By Avascent Analytics team
Earlier this month, Avascent attended the German Private Equity and Venture Capital Association (BVK)’s annual meeting in Berlin. To accompany the meeting, Avascent consultant Lars Miethke wrote for BVK’s publication BVK-KURIER examining opportunities for European private equity investors after a record 2017 in aerospace and defense M&A. Read his op-ed here.
A quick look at the biggest stories of the week
Germany • Poland • Canada • Belgium • Spain
On June 14, Israel Aerospace Industries signed an agreement with Airbus to lease seven Heron TP unmanned aerial systems to Germany. The lease is for nine years and worth $600 million. Although Germany’s armed forces will operate the aircraft, Airbus will be the prime contractor managing the program and will provide support and maintenance services. Although this agreement has been signed, it will need to be approved as part of the German federal budget, which should be passed by November. This agreement follows the June 13 earmarking of just over $1.1 billion for Heron TP, of which about $800 million will go to Airbus. Of the seven Heron TP aircraft being leased, five will be capable of carrying weapons, which has caused some controversy in Germany. Germany has been using smaller Heron UAS as part of missions in Mali.
On June 14 and 15, officials from France’s Naval Group visited Poland to promote the Scorpene submarine. The Polish Navy is preparing to open a competition to procure three submarines worth an estimated $2.7 billion. Naval modernization programs have faced significant delays, and Avascent Analytics expects that the submarines will be delivered no sooner than 2025. The Orka-class vessels will replace the country’s fleet of two Kobben-class and one Kilo-class submarines and will make up the core of Poland’s naval posture. The Scorpene is considered the front-runner, although Warsaw is also evaluating Saab’s A26 and ThyssenKrupp Marine System’s 212CD.
On June 15, the Canadian government announced that it had begun construction on the first Joint Support Ship (JSS), with Defense Minister Harjit Sajjan participating in a steel cutting ceremony. The acquisition of the JSS is part of Canada’s National Shipbuilding Strategy, which aims to equip the Royal Canadian Navy and the Coast Guard with new vessels, as well as sustain Canada’s shipyards. The Joint Support Ships will replace the country’s auxiliary oiler replenishment ships, but the first JSS is expected to be delivered in the early 2020s, almost a decade after the auxiliary oiler replenishment ships have been retired. The JSS is being built by Seaspan’s Vancouver Shipyards alongside several other non-combat vessels including the Offshore Fisheries Science Vessel, Offshore Oceanographic Science Vessel, and a Polar Icebreaker. The Royal Canadian Navy is acquiring two auxiliary ships under the JSS program, but the overall cost of the acquisition has increased by USD $831 million since the program’s initial estimate of USD $1.7 billion. The acquisition is now expected to cost approximately $2.5 billion though this is hardly a surprise for the government as the Parliamentary Budget Office anticipated the program costing close to $2.5 billion as early as 2013, largely due to Seaspan’s inexperience with constructing large vessels.
The Prime Minister of Belgium, Charles Michel has announced a major revision to the Belgian fighter modernization program. In a press conference on June 18, the prime minister announced that the decision for a potential $4.1 billion program would be delayed until mid-October, and the recent offer of Dassault Rafales from France would be evaluated against a potential life extension of the existing F-16 fleet and offers of Eurofighters and F-35s. The move comes as a major blow to Defense Minister Steven Vandeput who drew extensive criticisms for his preference for a replacement competition over an F-16 upgrade program while barring the French Rafale offer in the competition because France did not follow procedures in the Request for Government Proposal.
On June 18, the Spanish Directorate-General for Armament and Material finalized two contracts with Thales for unmanned aerial ISR platforms. The Fulmar X has been selected to provide ISR capabilities for the Spanish Navy and the Spanish Army, although the exact number of units ordered and the contracts’ values were not disclosed. However, the new UAS platforms are expected to enter service this year. The acquisition of the Fulmar X platforms would add to Spain’s ISR assets which include P-3s and CN-235s.
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