Berlin (AFP) – German arms manufacturer Rheinmetall said Wednesday that moves by European capitals to ramp up military expenditure and reduce their reliance on the United States were a massive growth opportunity for the defence sector. “An era of rearmament has begun in Europe that will demand a lot from all of us,” Rheinmetall’s chief Armin Papperger said in a statement as the group published its annual results. The development opens up “growth prospects for the coming years that we have never experienced before”.
The return of President Donald Trump has shaken confidence in Washington’s long-standing commitment to European security and spurred governments on the continent to promise increased defence spending. Russia’s full-scale invasion of Ukraine in 2022 had already given new impetus to the European sector, with Rheinmetall, Germany’s largest defence company, among the beneficiaries. The company said its overall sales rose to 9.8 billion euros ($10.7 billion) last year from 7.2 billion euros the previous year, a 36 percent increase. In its military business alone, growth was stronger with revenues climbing 50 percent on a year. While European firms like Rheinmetall still lag far behind US competitors in terms of size, rising defence spending in Europe had the potential to propel the sector to new heights. The new diplomatic line out of Washington is a “paradigm change” that will “force Europe to invest more in defence”, Papperger told reporters in a call.
– ‘Motor for jobs’ – Among European countries looking to increase their defence capabilities, Germany was at the forefront, looking to make up for years of underinvestment. Germany’s likely next chancellor Friedrich Merz has pushed a plan to mobilise hundreds of billions of euros in the coming years for defence and infrastructure spending. The extra spending is “considerable”, Papperger said, and could make the defence industry a “motor for jobs” in Europe’s largest economy. Defence firms have been expanding their presence in Germany in a way not seen for decades. The Franco-German tank manufacturer KNDS recently took control of a former rail industry site in the eastern city of Goerlitz, while German defence firm Hensoldt has looked at taking on employees from auto suppliers Continental and Bosch.
Germany’s traditional manufacturing heavyweights have struggled in recent years because of elevated energy costs and growing competition from abroad. The trend can be seen at Rheinmetall itself, where its civilian activities have not shown the same dynamism as its defence business. The group was currently considering switching two factories in Germany from auto parts production to munitions manufacturing, as demand for the latter soared. For 2025, the group predicted its total revenue, covering its civilian activities, to increase 25 to 30 percent. In defence alone, the figure could reach 35 to 40 percent, it said.
– ‘Geopolitical developments’ – But the forecasts did not “take into account the improvement in market potential…as a result of the geopolitical developments,” Rheinmetall said. Higher defence spending commitments would give Rheinmetall and other firms greater planning certainty and open the way to “significant” investments, Papperger said. However, the impact on this year’s results would “not be great, because we first have to get contracts”.
Looking ahead, Rheinmetall reckoned it could see military sales in Europe of up to 100 billion euros by 2030, if all governments upped their defence budgets to at least 3.5 percent of GDP. “Russia will not slow down now and will not sign a disarmament treaty,” Papperger said. Trump’s threats are a “sign for the industry in Europe to be more independent,” but there is a risk in not cooperating with the United States, Papperger said. “There are a few things where we have to become independent,” he said, while stressing that the US market remained a “stable pillar” of Rheinmetall’s activities.
As Europe and America move apart on defence, it is important for Rheinmetall to have its own “ecosystem” in the United States, where it already has eight plants. “You could say we’re almost an American company. We just have German roots,” he said.
© 2024 AFP
