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Germany's Multi-Billion Euro Defense Procurement Push
Germany is set to significantly bolster its defense capabilities with major procurements from OHB SE, according to insiders familiar with the situation. The procurement plan includes the purchase of three satellites for the armed forces at a cost of €2.1 billion ($2.3 billion). This move is expected to be formally approved by lawmakers from Chancellor Olaf Scholz’s ruling coalition during a private session of the parliamentary budget committee scheduled for Wednesday. The people providing this information requested anonymity due to the sensitive nature of these plans.
In addition to the satellites, the committee is anticipated to authorize the acquisition of two navy F126 frigates, a deal valued at approximately €3 billion. This plan was disclosed last week. Furthermore, approval is sought for the purchase of 45 head-up displays for the Tornado fighter jets, estimated to cost €40 million. The news has already had a positive impact on OHB shares, which rose by 2.1% on Monday morning.
Modernizing the Bundeswehr
These significant procurements are part of Germany’s extensive efforts to modernize the Bundeswehr (armed forces), a move spurred by the geopolitical tensions arising from Russia’s full-scale invasion of Ukraine. Among the planned investments is the acquisition of 20 additional Eurofighter jets, potentially costing up to €4 billion.
OHB, based in Bremen, Germany, and employing over 3,000 individuals, specializes in satellite systems for various applications, including earth observation, navigation, telecommunications, science, and reconnaissance. The current German order includes two communication satellites and one frequency-securing satellite.
Commitment to NATO's Defense Spending Goal
Chancellor Scholz has reaffirmed his commitment to ensuring that Germany meets NATO's defense-spending target of 2% of GDP over the long term. This pledge remains despite the anticipated depletion of a €100 billion special fund, which was facilitated through debt, expected to run out by 2027. Achieving this defense spending goal will be challenging given the lower tax revenue projections and the strict constitutional limit on net new borrowing, widely known as the "debt brake."
