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The future of Kiel’s shipyard lies in the Netherlands

On an uncertain and unstable European market, military ship-building has little idea of where it’s going. Does the future of shipyards lie in civilian vessels? In Germany, Kiel-based Thyssenkrupp subsidiary TKMS, one of the historical giants of the markets, is clinging to dear life, and salvation may come from Holland, as the Dutch Navy needs to replace its aging fleet of submarines.

The European market for military equipment may look tasty to shipyards but doing business on it is no Sunday stroll. With partial and varying participation within NATO’s integrated military structure, budgets fluctuate and make contracts uncertain. Despite high levels of spending, encouraged by Donald Trump’s pressure on allies, the current policy is also to optimize contracts. On the supplier side, that often means squeezing prices and taking hits for the team. Politico writes: “The challenge the Continent now faces, according to politicians, industry leaders and experts, is to spend wisely. To get value for money and armed forces that truly increase their security, governments will have to overcome a reluctance to buy from foreign suppliers and collaborate on multinational projects — even when that means fewer jobs for their own industries.” Military budgets are regularly attacked in various houses of parliament. Military shipbuilders are struggling to cope with the uncertainty. With the rise of European power, national governments are less and less free to support their own national industries, something TKMS, ThyssenKrupp shipyard company, has suffered from already. Martin Murphy reports for Handelsblatt: “ThyssenKrupp is preparing for the spin-off of another traditional business: the shipyard business. The reason for this was the decision of the Federal Government, the industrial group not to participate in the construction of multi-purpose combat ship MKS 180, the Handelsblatt learned from business circles. ThyssenKrupp Marine Systems (TKMS) has been the ship’s supplier to the Navy so far.”

TKMS’s troubles are not limited to the external and political situation, and troubles have penetrated the shipyard already. The choppy seas which TKMS has been facing have already taken its toll on the company’s structure. Defense expert Peter Coates writes: “Because of technical and planning bottlenecks and delays, almost every ship is finished well behind schedule. The company actually loses money every time a Dom Perignon bottle smashes a hull at launch. “No submarine is delivered on time”, said one source at the company”. A sharp drop in quality levels has been observed, due to funds being scarce from the poor recent economic performance and the diversion of available funds to finance upcoming lawsuits. As a result of the vicious circle, contracts were more difficult to acquire (lost F125 and MK180 contracts, for instance), activity went quiet, whereas such a highly technical firm relies heavily on the qualifications and skills of its workers, which must be passed on from generation to generation. In December of 2017, the German frigate replacement contract came to a disastrous end when the client (the German Navy) simply sent the ships back upon delivery. The Maritime Herald wrote: “For the first time in history, the German Navy returned a ship to its builders which had already been taken over. The reasons were considerable software and hardware defects on board the “Baden-Württemberg”. The Navy declined the commissioning of the ship, and the competent arms office demanded from the shipyard Blohm + Voss in Hamburg to eliminate the shortcomings. With that, the three-billion-Euro project “F125” faltered again. The frigate, which was built for six years, will have a longer layover in Hamburg starting on Jan 19, 2017 Extensive functional evidence at sea had not been provided during the trials which took place in the North Sea, off Norway and before Kiel.” When years go by without a contract, a shipbuilder’s capacity to build more ships erodes quickly. The structural damage to the company is not limited to surface vessels, as Germany’s submarine armada, built by ThyssenKrupp, is currently completely out of order - effectively rendering Germany blind in European waters. As a consequence of these dire straits, TKMS felt compelled to bend the rules of tendering to increase its chances of winning a deal, by attempting to line pockets to in the recent Israeli submarine contract.

The Dutch submarine contract may be TKMS’s last chance to avoid being sold off or outright closed down, after Germany’s refusal to support its national industry with the MKS 180. The Netherlands needs a submarine replacement or upgrade contract, in order to maintain its impressively active role in Europe’s and NATO’s defense strategy, namely facing the Russians. But, according to Defense Minister Ank Bijleveld and State Secretary Barbara Visser, Netherlands need a complete new submarine: Netherlands ask for an upgrade and not only an update of submarine capabilities. As an indicator of Dutch value within NATO operations, a military cooperation agreement was signed between the United States and the Netherlands in July, as reported by Army Technology: “US Ambassador to the Netherlands Pete Hoekstra has signed a new defence agreement with Henne Schuwer, the Dutch Ambassador to the US […] The cooperation will also support the acquisition of General Atomics Aeronautical Systems’ MQ-9 Reaper unmanned aerial vehicle (UAV), in addition to the exchange of data during replacements of submarines and frigates.” The Dutch operate a small number of Walrus-class submarines, whose entry in service dates back to the 90s, but is able to bring major contributions to NATO efforts and European defense, through outstanding seamanship. Facing Russian underwater sea power, Holland needs new capacities and is calling out onto the market to answer the need. TKMS will surely pursue the Dutch contract, but may need to reunite with Saab Kockums, a former partner, to gather all the skills needed to fulfill the contract. TKMS had previously owned Kockums, before selling it to Saab in very difficult conditions.

Is history repeating? After 1918, German U-boot engineers quietly immigrated to the Netherlands to set up a clandestine company, the NV Ingenieurskantoor voor Scheepsbouw, to save German technology and circumvent the Versailles treaty, before returning to Germany in the 1930s. One century later, the fate of German underwater technology lies again on Dutch soil. With a global tourism market on the steady rise, there is a high chance that shipyard capacities will remain, and even develop, in further years, to address the growing demand for cruise ships and commercial ships. But the market for military vessels is currently heavily disrupted, to the point that a single contract may mean the survival or disappearance of major players, such as TKMS.

This was posted in Bdaily's Members' News section by Ryan Wright .