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Sweden-TKK Relations Sour

Apr. 15, 2014 - 07:03PM   |  
By GERARD O’DWYER   |   Comments
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HELSINKI — The deteriorating relationship between the Swedish government and German industrial group Thyssen-Krupp-Kockums (TKK) hit a new low last week. The state defense procurement agency, FMV, confirmed on April 11 that it had “visited” Kockum’s headquarters in Malmö on April 8 and “secured for transport” certain sensitive and defense technologies and equipment vital to the A26 submarine project.

FMV officials and transport vehicles were escorted by a unit of the Armed Forces’ P7 Military Police branch.

The action occurred amid a formal decision by the Swedish government to abandon all submarine modernization program cooperation with TKK. Moreover, the government is encouraging Saab to strengthen its company’s underwater capacity by offering to acquire part or all of TKK’s submarine expertise and construction units in Sweden.

FMV spokeswoman Louise Wileen Bjarke said the transport centered on specific “top secret” technologies and equipment directly relating to the A26’s design and development project. TKK’s involvement in the A26 project officially ended in February when the Defense Ministry terminated its cooperation with the company. The project had received funding of more than $100 million from the Swedish state.

“The precise details of this defense transport are classified,” Bjarke said.

FMV would not say what was removed from TKK’s research and development units in Malmö, or confirm if the action is linked to fears within FMV and the MoD that a planned downsizing by TKK in Sweden would result in the transfer of advanced defense technologies, tied to the A26 project, moving to ThyssenKrupp’s submarine facilities in Germany.

TKK refused to comment on what FMV described as an “unannounced visit.” Company spokesman John Ahlmarks said that due to the “confidential classification” of the transport, and FMV’s involvement, the company would not comment further. TKK denied reports that the company’s head of security in Malmö, Lars Karlsson, had been “released from his duties.” Karlsson was not at the Malmö headquarters when the FMV’s armed P7-escort arrived.

The clear and growing lack of trust between FMV/MoD and TKK comes as Saab drives forward with its submarine capacity-building project, which is centered on acquiring its own submarine construction capacity and competence.

TKK, formerly Kockums, is based in Sweden but owned by ThyssenKrupp of Germany. The MoD’s stance reflects unease that any downsizing of TKK’s submarine capacity in Sweden would effectively end Sweden’s sub-building sector.

Against this backdrop, the Swedish defense group has used lucrative salary and financial packages to lure more than 100 top division managers and engineers from TKK since mid-March.

The prospect that Saab might try to take over TKK is growing as the company responds to a request for information (RFI) from the Defense Ministry. The RFI was issued to ascertain Saab’s capacity to both produce the Swedish Navy’s next-generation, blue-water capable A26 submarines and refit the existing Gotland-class submarine fleet.

The MoD toughened its position on TKK and German parent ThyssenKrupp Marine Systems (TKMS) in February.

The relationship cooled significantly when TKK/TKMS failed to comply with a request from FMV to deliver fixed production and delivery cost estimates relating to the planned A26 program and Gotland-class fleet refit.

“We now inform Parliament that we will not proceed with contract negotiations with the German industrial” group, Defense Minister Karin Enström told the National Parliament. “In order to meet the needs of the armed forces, the government considers that a new industrial solution is needed, and that a design review of the next-generation submarine must be implemented to guarantee Sweden’s continued submarine capability.”

Enström said the MoD is focused on finding a “credible industrial solution” to safeguard Sweden’s submarine long-term design and production capability.

Saab will deliver by mid-May a preliminary assessment of its submarine design and production capability, as well as its ability to take over the A26 program and Gotland-class sub mid-life refit programs, Saab CEO Håkan Buskhe said..

Buskhe said Saab is exploring a number of different avenues on how best to develop its submarine production capacity in Sweden. The CEO denied reports within industry circles that the company is preparing a bid to purchase TKK’s submarine shipyard in Karlskrona.

However, part of the technical exploration, which will form part of the final capability report to be delivered to the MoD, will involve looking at available shipyard capacity and facilities in Sweden, Buskhe said.

“Expertise can certainly be found in Karlskrona. Having shipbuilding capacity will be key to our goals. This knowledge exists in Sweden, and submarines can be developed in Sweden. With all this, it is reasonable to expect that a large part of the production process can take place in Sweden,” Buskhe said at a news conference in Stockholm April 9.

Profits in the Water

Saab may be known globally for its aircraft-building expertise, but the company does have a growing and profitable underwater segment, said Luuk Strootman, a defense industry analyst based in The Hague.

“Aircraft gets Saab the headlines, but the group earned over $450 million from the sale of ship- or submarine-launched autonomous underwater vehicles, sub sonar, control systems, torpedoes and other naval equipment in 2013,” Strootman said. “It already has some capability. While it can hire in the expertise, as it is doing now, it still lacks shipyard capacity.”

Sweden’s MoD and armed forces plan to adhere to the original timeframe, which would require the first of the next-generation A26 subs to be delivered to the Navy in 2020, Strootman said.

“Over $100 million in public money has so far been spent on developing the A26. If ThyssenKrupp-Kockums doesn’t build the new sub, then another company or consortium will,” Strootman said. “The best-case scenario for the MoD is that Saab makes a strong case to prove its capability to take over the $3.2 billion submarine acquisition and modernization project.”

The FMV, in February, awarded Saab a $4 million contract to evaluate its underwater capability and produce a sub design and development strategy that would serve to protect Sweden’s ability to build submarines.

Under the contract, Saab must deliver the report to the MoD by June 28.

One option being considered by Saab is to find an international partner for the A26 and sub-fleet refit program, Strootman said.

“It’s quite possible that FMV and Saab could agree to find a shipyard partner in Poland or Australia,” he said. “All options are open and under review at the present time.”

The emergence of Saab as a potential producer of submarines for the Swedish Navy and export would represent something akin to a “Swedish solution to a Swedish problem,” said Allan Widman, the Liberal Party’s spokesman on defense.

“The government may not come flat out and say it, but there is a great fear that Sweden’s submarine capability could be lost under ThyssenKrupp Marine Systems’ ownership,” he said. “There has been unease over talk that TKMS plans to reorganize its operations in Sweden to produce small-sized subs and surface vessels up to 1,000 tons. The A26 will run to 1,900 tons, which begs the question as to where TKMS wanted to build the Swedish sub.”

Downsizing TKK’s submarine-building capacity would result in the loss of highly skilled engineers and other technical personnel among TKK’s 1,000-strong workforce.

“For Sweden to retain submarine building capabilities is fundamental,” Widman said. “Sweden’s Armed Forces needs this capability to properly defend this country. Having Kockums back under Swedish ownership would be a good result if it can be achieved.

“What is essential is to ensure this country continues to have a submarine-building capability when the dust settles on this matter,“ he said. “Nobody wants Kockums’ large-sub building capability moved to TKMS’ HDW shipyard in Germany.”

Saab’s “intense hiring” of TKK staff indicates the company’s first preference is to develop its own submarine construction capability in Sweden, Strootman said. “Saab hasn’t denied that it is targeting TKK’s top personnel, and TKK hasn’t denied that it is losing its top people.

“If the latest reports out of TKK are to believed, then Saab is conducting around 50 interviews a week with TKK managers and engineers,“ he said. “While having these skills is vital to Saab’s case, it also means that TKK is losing the cream of its crop, and this could affect its delivery ability on ongoing contracts.“■

Email: godwyer@defensenews.com.

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