Rheinmetall: Puma row shows arms makers are not the cat’s pyjamas

A moralistic take on war is that arms manufacturers are the only winners. Sometimes the outcome is less clear cut. Shares in defence giant Rheinmetall are up 80 per cent this year due to the Ukraine War’s revival of conventional conflict in Europe. But the stock has fallen about 10 per cent in two days following an explosive row with the German government over Puma tanks.

This points to the downside of having a few large, well-resourced defence ministries as your customers. Out-sized contract wrangles often result.

Rheinmetall’s Puma tanks appear to be a lot less reliable than sports shoes of the same name. Germany has bought 350 of the armoured vehicles, 40 of which boast an upgraded design. Almost 20 of these reportedly broke down during a training session. 

That is frustrating for a German government keen to improve its military capabilities. Two new Puma-related contracts — for €1.5-€2bn — hang in the balance. Germany accounts for a third of Rheinmetall’s sales.

It is not clear why the tank tracks fell off the Puma project. One possible culprit is a complex original design. Maintenance problems could be another issue.

Big military contracts have a history of time and cost overruns accompanied by mudslinging from both sides. The UK’s Ajax armoured vehicle veered off course. The Nimrod MRA4, a British patrol aircraft, was £800mn over budget and more than nine years late when its project was cancelled.

In this context, the Puma debacle is all in the course of a normal day’s work for defence contractors. Rheinmetall may emerge with only a few nicks and scratches.

Ukraine-related spending is spawning new orders. In December alone, contractors garnered €10bn of them in Europe, according to Agency Partners, a research business. While big government customers have procurement heft, suppliers hold a lot of the cards too. Rheinmetall is strong on scarce ammunition, recently winning a €500mn-plus order from the German government.

Expect governments and suppliers to remain locked in an uneasy truce as spending on conventional battlefield weapons increases.