Germany's Ministry of Defense has scrapped the multi-billion-euro F126 frigate program, originally valued at approximately €10 billion for six ships and later projected to cost over €18 billion, due to significant delays and cost overruns. This decision, announced on Wednesday, resulted in a sharp decline in Rheinmetall's shares, which had been expected to take over as the lead contractor for the project. Shares in Rheinmetall, Europe's largest ammunition maker, fell as much as 18% on Wednesday, marking one of its worst single-day drops since 1989. Citi analyst Charles Armitage now forecasts Rheinmetall's naval unit will only reach half of its target of $5 billion in naval sales by 2030, down from its initial goal.
The cancellation of the F126 program directly impacted other European defense stocks, with companies like Renk falling 7.2%, Hensoldt down 3.3%, and Leonardo closing 4.7% lower. The broader Stoxx Europe Aerospace & Defense ETF finished 1.1% lower. This market volatility also influenced Franco-German tank maker KNDS, which delayed its planned stock market listing in Paris and Frankfurt, citing "unfavorable market conditions." KNDS, known for producing Germany's Leopard tank, had been struggling to convince investors to back an IPO valuation of more than €12 billion.
Instead of the F126 frigates, Germany will now procure eight smaller MEKO A-200 frigates from ThyssenKrupp Marine Systems (TKMS). The first four MEKO frigates are estimated to cost approximately €6.3 billion, with an option for four additional ships for roughly €5.3 billion, totaling around €11.6 billion for all eight vessels. TKMS shares rose significantly, up 8.2% on Wednesday, as they secured this new contract. The German Navy's top officer has approved the MEKO A-200 DEU as capable of fulfilling the country's anti-submarine mission and meeting NATO obligations, with the first delivery anticipated in 2029.
