French, German tank makers sign tie-up agreement

AP News
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Posted: Jul 29, 2015 3:36 PM
French, German tank makers sign tie-up agreement

PARIS (AP) — French and German executives from two of Europe's leading armored vehicle makers signed a long-awaited merger deal Wednesday aimed at creating a new European champion in the $50 billion annual terrestrial defense market.

The tie-up between France's state-owned Nexter Systems and privately held German firm KMW was inked in Paris at the Defense Ministry headquarters, with France's Defense Minister Jean-Yves Le Drian and German parliamentary state secretary for defense Markus Grubel taking part.

The deal still needs approvals in both countries and is expected to be finalized by December, the companies said. The project, first announced a year ago, has gone by the code-name KANT but the actual name hasn't been chosen yet.

Nexter makes France's Leclerc tank and KMW produces the German army's Leopard 1 and 2 tanks.

Defense analyst Guy Anderson at IHS Global said the tie-up is a way for both companies to scale up to compete in world markets and eliminate overlapping efforts in Europe.

"I'd view this as very much a defensive move," Anderson said. "The European market has been fairly saturated in terms of military land systems companies."

Munich-based KMW has been very successful with its Leopard II battle tank, considered one of the best in its class, said Christian Moelling, an associate at the Berlin-based German Institute for International Security Affairs. But it suffers from German export restrictions that prevent the sale to countries such as Saudi Arabia, Moelling said. Merging with Nexter could theoretically allow the new company to get around those export rules if the German government doesn't intervene, Moelling said.

The new company will have a combined annual revenue of around 2 billion euros ($2.21 billion) and employ 6,000 people, Nexter and KMW said.

It will still lag U.S. defense giant General Dynamics and Britain's BAE Systems in the global land defense market.

While the European defense market shrank after 2008, there has been renewed interest in armored vehicles particularly in central and eastern Europe as a result of the Russia-Ukraine conflict, Anderson said. More growth opportunities are seen in Asia, South America, the Middle East and North Africa, he added.

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Associated Press writer Frank Jordans in Berlin contributed to this report.