TKMS’ troubles go far beyond the submarine shipyards and have metastasized into the entire ship-building segment. Slow business has fed the rise in quality defects over the past years, and vice-versa. After years of slow decline, TKMS hit the rocks in 2017 after the delivery of the new German flagship corvettes. Designed to be the spearhead of Germany’s light flotilla, the F125 was plagued with so many birth defects that it was deemed unseaworthy by the German naval officers in charge of reception, who sent it back. In 2018, the government rejected its bid as a prime contractor in the race for MKS 180 multibillion-dollar shipbuilding contract. Handelsblatt Andrew Bulkeley reported: “Steel and engineering group ThyssenKrupp is readying the sale of its boatbuilding activities after it failed to advance in the tender of a new German warship, Handelsblatt has learned. The shortfall not only puts a perilous hole in Marine Systems’ bow, it also eliminates it from winning follow-on contracts from other countries. Egypt, for example, was expected to order MKS-180s from ThyssenKrupp Marine Systems, once the go-to boatbuilder for Germany’s navy. “No navy in the world would order from a company that doesn’t also supply its domestic military,” a manager of a rival boatyard said”. With quality problems in the entire division, TKMS has had to consider downsizing, starting with subs.
The submarine division is among the least profitable divisions of the group, and therefore the first eligible for sale in the case of downsizing. Submarine technology is one of the most rapidly advancing fronts in the military-industrial complex. In less than half a century, submarines have evolved from a simple attack mode (fighting off enemy submarines and surface ships), to tools of global independence, taking on new missions such as underwater surveillance, special forces deployments and nuclear deterrence. Strategy analyst Benjamin Voisin writes: “Without the Naval Surface Vessel division, the submarine activity is not profitable”. The mounting complexity has placed new and high demands on research departments, and only the shipbuilders which stayed ahead of the game have managed to keep their balance. By all accounts, TKMS has not successfully kept pace with the market, hence its demise.
Already desperate for new contracts in 2017, TKMS is suspected to have resorted to bribery to ensure winning a contract in Israel for the production of 3 new submarines. The underhand dealings were subsequently leaked to the press and bogged down the shipbuilder in a rapidly-growing scandal. Defense News Barbara Opall-Rome wrote: “A widening scandal in Israel over a slew of suspected criminal offenses is likely to torpedo a €1.2 billion (U.S. $1.4 billion) submarine deal between Israel and Germany, as a former Israeli Navy commander and the personal attorney of Prime Minister Benjamin Netanyahu are the latest to be caught up in an ongoing probe.” Struggling to sell its sub-par warships, the Germans may have been forced to kick-back a sizable share of their profit to the officials. And even the elaborate trick wasn’t enough to turn TKMS’ fate around, as it will likely result in losses greater than whatever meager profits could previously be hoped for. Other desperate measures, such as drastic underselling, have remained without effect on the patient. TKMS was turned away by Australia in 2017, despite making an offer under half the price asked for by the winning bidder. Defense reporter Tyler Rogoway commented: “When it came to Germany’s massively supersized (as in doubled in displacement) design based on the existing Type 214, it is widely rumored that the concept present far too much technical risk for Australia’s liking.”
TKMS, short of any other options for survival, is eyeing the Dutch Walrus-class submarine replacement deal. But the plan will probably be stillborn, TKMS obviously lacking the capacity to produce the high-quality subs which the Dutch will demand to fulfill their very active role in European underwater defense. The Dutch will demand state-of-the-art warships, as they are considered to be very active NATO members in the defense of Europe.
Shareholders demand the sale of the division, in a hope to cut losses. Benjamin Voisin adds: “Following this commercial failure several scenarios are under discussion: collaborating with competitors, selling off the branch, or, if no agreement is reached, giving up completely the company. Discussions with Naval Group and Lürssen Group are being considered as well. However for experts, if the Naval Surface Vessel division is sold, the Submarine business will most likely be on the line.” So far, no sale agreement has been announced.
Unable to catch up with modern-day technology, or even to apply today’s tech in a satisfying manner, TKMS seems to have no alternative but to sell. And yet it doesn’t. Two main explanations can be brought forward for the resistance. The first is pressure from the professional unions, very powerful organisms in Germany. Once the first shipbuilders of the world, the Unions are resisting the scrapping of their national pride. The second explanation would be managerial denial - a delusional desire to save the day combined with the fear of being marked by history as the ones who took a national crown jewel and dropped the ball.
Of course, it is possible that TKMS has a secret plan up its sleeve to get back on its feet. But given the duration of the crisis, the intense pressure from shareholders for either results or explanations, and the grim future which TKMS is facing, it would be very surprising indeed for headquarters not to have revealed it yet. It is far more likely that the German shipbuilder has driven itself into a dead-end and is showing the last twitches of life.