Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Canada has picked German shipbuilder TKMS to build a new fleet of submarines in an important defence contract that is set to draw Ottawa closer to Europe as relations fray with the US.
On the eve of the Nato summit in Ankara, Prime Minister Mark Carney said TKMS was the Canadian government’s preferred choice to supply 12 diesel-powered, 3,000-tonne subs capable of operating in Arctic conditions.
“This procurement will be the largest in Canadian history and that, by design, this process will have, far and away, the greatest economic impact of any defence investment, right across Canada,” he said at a naval base in Halifax, Nova Scotia on Monday. “The expectation is we have four submarines by 2034,” Carney said.
The prime minister said that if negotiations with TKMS were unsuccessful, Canada would turn to the other bidder, South Korea’s Hanwha Ocean.
“This was a difficult, close decision between two highly qualified suppliers. Both the TKMS and Hanwha platforms met the capabilities of the Royal Canadian Navy, and both put forward strong proposals,” he said.
The multibillion-dollar submarine tender is a crucial part of Ottawa’s biggest military push since the second world war and comes as US President Donald Trump threatens to end Washington’s security guarantees for its Nato allies.
Trump has accused Ottawa of failing to meet its Nato obligation to spend 2 per cent of GDP on defence and has said that as Washington already protects Canada, it makes sense for the country to become the 51st US state.
Carney’s government has pledged to increase Canadian defence spending to 5 per cent of GDP by 2035 after reaching its 2 per cent target last year. Ottawa is also reviewing a 2023 contract to buy 88 F-35 fighter jets from the US, with a view to potentially switching to the Gripen jet made by Sweden’s Saab.
The awarding of the contract ends a year of intense lobbying by South Korea’s Hanwha conglomerate and a joint German-Norwegian team led by a subsidiary of industrial giant Thyssenkrupp, as they competed for the contract.
TKMS chief executive Oliver Burkhard said that his company was “proud” to take on the largest single order in its history, adding: “It comes a clear promise: we will deliver.”
German Chancellor Friedrich Merz said the decision sent “a strong signal of transatlantic and European co-operation in the defence industry”. He added: “This is a major strategic project that will bind Canada, Germany and Norway together for decades.”
The German type 212CD submarine was presented as a joint package by Berlin with fellow Nato member Norway, with both countries stressing the importance of greater standardisation and interoperability of equipment within Nato.
The German-Norwegian offer promised Ottawa that a deal would unlock wide-ranging collaboration, including sharing logistics, maintenance and shipbuilding work, conducting joint training and even exchanging crews.
The decision to award it to TKMS was “not too surprising, given the very clear European tilt” of this government but there were “significant doubts” about whether it was the best choice for Canada’s security, said Richard Shimooka, a defence researcher at the Macdonald-Laurier Institute in Ottawa.
“It will be more costly and Germany’s production capacity is highly constrained, while South Korea can deliver much more quickly and efficiently,” he added.
Existing orders suggest that the Canadian submarines will cost more than €1bn ($1.1bn) per vessel.
Burkhard said it was difficult to give a “meaningful” estimate of the contract value when it was not clear whether Canada would order all 12 submarines at once or split them into batches.
The TKMS chief executive said that once the package of support to keep them operational throughout their 40-year lifetime was included, “the numbers become very large very quickly”.
Speaking ahead of the official announcement, a senior German official said the deal would “bind Canada to us for decades”. “That would be a very good starting point for strategic co-operation,” he added.
Traditionally Germany has been shy about using politicians to push foreign arms deals, even with Nato allies, but Merz and defence minister Boris Pistorius gave unprecedented support to its submarine bid.
The war in Ukraine and the waning role of the US in European security have led Berlin to seek a leading role in the continent’s defence and it has earmarked hundreds of billions of euros for military spending.
Shares in Hanwha Ocean fell 22 per cent early on Tuesday in South Korea after Canada picked the rival bidder.
Recommended
Patrick Han of SK Securities in Seoul said that while this was a significant missed opportunity for South Korea it would not undermine the country’s ambitions to be a top-tier global defence exporter.
“The fact that Korea is now competing head-to-head with Germany for national submarine programmes is itself validation of how far the industry has come.”
Canadian officials privately acknowledged that South Korea’s proposal was technically solid but stressed that the deal would shape Canada’s strategic relationships for decades.
Germany’s Nato membership, they said, provided confidence in long-term operational integration and political alignment.
Source:
www.ft.com