training simulations, reconnaissance and communication. In December, the Munich-based company Rohde & Schwarz received an order worth billions from the Ministry of Defense for around 20,000 tap-proof digital radios for a command radio system.

“Amazingly little happened”

“In general, however, sales in the entire armaments and defense industry have stagnated for years,” says Röhl. Despite the occupation of Crimea and the start of the conflict in Ukraine’s Donbass in 2014, there hasn’t been a major increase. Even though NATO reaffirmed the two percent target for defense spending at the time, next to nothing happened in Germany. “The share of gross domestic product only began to rise slowly from 1.1 to 1.5 percent in 2017 – but has remained there ever since.” For comparison: in 1989, 2.7 percent of German economic output was spent on defense.

In addition, the federal government has not yet managed to set up an operational stand, according to Röhl – although Chancellor Olaf Scholz (SPD) proclaimed the “time change” after the Russian attack on Ukraine and announced a special fund of 100 billion euros for the Bundeswehr. “On the whole, however, surprisingly little happened,” says Röhl. Among other things, the Ministry of Defense initiated the purchase of 35 US F35 fighter jets from the US manufacturer Lockheed Martin and ordered new transport helicopters. On the other hand, there were relatively few small orders for the soldiers’ personal equipment, ammunition or spare parts, says the industry expert.

That seems to be slowly changing now. Pistorius recently admitted that the special fund and the regular budget of 51 billion euros were not enough. Other states have also announced further increases in military spending. The armaments companies are already reporting growing orders and are expecting double-digit sales increases in the coming years. Thousands of additional jobs were created for this. According to Rheinmetall alone, it hired 1,200 new employees in 2022.