Germany's defense ministry scrapped the €13 billion F126 frigate program on Wednesday, the largest naval procurement project in the country's postwar history. The cancellation sent Rheinmetall AG shares down 15%, wiping more than €8 billion from the defense contractor's market capitalization.
Germany's defense ministry scrapped the €13 billion F126 frigate program on Wednesday, the largest naval procurement project in the country's postwar history. The cancellation sent Rheinmetall AG shares down 15%, wiping more than €8 billion from the defense contractor's market capitalization.
"The cancellation reflects Berlin's willingness to enforce fiscal discipline even as it ramps up military spending," said a European defense analyst. Germany plans to invest €780 billion over the next five years to become Europe's largest military power.
The F126 project was originally awarded to Dutch shipyard Damen six years ago but suffered cost overruns and delays. Berlin brought in Rheinmetall as lead contractor after the company acquired shipbuilder Luerssen's warship unit for €1.4 billion last year, marking its expansion into naval defense. Defense Minister Boris Pistorius now plans to order eight smaller Meko-class frigates from rival TKMS instead, sending that company's shares up 9%.
The setback challenges Rheinmetall's status as Germany's go-to weapons maker under CEO Armin Papperger, who has overseen rapid expansion across land, air and naval systems. Rheinmetall stock has fallen 40% over the past year, making it the worst performer in the STOXX Europe Targeted Defense Index, which has been flat over the same period. The company now trades at about 13 times forecast EBITDA, in line with the average of its peers, according to LSEG data. Any procurement order above €25 million requires approval from the Bundestag, which has a history of scrutinizing large defense expenditures.
This article is for informational purposes only and does not constitute investment advice.
