PARIS — Volvo kicked off the sale of its Renault Trucks Defense (RTD) subsidary on Friday by holding consultative talks with labor unions at its government sales division. The deal reflects a move toward European consolidation, said Joakim Kenndal, a spokesman for the Swedish parent company.
"Volvo Group has conducted a strategic review of the Governmental Sales business area and intends to initiate a process to divest this business," Volvo said in a Nov. 4 statement.
"There are great opportunities to grow the business even further, however, we believe that a new owner may be better placed to take the business to the next level," said Jan Gurander, Volvo deputy chief executive and chief financial officer. "Consequently, we intend to start preparations to divest the business."
The start of the sale is "subject to the finalization of mandatory consultations with staff representative bodies," Volvo said.
Acmat, Mack Defense in the US, Panhard, RTD and Volvo Defense make up the government sales business, which employs more than 1,300 staff. RTD, the lead unit, posted 2015 sales of some €500 million (US $556 million) and had a target to double its annual sales by 2018 or 2019. Growth by acquisition had been ruled out.
"There is no timetable" for the sale, Kenndal told Defense News. A sale of the government sales business reflected a move toward industrial consolidation, as could be seen in the joint venture of Nexter and Krauss-Maffei Wegmann (KMW), as well as the purchase of a stake in Patria of Finalnd by the Norwegian technology corporation Kongsberg.
RTD was among the most profitable Volvo units, with annual profit close to double digits, according to an industry executive. There was, however, sensitivity over arms sales, which required RTD to seek approval from Volvo.
Volvo’s search for a buyer has raised questions over whether Nexter, Thales or German manufacturer Rheinmetall might make a bid.
Any offer by Nexter would need an agreement with its partner KMW, a second defense executive said. A purchase of RTD by Rheinmetall would lead to a European landscape where two French-German companies compete for a foothold in the land-based arms sector.
Nexter and Thales declined comment.
Nexter is the leading French land-based arms manufacturer, while Thales supplies onboard systems and builds the Bushmaster and Hawkei Australian light transports.
The planned divestment will raise questions over RTD’s role in the French Army’s €6 billion Scorpion modernization program, which includes developing and building a Griffon multirole troop carrier, Jaguar combat vehicle and a light scout vehicle.
A production contract for some 2,000 Griffon troop carriers could be worth about €1 billion, based on a basic unit cost of €500,000 excluding onboard systems, the first executive said.
RTD is one of the core industrial partners with Nexter and Thales on the Scorpion program, with the Volvo unit receiving more than 30 percent of the 2014 development contracts worth almost €752 million, the second executive said. RTD will supply engines and drivelines for Jaguar and Griffon, which will have a high commonality of equipment.
RTD and Nexter are partnered on maintenance of an infantry fighting vehicle, dubbed Véhicule Blindé de Combat et Infanterie, and a troop carrier, Véhicule Avant Blindé, which this year marked its 40 years of service.
Defense Minister Jean-Yves Le Drian said Nov. 2 in the lower house of the National Assembly that the government was ready to consider speeding up deliveries of the Scorpion vehicles, Agence France-Presse reported. "We can think about the issue concerning the years ahead. I am open to this discussion."
That readiness follows remarks in September by Army Chief of Staff Gen. Jean-Pierre Bosser, who referred to studies for speeding up the Scorpion vehicle deliveries.
The Army would like to see a faster introduction by five years of the Jaguar and Griffon so there would be four or five battalions equipped by 2025 rather the present plan of 2030, the second executive said. That would reduce the maintenance cost of a variety of fleets including the new Scorpion vehicles, VAB, and aging combat vehicles AMX 10RC, Sagaie ERC 90 and VAB HOT to be replaced by the Jaguar.
RTD chairman Emmanuel Levarcher told the French parliamentary defense committee on Jan. 27 that Volvo had not blocked export deals.
"The Volvo group has never prevented us from exporting material," he said. The Volvo chairman, Martin Lundstedt, lived in France when he was head of the Scania truck company, in Angers, western France, and he sold Scania trucks to the Direction Générale de l’Armement procurement office and understood the French military market.
As the Ukraine crisis deepened in 2014, RTD froze talks with its prospective Russian partner UralVagonZavod to develop a 30-ton infantry fighting vehicle named Atom, as the company waited for instructions from Sweden and France.
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