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Norway's defense sector seeks lift through submarine deal with ThyssenKrupp

February 17, 2017 (Photo Credit: Christian Charisius/AFP/Getty Images)
The industrial-cooperation dimension of Norway’s recent submarine acquisition deal with Germany’s ThyssenKrupp Marine Systems (TKMS) has emerged as one of the first major visible signs of the Norwegian government’s strengthened industry-support policy at work.

The defense-industrial component of the deal, which will see TKMS deliver four Type 212 submarines to the Norwegian Navy, is expected to generate valuable contracts over the long term for Kongsberg and other Norwegian defense contractors.

The four 212 air-independent submarines will replace Norway’s existing six German-built Ula-class submarines that entered service between 1989 and 1992.

For Kongsberg, the extended industrial cooperation linked to the submarine deal has already produced an agreement, with an estimated longer-term value of$1.4 billion, to deliver the company’s Naval Strike Missiles (NSM) to Germany.

Norway’s conservative-led government strengthened its defense-industrial support policy in 2016. The underlying objective is to ensure that indigenous industry players benefit, mainly through sub-contracting and partnership opportunities, from large military contracts.

Additionally, the collaboration with the private sector fits neatly into the government’s long-range economic plan to grow capacity and jobs in the defense field by enabling a significant involvement in medium- to large-sized military contracts for native firms.

The strategic direction of Norway’s defense-industrial support policy is made clear in the submarine acquisition contract with TKMS. Norway aims to secure industrial agreements directly linked to the deal with Germany to a value corresponding to the purchase costs of the new submarines.

This nature of the government’s defense-industrial support policy strategy is expected to substantially grow contract opportunities and revenues for Norway’s leading defense companies over the next 10 to 15 years.

The Norwegian government will use the submarine procurement program as an opportunity to build a stronger indigenous defense industry, said Norway’s Defense Minister Ine Eriksen Søreide. Norwegian industry, she said, is a world-leading force in some of the key technologies used in submarines.

"The procurement of new submarines will be actively used towards international partners to further develop a competent and competitive Norwegian defense industry," said Søreide.

The Norwegian government’s defense-industrial support strategy is certain to have value for both the country’s leading defense equipment suppliers and small- to medium-sized industry players, said Poul Smidts, an industry analyst based in The Hague.


"Kongsberg will be the most prominent Norwegian supplier to the submarine contract won by TKMS. But the trickle-down value will be highly significant too for smaller firms in Norway," Smidts said.

The Type 212 submarine’s combat management system will be delivered in its entirety by Norwegian industry using Kongsberg’s network of around 100 small and large-sized suppliers.

"The extended cooperation deal built around the submarine acquisition program not alone guarantees further development of Kongsberg’s NSM, but the promise of serial purchases of the missile by the German navy for its surface ships," said Smidts.

Defense companies in Norway will also see real opportunities for contract generation around the submarine procurement program in areas such as joint maintenance and logistics work between the Norwegian and German sea services.

"The extended cooperation agreement, and the purchase of the NSM, is good for Kongsberg and good for Norway’s defense industry," said Eirik Lie, president of Kongsberg Defense Systems.

The NSM is currently in operation with in the Norwegian and Polish navies. Kongsberg recently sealed an agreement to deliver the NSM to Malaysia.

"Germany plans to acquire a significant number of missiles for its navy. This provides great opportunities for Norway’s defense industry, both for Kongsberg and other Norwegian subcontractors," Søreide said.

The deepening strategic nature of the political-industrial partnership between the Norwegian State and the defense industry was strongly in evidence in the creation of the national defense capability building project Landmaktutredningen (LMU), or Nation Force Report.

Headed by the NDF’s Chief of Defense Haakon Bruun-Hanssen, the LMU’s expert group includes Morten Brandtzæg, the CEO of Nammo A/S, and Geir Håøy, Kongsberg Group’s President and CEO. The LMU is looking at possible ways to advance the establishment of a "total defense concept."

Moreover, the Norwegian government’s decision to establish Aerospace Industrial Maintenance Norway (AIM Norway) as a state-owned limited company in 2016 can also be expected to open up international opportunities for Norwegian defense firms.

The Ministry of Defense (MoD) plans to create a broader ownership structure for AIM Norway to drive its commercial-scale development and international growth.

This will involve finding strategic native and foreign partners to acquire shares in AIM Norway. The MoD is looking to divest 50 percent of the equity in the company, with the Norwegian State retaining 50 percent ownership.

AIM Norway provides maintenance, repair, overhaul, and modification services to military aircraft. These cover fighter and transport planes and helicopters, as well as auxiliary equipment and systems. The company is expected to play an important technical service support role to the NDF’s new F-35 joint strike fighters, military and search-and-rescue helicopters.

"AIM Norway now has a better framework to take further steps in the defense industry, and has the opportunity to seek private capital and competence. The ownership structure can be adapted to what is the best for the company in the long term," said Søreide.
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