In the wake of the war in Ukraine, a growing number of German companies are moving into the military equipment and services sector, breaking a widespread taboo against supplying the arms industry.
The Financial Times (FT) reports a surge in production and investment in military equipment and services. Engine maker Deutz, for example, saw its shares rise by more than 20 per cent last week after announcing plans to produce tank engines as well as motorcycles.
The engineering group is among the medium-sized companies, the backbone of the German economy, that have reconsidered or ended the ban on defence contracts.
Due to the legacy of industrial cooperation with the Nazi regime, parts of German business have long shunned the defence sector. Since February 2022, however, some key players in the country’s engineering supply chain, such as laser manufacturer Trumpf and components company Hawe Hydraulik, have targeted military contracts.
“Defence of freedom by military means if necessary…”
Cathryn Clüver Ashbrook, a political scientist and former director of the German Council on Foreign Relations, told the FT that long-held attitudes to the defence sector were changing rapidly. “After three years of war and heavy economic losses on the European continent, Germany is on the verge of a historic change,” she said.
“Russia’s war of aggression against Ukraine has certainly raised awareness in our society that freedom must be defended by military means if necessary,” said Daimler, which last month announced a new contract to supply 1,500 trucks to the Canadian military.
War industry no longer “stigmatised”
Karl Haeusgen, chairman of engineering firm Hawe Hydraulik, which will end its ban on defence contracts in 2022, said the Ukraine war and subsequent European pressure to increase military spending had reduced the “stigma” surrounding the defence sector.
“A large part of the defence supply chain has a completely different image than three or four years ago,” Haeusgen said.
The company used to have a policy of not supplying the defence sector, but now its board-level committee considers orders for its valves and pumps, which can be used in military equipment, including vehicles and ships.
“Civilian” production harmonised with military production
This shift also comes at a time when German industry is struggling to recover from weak demand from China. In contrast to the booming defence sector, the country’s car industry has been forced to announce large-scale redundancies at a time when the transition to electric vehicles is proving difficult.
Christian Mölling of the German Council on Foreign Relations argued that Germany is facing the opposite situation to Europe in the immediate post-Cold War period, when companies were faced with the need to convert military production to civilian production.
“They are rethinking how to use [civilian] production capacity, technology and procedures to be more efficient in the military world,” Mölling said.
Work shifts from automotive to defence
Continental, one of the world’s leading automotive suppliers with 200,000 employees, recently launched a plan to transfer hundreds of workers to the German defence company Rheinmetall.
Peter Sebastian Krause, a Rheinmetall executive, said at the time that the Continental workers would bring “extremely valuable” skills to the company.
Laser manufacturer Trumpf, whose customers include the semiconductor industry, including chip-making equipment company ASML, is another company considering lifting the ban on defence supplies.
The company’s lasers are subject to export restrictions, including to China, because the German government considers them to be “dual-use”, with both civilian and military applications.
Hagen Zimer, the company’s head of laser operations, said defence companies had shown interest in military applications for the company’s lasers, such as shooting down drones. The laser could be a powerful defence tool, Zimer told the FT, adding that without the technology “it would be impossible to defend against a multi-pronged attack of 200 drones in war zones”.
Lufthansa enters the military industry
Lufthansa Technik, a wholly-owned subsidiary of the airline group that services around one-fifth of the world’s active fleet, officially launched a military aircraft services division last year. The unit, which has become a fast-growing business, will help maintain Germany’s Chinook helicopters and F-35 fighter jets.
“Based on our relationship with the German government, we decided to take a bigger step into defence in 2019,” said Lufthansa Technik chief executive Michael von Puttkamer, adding that the €100bn earmarked for military restructuring “is an opportunity to step further into the sector”.
“We believe that entering the defence sector is not only a great business opportunity, but also a way to support the ability of our German armed forces to defend our country,” Puttkamer said.
Susanne Wiegand, CEO of tank parts manufacturer Renk, said increased “synergies” between Germany’s civil and defence manufacturing sectors could benefit both sides.
“This is a great way to develop technology. Innovations come from the military world and find their way into civil applications and vice versa,” Wiegand said.
