European Defence giants Leonardo and Rheinmetall form a 50/50 Joint Venture for the development of the next Land Defence Systems
Written by: Giorgia Botter
Supervised by: Riccardo Angelo Grassi
Introduction
The Italian manufacturer Leonardo and the German arms maker Rheinmetall signed a strategic partnership on 3July 2024 to establish a 50/50 joint venture for the industrial development and the subsequent commercialisation of a new battle tank for the Italian Army’s ground system programs. The new-born entity will be based in Italy, where 60 % of the overall production will take place (Leonardo, 2024). Over the next ten years, the two industrial groups aim to win contracts worth an estimated 20 billion euros from the Italian Army (Dragoni, 2024). The terms of the agreement will have a positive impact on the Italian supply chain as a whole and could capitalise more than 50 billion US dollars on the European market, as preannounced by Rheinmetall CEO Armin Papperger (Reuters, 2024). The Memorandum of Understanding signed by the two counterparts is now subject to approval by the European Commission and national competition authorities.
The past failure of Leonardo-KNDS negotiations
In December 2023, Leonardo, which is 30.2% owned by the Italian government, agreed on a more intensive cooperation in developing the future generation of armoured vehicle platforms with KNDS, a consortium of Germany’s Krauss-Maffei and France’s Nexter. This ‘strategic partnership’, as it was described in the Joint Statement, was intended to establish a concrete European Defence Group and collaborate in the development, production and maintenance of the Leopard 2A8 main battle tank (MBT) as the future solution for the Italian Army. At the time, the two sides’ commitment included cooperation on the Franco-German Main Ground Combat System (MGCS), foreseeing an imminent Italian participation in the project (Martin, 2024). The latter was launched in 2017 by France and Germany with the aims to create a joint tank system and replace the current Leopard 2 and Leclerc MBTs (ISL, 2018).
Italy planned to acquire 132 Leopard 2A8 combat tanks and up to 140 support vehicles for an overall value of 8.8 billion dollars (Martin, 2024) within a plurennial plan lasting 14 years. The plan was devised to modernise the ageing military land platform infrastructures of Italy. After only six months of negotiations, it was last June when KNDS and Leonardo announced the interruption of their partnership due to the inability to reach an agreement on a mutually accepted configuration of the tanks (KNDS, 2024). It has also been suggested that the Italian share of work may have contributed to the breakdown of negotiations with KNDS (Heiming, 2024).
The new agreement with Rheinmetall
Leonardo’s new partnership with Rheinmetall occurred immediately after the unsuccessful alliance efforts with KNDS. The purpose of the new agreement aligns with the objective of promoting European co-operation in the defence industry. As Leonardo’s CEO Roberto Cingolani explains, ‘We see this agreement as a fundamental contribution towards the creation of a European Defence Space’ (Leonardo, 2024). As mentioned in the introduction, the agreement focuses on the development and delivery of the Italian main battle tank (MBT) based on the German Panther and the Lynx platform as an armoured infantry combat system (AICS). Catering to Italy’s necessity to replace its old Ariete tanks and its Dardo vehicles (Kington, 2024),Rheinmetall has already developed its Panther MBTs and the Lynx IFV, and it has demonstrated the possession of the adequate technology for both programs (Heiming, 2024). Leonardo will then ‘Italianise’ the Panther with national electronic equipment (Di Feo, 2024).
The strategic partnership between the two companies also allows for the potential Italian involvement through Leonardo in the European Main Ground Combat System (MGCS) (Leonardo 2024), as it has already been envisaged in the previous agreement with KNDS. In addition, the Leonardo-Rheinmetall agreement can be perceived as a significant step towards the renewal of Europe’s defence industrial and technology base, which has been subordinated for decades to American primacy (Hill, 2024). Admittedly, the formation of the new joint venture represents a real challenge to the KNDS group. With this decision, which is mainly the result of the initiative of the Italian Defence Minister Guido Crosetto, the Meloni government has put aside any strategic collaboration with Paris in the military field and has established a solid relationship with Berlin, which could also lead to new agreements (Di Feo, 2024).
Conclusion
The strategic partnership between Leonardo and Rheinmetall marks a pivotal shift in modernising the Italian army and war technology. It is certainly a great opportunity for Italy given the actual status of its war infrastructures. However, it also requires a significant investment in terms of both economic and operational effort. The new agreement also constitutes part of a more ambitious project since it provides the ‘roadmap’ for Italian participation in the future Main ground combat system at the European level. In conclusion, the Leonardo-Rheinmetall joint venture will bring positive outcomes both to the Italian economy and the overall European collective defence market improving its competitiveness (Hill, 2024).
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