Germany has scrapped its F126 frigate program, which was intended to build six large anti-submarine warships, due to significant delays and cost overruns. The original contract, valued at roughly €10 billion ($11.3 billion), was with Dutch shipbuilder Damen Schelde Naval Shipbuilding. The German Defense Ministry determined that continuing the program would have pushed the total cost for six ships to over €18 billion ($20.4 billion), making it unsustainable.
Instead of the F126, Germany will now procure eight smaller MEKO A-200 frigates from ThyssenKrupp Marine Systems (TKMS). The first four MEKO frigates are expected to cost approximately €6.3 billion ($7.15 billion), with an option for four additional ships for around €5.3 billion ($6 billion), bringing the total for eight vessels to €11.6 billion ($13.2 billion). This pivot to the MEKO frigates was formally approved after the German Navy's top officer confirmed their capability for anti-submarine missions and NATO obligations, with the first deliveries anticipated by 2029.
This decision had a significant impact on defense contractors. Shares in Rheinmetall, which was expected to take over as the lead contractor for the F126 program, plummeted by as much as 16.7% to 18%, marking one of its worst single-day drops. Analysts, like Citi's Charles Armitage, now anticipate Rheinmetall's naval sales target of €5 billion by 2030 will only reach half that. Conversely, TKMS's stock saw an increase of 8.2% to 16% on the news of the new contract. The broader market saw a ripple effect, with other European defense stocks like Hensoldt, Renk, Saab, and Leonardo experiencing declines. This turn of events also casts a shadow over other potential defense sector IPOs, such as the planned dual Frankfurt-Paris IPO for Franco-German tank maker KNDS, which was previously valued at about €15 billion.
