Aug. 18 (Bloomberg) -- The Ukraine crisis is pushing European governments to review the role of the weapon that dominated Cold War defenses as the strength of Russian ground forces stirs political concerns: the battle tank.
The cost and war-fighting benefits of developing common armored vehicles for the region could also spur consolidation beyond the pending merger of Germany’s Krauss-Maffei Wegmann GmbH and France’s Nexter Systems SA, said Frank Haun, chief executive officer at KMW, maker of the 62-ton Leopard 2.
Vladimir Putin’s massing of Russian troops on the Ukraine border has left frontline nations pondering the strength of armored brigades that have shrunk since the collapse of the Soviet Union, Haun said in an interview at KMW’s Munich base. Nordic countries including Finland and former communist states such as Poland are among those reviewing capabilities.
“They are beginning to increase spending because of concern regarding Russia,” Haun said. “We are in closer touch with those countries and getting more visitors from there.”
Demand for Cold War hulks like the Leopard 2, which fires shells that can penetrate 56 centimeters (22 inches) of steel from 2 kilometers (1.3 miles), faded in Europe as relations with Russia improved, with the focus of tank deployment shifting from the north German plain to the deserts of the Middle East. The most recent new-build Leopard 2 was produced in 2009, after 3,200 were previously sold to 16 armies worldwide.
The last major pitched tank battles took place in the war against Saddam Hussein after the 2003 invasion of Iraq, when the General Dynamics Corp. M1 Abrams -- of which the U.S. Army has received more than 8,000 -- saw action alongside Britain’s BAE Systems Plc Challenger 2s. The pair are the Leopard’s main rivals for the mantle of the world’s best performing model. More recently, tanks have proven their versatility in the mountains of Afghanistan, where Canada deployed its Leopard 2s.
While defense spending in western and central Europe fell 2.4 percent last year to $312 billion, budgets have begun to revive in states bordering Russia, with increases in Poland, Finland, Norway, Estonia, Latvia and Lithuania, according to data compiled by the Stockholm International Peace Research Institute. In contrast, military outlay continued to decline in countries including France, Italy, Spain and the Netherlands.
Polish President Bronislaw Komorowski said last week that the Ukraine crisis has shattered the illusion that force no longer has a role in European politics. The North Atlantic Treaty Organization must station troops on its eastern flank and halt cuts after Russia boosted its defense outlay for eight straight years, he said at the Army Day parade in Warsaw attended by military representatives of the U.S. and Canada.
Finnish President Sauli Niinistoe met with Putin on Aug. 15 for talks about the escalating tensions after saying the world was on the brink of a new Cold War. Finland has a longer land border with Russia than the rest of the European Union combined.
Latvia will also seek to bolster Baltic defenses when a delegation meets with German Chancellor Angela Merkel today, according to comments from the country’s defense ministry.
In Russia, the T-90 tank remains in high production, with almost 1,700 built and a successor, the T-99, in development.
The capabilities of the country’s heavy armor are also a source of national pride, with a “tank biathlon” held outside Moscow in the first half of August attracting 70,000 spectators and crews from China to Venezuela, according to state-run news wire RIA Novosti. The winning Russian team was congratulated by Putin and an Armenian crew was handed a T-90 as best runner up.
Concern about the need to respond to a more aggressive Russian foreign policy comes as European tank manufacturing undergoes its biggest upheaval for decades, with KMW poised to create a new regional “champion” via the Nexter deal that should enhance interoperability among armies while helping to pare costs and eke out research budgets, Haun said. The 50:50 merger, announced July 1, will create a business with revenue of almost 2 billion euros ($2.7 billion) and more than 6,000 staff.
For KMW, joining with the Paris-based maker of the Leclerc battle tank will add new products, technology and markets, none of which would be achieved in a mooted all-German combination with Dusseldorf-based Rheinmetall AG, which makes the Leopard 2’s main canon, firing system and ammunition, the CEO said.
Rheinmetall and KMW also cooperate on the tracked Puma infantry fighting vehicle and the wheeled Boxer.
The Nexter merger, first mulled more than eight years ago, will seek to replicate the success of pan-European aerospace and defense tie-ups including Airbus Group NV and Eurofighter GmbH.
The enlarged business, due to be formed next year after completion of complex due diligence and the privatization of Nexter, will feature a holding company most likely based in the Netherlands. There’ll be two CEOs, one in each country -- most likely Haun himself and Nexter counterpart Philippe Burtin.
The company will have a combined order book of more than 6 billion euros, including KMW’s most recent Leopard 2 contract from Qatar won last year. Nexter meanwhile aims to upgrade the Leclerc for the French army and is pitching for a new light fighting vehicle and a troop carrier.
The Leclerc could be improved with technology from the Leopard and vice versa, Haun said. The French model features an automatic loader and needs a three-man crew versus four in the Abrams, Challenger and Leopard, while the German tank has better camouflage systems and on-the-move firing accuracy.
France’s export rules are laxer than those in Germany, where lawmakers have opposed offering the Leopard 2 to Saudi Arabia. Haun said there has been no pitch for the contract and that KMW is not seeking to “water down” German legislation, nor to “sell a Leopard made in Paris.”
Like Airbus, which was formed by France and Germany and later incorporated British and Spanish companies, the combination with Nexter is intended to be “scalable” should further consolidation be possible, KMW said.
Europe’s land-defense manufacturing industry has 17 active production lines for main battle tanks, armored fighting vehicles, personnel carriers and self-propelled howitzers, according to a study by the Brussels-based Centre for European Political Studies. That compares with just two sites in the U.S.
Italian, Spanish Options
“We have no standardization, so every order means we essentially develop and built a new vehicle,” Haun said. “That costs taxpayers a fortune.” Joint procurement could bring down unit costs by 30 percent, the executive said.
Any consolidation in Europe could affect the region’s main producers including Oto Melara SpA of Italy, part of Finmeccanica SpA, which makes artillery systems and armored vehicles and developed the Ariete tank, and Spain’s Santa Barbara Sistemas, owned by General Dynamics since 2001.
Britain, which used the world’s first tanks in the Battle of the Somme during World War I, will lose its last assembly line with the shuttering of an historic BAE plant in Newcastle upon Tyne in the second half following final deliveries of Terrier combat-engineer vehicles. That will cast doubt on further development of the Challenger 2, a model that’s intended to see service until 2035.
The combined KMW-Nexter will be better placed to be able to plan for Europe’s next generation of heavy armor beyond that period, aided by French strategic planning, Haun said.
“Who in Europe thinks about the kind of equipment we may need in 10 or 20 years -- the ‘Leopard 3,’” Haun said. “The French do. They think strategically.”
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