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Franco-German defense merger

July 10, 2015

Two major German and French producers of armored vehicles are aiming to combine their operations. Both say cross-border consolidation is crucial to keep defense costs for European countries down.

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Symbolbild Deutschland Waffenexporte Leopard 2 A6
Image: picture-alliance/dpa

The planned merger between the maker of the acclaimed German Leopard 2 tank, Krauss-Maffei Wegmann (KMW), and its French counterpart, Nexter Systems, is not the first of its kind in Europe but its expected to create a formidable armaments manufacturer in the heart of the Continent.

The unofficial date on which a contract will be signed is July 14, German media reported on Friday. After that, the deal would be subject to regulatory approval.

Support for a deal has been building in both countries' capitals for some time now. This week, French lawmakers pushed through a measure that permits the privatization of state-owned defense companies, paving the way for KMW and Nexter to join forces.

In Germany, Vice Chancellor Sigmar Gabriel has criticized the decentralized nature of Europe's arms industry, lamenting the inefficiency of having every EU member state produce its own weapons.

First airplanes, now tanks

Officials on both sides have cited a mega merger between French, German and Spanish missile and aircraft producers from the year 2000 that led to the formation of the European Aeronautic Defence and Space Company, formerly EADS, and now known as Airbus Group. This, they said, represented the kind of arms industry consolidation that would allow EU members to save costs and protect jobs from being outsourced to non-European states.

KMW and Nexter first signed a merger agreement on July 1 last year, in which they said their firms would join under the umbrella of a joint holding company. The newly created Franco-German entity would boast an annual turnover of around 2 billion euros ($2.2 billion) and employ more than 6,000 people.

According to German media reports, one of its first projects could be a revamping of KMW's popular Leopard 2 tank.

France is more liberal with its weapons exports than Germany, where the sector is tightly regulated. Until recently, the number of tanks the German army was allowed to have was capped at 225. It wasn't until fighting in the Ukraine broke out that the country's defense ministry raised that limit to 328.

cjc/ng (dpa, Reuters)