German businesses break with postwar taboo to supply defence sector

A growing number of German businesses are moving into military equipment and services as they break a widespread taboo to supply the arms industry in the wake of Russia’s invasion of Ukraine.

Engine maker Deutz last week saw its shares jump more than 20 per cent after it said it was looking to build tank engines alongside its civilian operations. The engineering group is among those Mittelstand manufacturing and engineering companies reconsidering or ending their ban on defence contracts.

Swaths of German business have long shunned association with the defence sector because of the legacy of industrial co-operation with the Nazi regime. But since February 2022, some key players in the country’s engineering supply chain, such as laser maker Trumpf and components firm Hawe Hydraulik, have placed military contracts in their sights.

Cathryn Clüver Ashbrook, political scientist and former director of the German Council on Foreign Relations, said long-held attitudes around the defence sector were changing rapidly.

“After three years of war on the European continent, with searing economic losses, Germany seems poised to be making a historic shift,” she said.

The change in attitudes has followed Olaf Scholz’s announcement soon after Moscow’s invasion of Ukraine of a €100bn fund to boost Germany’s defence and modernise its armed forces. It is planning to send an armoured brigade to Lithuania — its first permanent foreign deployment in the country’s modern history — and is reintroducing a limited form of national service.

Parts of German society are also reconsidering this postwar aversion. A poll by PwC Germany this year showed that almost 70 per cent of those surveyed supported an increase in defence spending.

“Russia’s war of aggression against Ukraine definitely has increased awareness in our society that freedom needs to be defended by military means if necessary,” said Daimler Truck, which last month announced a new contract to ship 1,500 trucks to the Canadian military.

Karl Haeusgen, chair of engineering company Hawe Hydraulik, which ended its ban on defence orders in 2022, said Russia’s invasion of Ukraine and the subsequent push for Europe to increase its military spending had reduced the stigma around the defence sector.

“A big part of the defence supply chain has a completely different image than it did three or four years ago,” he said in an interview.

The company used to have a rule of not supplying the defence sector, but now its board-level committee assesses orders for its valves and pumps, which can be used in military equipment including vehicles and ships.

The shift also comes as German industry struggles to recover from weaker demand from China. In sharp contrast to the booming defence sector, the country’s auto industry has had to announce swingeing job cuts amid a difficult transition to electric vehicles.

Germany was facing the reverse situation of Europe immediately after the cold war, when companies faced the need to convert military production operations to civilian manufacturing, said Christian Mölling at the German Council of Foreign Relations.

“You are rethinking how you can use [civilian] production capacity, technology and procedures to become more efficient in the military world,” he said.

Continental, one of the world’s leading automotive suppliers with 200,000 employees which has announced large job cuts, recently launched a scheme to transfer hundreds of its employees to German defence contractor Rheinmetall.

Peter Sebastian Krause, an executive at Rheinmetall, said at the time that the Continental employees would bring “highly valuable” skills to the company.

Laser maker Trumpf, whose customers include the semiconductor industry including chipmaking equipment group ASML, is another company considering lifting its blanket ban on supplying the defence sector. 

The company’s lasers are subject to export restrictions, including to China, because the German government considers them “dual use”, with both civilian and military applications.

Defence companies have shown interest in military uses for the company’s lasers, such as for shooting down drones, said Hagen Zimer, head of the company’s laser operations.

The laser can be a powerful defence tool, he told the FT, adding that without the technology, “it is simply not possible . . . to defend against a multipronged attack of 200 drones in war zones”.

Lufthansa Technik, a wholly-owned subsidiary of the airline group which has contracts to service about a fifth of the active global fleet, last year formally launched a military aircraft servicing division. The unit has become a fast growing business line, and is set to help maintain Germany’s Chinook helicopters and F-35 fighter jets.

“In 2019 we decided to make a bigger step into defence, based on our relationship with the German government,” said Lufthansa Technik executive Michael von Puttkamer, adding that the €100bn fund “was an opportunity to step into the industry more”.

“We think stepping into defence is not only a great business opportunity but also to support our German armed forces to be capable of defending our country,” he said.

Susanne Wiegand, chief executive of tank parts manufacturer Renk, said growing “synergies” between civil and defence manufacturing sectors in Germany could benefit both sides.

“It’s a great way of developing technology further. Innovations are coming from the military world and find their way to civilian applications and vice versa.”