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Saab Deal Raises Prospects For Domestic Sub Orders

Jul. 6, 2014 - 03:45AM   |  
By GERARD O’DWYER   |   Comments
ThyssenKrupp Marine Systems, formerly Kockums, has been sold to Saab.
ThyssenKrupp Marine Systems, formerly Kockums, has been sold to Saab. (ThyssenKrupp Marine Systems)
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HELSINKI — Saab’s US $50.7 million acquisition of ThyssenKrupp Marine Systems AB (TKMS) from Germany’s ThyssenKrupp Industrial Solutions will help maintain Sweden’s submarine-building capabilities while expanding Saab’s underwater offerings.

“This deal will strengthen Saab and the whole group. The business we have acquired has a unique submarine design and building capability, and great development potential,” Saab CEO Håkan Buskhe said in a statement.

He said the group recognized the value and opportunity in the deal, including the prospect of securing substantial contracts, estimated at over $3.5 billion, to build Sweden’s new A26-class submarine and modernize the Navy’s existing Götland-class subs.

The lower-than-expected price paid for Sweden-based TKMS (formerly Kockums) reflects “tough negotiating” on the part of Saab and the realization that the shipyard and production assets central to the acquisition may require sizable capital investments in order to modernize equipment and facilities, said Mats Liss, an industry analyst at Swedbank in Stockholm.

“The purchase price is about one-third of what had been anticipated, so it is much lower than most analysts had predicted,” Liss said. The fact that Saab may need to invest in upgrading the equipment and facilities in TKMS no doubt helped to keep the price down.”

The industrial dimension to the deal, coming as Sweden’s government wants to deepen cooperation with Saab, fits neatly into Prime Minister Fredrik Reinfeldt’s long-term strategy to ensure that Sweden retains control and ownership over core military technologies, said Cecilia Widegren, the deputy chair of the Swedish Parliaments’ Committee on Defense (PCD).

“The government has the PCD’s full backing on this deal,” Widegren said in an interview. “It is essential that we not alone retain integral military technologies in Sweden, but that we form closer partnerships with indigenous defense companies to strengthen our long-term defense capability, especially in key areas such as producing aircraft and naval vessels.”

The Swedish government’s support for Saab, which is Sweden’s biggest defense company, is based on the Gripen fighter export model that links core military products and technologies to drive foreign sales, Liss said.

“The takeover of TKMS is a natural next step for Saab,” Liss said. “The company has contracts to develop Sweden’s next-generation submarine. The acquisition gives it the capacity and skills to build modern submarines for Sweden and potentially foreign markets in Australia, Asia and elsewhere.”

The acquisition of TKMS comprises submarine naval production yards, facilities and support units in Karlskrona, Malmö and Muskö. The company and its assets will be integrated into Saab’s Security and Defense Solutions division, which comprises the group’s underwater business.

“Integration and development efforts will begin now to ensure that operations reach their full capacity. It will be important to achieve synergies with Saab’s current naval business,” said Gunilla Fransson, the head of Saab’s Business Area Security and Defense Solutions

Apart from a submarine building capacity, TKMS also designs and builds surface naval vessels, remotely operated submarine rescue vehicles, mine countermeasures systems, and innovative air independent propulsion systems based on Stirling technology.

A significant challenge facing Saab will be how to capitalize on TKMS’ development potential. The company’s largely underused yards and production facilities, which have seen few major orders since 2008, will require investments to upgrade equipment and production technologies.

Saab can also be expected to develop a long-term reorganization plan for TKMS that will look to strengthen its capacity to bid for international surface vessel and submarine projects, and implement new measures to improve the company’s profit-generating potential, said Marten Dille, an industry analyst based in The Hague.

“In TKMS, Saab has bought a company where morale among managers and workers was generally low due to a lack of re-investment in its core business areas under ThyssenKrupp’s ownership,” Dille said. “The company turned in a profit of just $5 million on a turnover of $253 million in 2012-2013. This is quite low for a business in this defense industry area.”

Swedish Defense Minister Karin Enström described Saab’s acquisition of TKMS as a “best-case scenario” to ensure that design, construction and retention of A26 technologies remains in Sweden.

“It provides ideal conditions for implementing the decisions taken by the coalition government on the procurement of new submarines and the modernization of existing submarines,” she said. The acquisition by Saab of TKMS still requires the approval of Sweden’s competition authority. It is expected to sanction the takeover this month. ■


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