Germany looks to close ‘peacetime’ capability gaps, targets €15B procurement budget by 2024

BELFAST — The German Federal Ministry of Defense (BMVg) has admitted in a new armaments report that it has serious military capability gaps caused by three decades of “peacetime” underfunding — and that filling those gaps quickly won’t be cheap.

The “16th report on selected procurements” document, published on Dec. 6, acknowledged that the draft 2023 defense budget will be set at €50.1 billion, €300 million less than the official 2022 total. However, Berlin optimistically forecasts that procurement spending will dramatically increase to reach a target of €15 billion by 2024, jumping from €9.9 billion set to be spent on equipment in 2022.

“Effectively the regular defense budget is decreasing but the government always makes the argument that the flow of money from the special arms fund into procurements will end this trend,” said Torben Schutz, security and defense program associate fellow at the German Council on Foreign Relations, a national policy thinktank.

Germany’s decision to approve a €100 billion special arms fund a matter of days after Russia invaded Ukraine represented a historic shift in the country’s national security ambitions. The move was designed to bring Germany closer to meeting the 2% NATO GDP spending target, which alliance partners have long criticized Germany for failing on, but also to acquire new equipment that the Bundeswehr desperately needs in the face of growing Russian aggression.

The law introducing the special arms fund was “entered into force” on Jul. 1, per the report. But, according to Christian Molling, research director at the German Council on Foreign Relations, that €100 billion figure isn’t exactly correct: the funding has been partly reduced as Germany’s Ministry of Finance (BMF) loans the €100 billion to the BMVg with a five percent “lenders rate” included. “On top of that, inflation eats another 10% of the total, leaving €85 billion,” said Molling.

“The special fund is there to fund those capabilities that are needed to fill the capability gaps between what Germany has signed up for with NATO and has not delivered on so far,” he said.

The latest armaments report also confirms that Germany remains committed to increasing the number of its soldiers to 203,000 personnel by 2031, adjusted from the current level of around 183,000.

“That plan isn’t moving in the right direction, so I found that quite interesting to read in the report,” said Schutz.

Besides personnel changes, a total of 19 procurements are assessed by the BMVg, ranging from fighter jet and helicopter projects to frigates, corvettes, infantry fighting vehicles and multinational efforts like the Franco-German-Spanish Future Combat Air System and Eurodrone MALE RPAS programs.

The report also reveals that ten acquisitions have been moved from the national defense budget to the special arms fund: the Puma IFV, F126 Frigate, K130 Corvette, submarine 212 common design, CH-47F heavy lift helicopter, C-130J airlifter, Naval Strike Missile (NSM) Block 1A, Eurodrone MALE RPAS, Pegasus SIGINT and P-8A Poseidon.

“What this tells us is that those projects once in the annual defense budget were not properly funded before transferring to the special arms fund,” said Molling. “If you look back into the decisions taken by the previous government on procurement, there were a significant number of examples where budgeting did not cover 100% of costs but nonetheless, the decision to procure equipment [was] taken.”

F-35 On Its Way

In keeping with the German government announcing in March 2022 that Lockheed Martin F-35A Lightning and Eurofighter Electronic Combat Role (ECR) combat jets are to replace Tornado nuclear capable aircraft, the report mentions a phase out plan for the latter be completed by “mid-2023.” Berlin has consistently said Tornado will be withdrawn from service between 2025 and 2030.

The new F-35s are essential for Germany to continue nuclear sharing missions by carrying the US B61 nuclear bomb.

“Before the war in Ukraine, there was a real danger that Germany just dropped out of nuclear sharing with NATO because it could not get around to buying everything,” said Ulrike Franke, senior policy fellow at the European Council on Foreign Relations, an international think tank.

Despite the F-35 procurement being approved, it has already faced a number of complications, including a recent BMVg report to the budgetary committee which “flagged” risks of delays and increased costs.

“One of the risks described difficulties around sourcing sufficiently capable contractors able to proceed with necessary upgrades at Büchel Air Base [where F-35s are expected to be based],” Schutz explained. “It’s a bit unclear how likely it is that these risks materialize over the coming years.”

Such uncertainty has not been helped by the German government abandoning plans to secure an industrial offset agreement for the procurement with Lockheed Martin. That decision, likely harmful to Germany’s domestic industrial base, was made, according to Molling, so aircraft deliveries of the fifth-generation fighter can happen quicker.

He added that only US-made weapons, as opposed to European ones, are expected to be equipped on the aircraft.

The next session of Germany’s budget committee, scheduled to take place on Dec. 14, will decide whether to pass a $10.5 billion F-35 package, as reported by Reuters.

On FCAS, the armaments report refers to industrial negotiations being delayed by “discrepancies in co-operation.” Oddly, for a publication released in December, it stated that the industrial agreement should be “achieved by mid-November 2022.” After much controversy, the phase 1B demonstrator contract between Airbus and Dassault was eventually signed on Dec. 1. A next generation fighter prototype is expected to make a first flight in 2029, according to Dassault.

Helicopters, Drones Coming This Decade

The fighter procurement aside, Berlin will also make a decision on whether to join the Tiger MkIII attack helicopter upgrade program before the end of 2022, stated the armaments report.

Both France and Spain signed on to the project in March, with Germany surprisingly absent from proceedings.German officials have been largely silent on the decision, but an interest in Boeing’s AH-64E Apache Guardian continues to stand as one obvious reason for objecting.

Berlin selected 60 of Boeing’s CH-47F Chinook for the long running heavy-lift helicopter acquisition in June,  with a Letter of Acceptance (LOA) by the US government expected in 2023, according to the report.

The remaining three aircraft from an order of 18 NH90 Naval Transport Helicopters (NTH), aka Sea Lion in German service, are forecast for delivery “by the beginning” of 2023.

Other procurement updates in the document include a January 2027 first flight of Eurodrone, Europe’s four-nation uncrewed aerial system effort that has been beset by delays. The aircraft will undertake ISR missions once operational. A first German Eurodrone aircraft and ground control system are also scheduled for delivery in April 2030, noted the report.

On naval matters, the first-in-class F125 frigate will be operational by 2023 while funding for four F126 frigates to partially replace the K130 corvette fleet, will be made available in 2023 by the special arms fund. Germany holds an option with Dahmen for an additional two F126 ships to be procured.

“Money from the special arms fund was originally planned for spending on the two additional ships but has shifted to the regular defense budget, so exercising the option [with Dahmen] remains unclear,” said Schutz.

Similarly, “talk” around Germany buying four P-8A Poseidon maritime patrol aircraft to add to an order of eight platforms  has been “crossed off” for the moment, he added.