By Pierre Tran

Paris – KNDS has been much in the news, with the chief executive of the French unit floating the idea of a public-private partnership to boost arms production, and media reports of a possible stock market flotation of the Franco-German builder of land weapons.

The chief executive of KNDS France, Nicolas Chamussy, sketched out March 12 to the Association des Journalistes de Defense, a press club, the concept of “an industrial reserve for armaments,” based on “Anglo-Saxon” lines of a government-owned, contractor-operated factory.

That state-backed industrial plant would be on standby, ready to build weapons quickly and in volume in times of conflict, such as the war in Ukraine. That business concept called for investment in new plant that would remain standing for decades – a long-term commitment.

Increased production was particularly important for artillery shells and the explosive material from specialist producer Eurenco, which has expanded its plant in Bergerac, southern France.

KNDS France has raised production of its Caesar artillery and 155mm 52 caliber shells, which have been sent by Paris and Western allies to help arm Ukraine.

A perceived need for rearming of Europe stemmed from the Russian invasion of Ukraine February 2022, with urgency increased by the Trump administration’s signalling of disdain for those fellow Nato members and the Ukrainian president, Volodymyr Zelenskiy.

The European Union had made an early pledge to send one million cannon shells to help hard pressed Ukraine after Russian leader Vladimir Putin ordered the invasion three years ago. The E.U. nations failed by a wide margin to meet that resupply target by March 2023, pointing up a lack of national stock and output of new ammunition.

The Ukrainian forces received 10 different types of 155 mm artillery from European allies, presenting “serious logistical difficulties” for the Ukrainian forces, a report commissioned by the E.U. Commission said September 2024. So many types of cannons showed a fragmented European arms industry, “limiting its scale and hindering operational effectiveness in the field,” the report said. There were even different variants of some of those types of guns.

The Ukrainian army fields artillery firing the Soviet-standard 152 mm shell, and Kyiv has launched production of 155 mm shells and artillery, to meet Nato specifications.

Mario Draghi drafted that report for the E.U., The Future of European Competitiveness. Draghi is a former Italian prime minister and ex-president of the European Central Bank.

Concern over Washington could be seen with March 13 and 14 media reports of Portugal looking at European fighters instead of the F-35 to replace its F-16 fleet, and Canada reconsidering its order for the F-35. The latter reflected anger over President Donald Trump referring to Canada as the 51st state of the U.S., and slapping tariffs on Canadian goods.

With more uncertainty in the world, there was need for European partners to create certainty, a foreign policy advisor at the Elysée office said March 14. That meant having more agency, and building on assets of European autonomy. France was preparing for the next meeting of the European Policy Community, to be held May 16.

Elysée Meeting

Chamussy was one of the chief executives of the seven largest French arms companies attending a March 14 meeting called by president Emmanuel Macron, at the Elysée office. The companies were Airbus, Dassault Aviation, KNDS France, MBDA, Naval Group, Safran, and Thales. Some 4,000 small and medium companies were represented at the meeting, part of Macron’s pursuit of a faster, more productive sector in what he has called a war economy.

That meeting would explore developing capabilities in artificial intelligence, space, drones, quantum computing, and submarine threats, RMC radio reported.

A key topic would also be the government’s pressure on contractors to pay effectively royalties on export sales, with foreign sales of the Rafale fighter jet in the sights of the administration, financial website La Tribune reported. The three leading contractors, Dassault, Safran, and Thales, were in dispute with the authorities over €153 million ($167 million) to be paid on exports of the Rafale.

Chamussy has worked at senior levels at Airbus, was an advisor in the office of a previous  defense minister, and he worked in the U.S. air force laboratory at Kirtland air base, Alburquerque, NM  in the early 1990s. He is chair of Gicat, a trade association for the land weapons industry.

To List Or Not To List

The French state-owned KNDS France, and its German joint venture partner, the privately held KNDS Deutschland, have been exploring the possibility of an initial public offering, perhaps by the end of this year or early 2026, news agency Reuters reported Feb. 21.

News of a possible flotation of KNDS was surprising, two specialists in the land systems sector said. The French unit was previously the national arsenal for land weapons, formerly trading as Nexter, renamed from Groupement Industriel des Armaments Terrestres (GIAT).

The reported interest of KNDS going public may reflect a willingness of the French state and the German Bode family to gain on a keen market appetite for arms stocks. The Bode family controls Krauss-Maffei Wegmann, the German partner in KNDS.

Arms companies listed on European share markets have seen their stock prices rise sharply, while the wider market has been highly volatile. That bullish trend for military manufacturers follows European political leaders pledging big spending increases for weapons in response to a U.S. chill toward Europe and Nato, seen as Washington’s waning transatlantic solidarity.

Brokerage Jeffries downgraded March 13 Thales to hold from buy, on a view the stock had been rerated too quickly. The brokerage also placed under research coverage Dassault, Hensoldt, Leonardo, Renk, and Rheinmetall.

Jefferies expects Rheinmetall to benefit from sales growth of land weapons for at least the next 10 years, particularly in artillery shells. The German arms company was also seeking growth in air defense, electronics, and sales of combat vehicles in the U.S.

In France, the Euronext stock market authorities reversed a decision to take Airbus, Safran, and Thales off the CAC 40 ESG (environmental, social, and governance) index, under political pressure, media reports said. Those companies had been told of a planned ejection  from the ESG index March 12, just a day before the meeting with Macron at the Elysée.

The ESG index was seen as important, attracting investors seeking companies offering social responsibility.

The French armed forces minister, Sébastien Lecornu, has raised the prospect of raising annual military spending to some €100 billion. That compares to €68 billion forecast for 2030 under the multi-year military budget law, and €50 billion pledged for 2025.

The German Dax stock market index rose two percent March 14 on news Friedrich Merz, due  to be named German chancellor, had reached agreement with the Green party on launch of a €500 billion fund to spark life in an ailing domestic economy, easing strict rules on national debt, and boost military spending.

KNDS France is the builder of the Leclerc heavy tank, Caesar truck-mounted artillery, and armored and combat vehicles in the French army’s Scorpion modernization program.

KNDS Deutschland builds the Leopard 2, a heavy tank shipped by European allies to support Ukraine against Russian forces, Boxer armored vehicle, and PzH 2000 artillery.

Macron, was economy minister in 2015 when Paris gave the green light to the creation of KNDS, a Franco-German joint venture formed from state-owned Nexter and privately held Krauss-Maffei Wegmann.

The dateline on the Reuters report was Frankfurt, where the German stock exchange is located, and where KNDS shares would be listed if the flotation were approved.

On Mergers & Acquisitions

Chamussy declined to comment on the value of an agreed acquisition of the military business of Texelis, a privately owned company specializing in vehicle mobility packages.

Texelis was a “strategic fit,” he said. “This significantly strengthens our capability for engineering and production for subsystems, which are fundamental and outside the scope of KNDS France.”

KNDS and Texelis work as partners on the Serval armored vehicle, and won an order last year for 627 units, part of a total order for some 1,400, he said. KNDS knew how to set specifications, but the company would be acquiring the capability to design and build the mobility package with Texelis.

The two companies expected to ship more than 100 Serval units this year, rising to annual delivery of 200, after a 69-strong first batch was delivered in 2022.

The companies won the order for Serval development and production back in 2018/19, he said, and there were more than 20 Serval variants, based on six versions. These included troop carrier, medical evacuation, satellite communications, engineer, surface-to-air missile, anti-drone, and command vehicle.

The Celeris export version had won an order in Indonesia, he said.

Long Term Rearm

It looked like there was “a long-term rearmament drive in Europe,” Chamussy said.

KNDS France has speeded up production of its Caesar artillery, ordered by France and Western allies to help arm the Ukrainian army.

The outbreak of war in Ukraine ushered in what Macron said at the 2022 Eurosatory trade show was a war economy, requiring higher and faster production, and greater autonomy.

That led to a “ramp up” of Caesar artillery and its 155 mm 52 caliber shells, Chamussy said.

KNDS will have shipped 113 Caesar cannon to Ukraine by the end of 2025, and will have provided service for the AMX RC10 combat vehicle and spares for three years, he said. There was support from industry partners.

Back in 2019-2021, the average production of Caesar was 10-15 a year, he said. That production rose last year to 43, with 60 or more expected in 2025.

The faster production lay in building six Caesar a month compared to the previous 1-1/2 to two artillery systems a month, he said. Macron had asked for a Caesar to be built in 12 months compared to the 21-23 months before the Ukraine war broke out in February 2022.

KNDS responded by placing in March-April 2022 orders worth some €600 million million for material and parts to build almost 300 Caesar cannon barrels, representing three to four years of work.

The company placed its orders before France and other client nations signed contracts for the truck-mounted artillery.

“We made something of a gamble,” he said, referring to ordering the material and parts for the barrels, explosives, and electronics.

More Cannon Barrels and Shells

KNDS was building 150-200 cannon barrels a year at its Bourges factory, central France, Chamussy said. These were barrels for new Caesar systems, spares for stocks, and included 155 mm, 120 mm, and 105 mm large caliber guns.

The 155 mm shell was not propelled, and consisted of a steel shell body, filled with high explosive, fuze, and modular charge, with the more charge the greater range. The 39 caliber gave a shorter range than 52, he said.

The company in 2022-2023 doubled production of shells to 65,000-70,000 from 33,000-35,000 a year, he said, and was due to build 100,000 shells in 2025.

KNDS installed new highly automated machines in the second quarter 2024 at Bourges, with that machinery being fitted in its factory in Belgium, which would be ready in the middle of 2025.

KNDS had been fully committed to a big French army program, Scorpion, when the Ukraine war broke out in 2022, he said. That program had allowed the land arms sector to develop significantly, with industry meeting deadlines on the Griffon and Serval troop carriers, and Jaguar reconnaissance and combat vehicle despite the Covid crisis.

That Scorpion program has been running for 10 years. KNDS was also working on the upgrade on the French army’s 200-strong fleet of the Leclerc tank.

The company was now shipping one armored vehicle a day, whether that was Griffon, Jaguar or Serval, he said, the equivalent of 20-22 ton of vehicle shipped a day. The target was to build 450 armored vehicles a year.

A faster production could be seen with Estonia ordering six Caesar last June, he said, and the cannon appearing on the military parade for the national festival last month. A higher output of six guns per month, instead of the previous 24 months for a gun, had allowed that delivery.

Belgium was “integrating” the first Griffon troop carrier, he said, in its Capacité Motorisée (CaMo) modernization program, with Luxembourg as a partner nation.

New Drones, Fighting Vehicle on the Market

KNDS was also offering a loitering munition, dubbed Mataris, he said.

The Mataris, named after a weapon used by the warriors of ancient Gaul, was based on lessons learned on the drone weapons France shipped as military aid to Ukraine under the Colibri and Larinae urgent requirement projects.

KNDS drew on its fragmentation and anti-armor warheads, and worked with industrial partners Delair, EOS, and TRAAK to build the Mataris drones. KNDS displayed the Mataris at the IDEX trade show in Abu Dhabi in January.

KNDS was also pitching to Qatar and Greece a new version of the VBCI, with  the infantry fighting vehicle armed with a remote control 40 mm cannon from CTA International, a joint venture between BAE Systems and KNDS, he said.

That version might interest the French army, which has a fleet of VBCI armed with a 25 mm gun. Arquus and KNDS built the VBCI as joint prime contractors.

The Direction Générale de l’Armement delivered Dec. 19 the first Griffon vehicle armed with a mortar, dubbed Mepac, to the French army, the procurement office said Jan. 23. Ten more Mepac were due to be shipped to the French forces this year, of a total 54 by the end of 2028. Belgium was due to receive 24 Mepac under its CaMo armored vehicle program.

Thales supplies its 2R2M gun, a 120 mm mortar to that version of the Griffon. Arquus, KNDS, and Thales are industrial partners.

By Pierre Tran

Saint Cloud, France – Thales and Dassault Aviation reported respectively March 4 and 5 buoyant 2024 financial results, as European political leaders sought to raise €800 billion ($869 billion) to rearm in response to what they saw as the U.S. turning away from Europe, with Washington leaning on Kyiv to yield ground to Moscow.

The share price of those two French companies were among those of arms manufacturers, including BAE Systems, Leonardo, and Rheinmetall, which soared March 3, in response to European pledges of boosting military spending.

A tense climate between the U.S. president, Donald Trump, and his Ukrainian counterpart, Volodymyr Zelenskiy, could be seen with the former suspending arms shipments to Kyiv, to put pressure on the latter to reach a settlement with Russia.

Dassault Aviation, a builder of fighters and business jets, reported 2024 adjusted net profit of €1.1 billion, up 19.2 percent from a year ago. That was a net profit margin of 17 percent.

Asked about U.S. suspension of military aid to Ukraine, the Dassault executive chairman said the matter was in the hands of European governments.

“I have no reply to that,” said Eric Trappier. “This is a matter for the state.

“The reply is really from the European nations, and French policy. The scale of support needed to substitute for American aid is high, and the decision is to be taken by the European nations.”

Trappier was speaking at a news conference on the 2024 results. The company held the news conference on its barge, The Talisman, moored on the banks of the river Seine, at Saint Cloud, the smart suburbs of the capital.

Time to Buy European

On the sidelines of the news conference, Trappier said it was time for European nations to switch procurement to European weapons away from the U.S.

“What I would like to see is the European governments favor European industry, in the present context,” he said. “I have said that for 30 years – I am not happy to say we were perhaps right – it is another context. Remember what General de Gaulle said at the time – we are in the alliance, we are allied to the United States, but be careful not to put all your eggs in the one basket.”

France had followed that Gaullist approach and built a domestic defense industry which had developed and supplied aircraft, submarines, and onboard electronics, he said. That had allowed  development of French kit, and not to depend exclusively on the United States for defense.

“Which is not to say we are outside the alliance,” he said.

Trappier welcomed the Berlin announcement of a large increase in defense spending, in response to the chill in transatlantic relations ushered in by the Trump administration.

“Germany realized that they have to invest in defence,” he said.

The European Commission should bolster the defence industry with the use of European funds, he said, with the money spent equitably across the European defence industry.

“I was pleading for the cause of European defence back in 2000,” he said.

Previously, leaders in the European Union kept their distance from a constant call from French president Emmanuel Macron for a European strategic autonomy, but there now appeared to be wider support for a military capability on the Continent, separate from Washington.

The European Commission has proposed a €150 billion fund to lend to member nations as part of an €800 billion package for rearming their services.

Faster Build

Dassault was now building three Rafale a month, Trappier said, and was looking at increasing to four, and perhaps five, but only if that production rate could be maintained over a period of time, not for just a year or two.

An Indian order for 26 Rafales for the navy was “programmed,” he said, and “discussions,” have begun with Saudi Arabia for sale of the twin-engined fighter.

The 80 Rafale ordered by the United Arab Emirates will be delivered in the F4 version, he said, “and they envisage the F5” at a later date.

There was an operational autonomy for client nations in the use of French-built fighters, he said. Since the 1950s, there has been a “good track record,” he said, as France has not imposed a “geopolitical framework” for use of those fighters by nations such as India and the Middle East client nations.

They are allies which will have signed defense or strategic agreements, but they enjoy autonomy, he said.

There were difficulties in the French supply chain, and companies were capable of responding, but not with immediate response, he said. Companies were on a long cycle.

Previously, industry had been told to structure itself to build one fighter a month, he said. As there lacked sales in the export market, fewer than one fighter a month was built, as was the case back in 2020, he said.

Production has changed with export wins, and industry has increased fighter production, he said, but it took time to recruit qualified staff and re-train them, and build hangers. The supply chain had to do the same, he said.

“It takes time,” he said, maybe two or three years.

Volatile Share Markets

Asked about the rise in share price of arms companies he said stock price movements were “very circumstantial” – things can change in very little time. Stock prices were sensitive to factors as such trade tariff increases, commercial instability,  and worries on the stock market.

On the other hand, there was opportunity for companies with defense capabilities, he said. In France, Dassault and Thales were two companies with fairly autonomous capability. That was effectively the Dassault group, as Thales is part of the “logic” of the Dassault group, he said.

Trappier in January succeeded Charles Edelstenne as chair of the supervisory board of Groupe Industriel Marcel Dassault (GIMD), the family-held holding company which oversees Dassault Aviation. Edelstenne was previously executive chair of the fighter company. He launched Dassault Systèmes, which builds computer-aided design and manufacturing computer systems.

Edelstenne was appointed honorary chair of the holding company.

Dassault holds 26.6 percent of Thales, which contributed €507 million net profit, up from €453 million. That delivered an adjusted consolidated net margin of 17 percent, down from 18.5 percent, due to the lower weight of net financial income and a contribution from Thales.

Dassault’s capacity to lift the production rate of the Rafale caught the attention of Agency Partners, an equity research firm.

“We were particularly interested that Dassault is not only now apparently comfortable moving to building 4 aircraft per month, but could, especially in the event of another significant order from France, envisage 5pm in the early 2030s. And, on top of that, an Indian assembly line could add another 2-3 aircraft to the rate,” the research note on Dassault said.

There was another striking factor, with Dassault’s “offer” of the Rafale as a “nuclear-capable aircraft in the event that the US withdraws its own nuclear bombs and/or reduces support for European F-35s,” the note said. Such an offer could only be made with the approval of the French government, the note said.

There was also rising awareness of a need for European air forces to diversify fighter fleets, dependent on the F-35, with a second, European-sourced fighter, the note said.

Such military procurement could be easier as European military budgets were due to rise to three percent of GDP, and beyond that for some nations, the note said.

Thales Eyes Long Program Times

The British prime minister, Keir Starma, said March 2 the U.K. would support a £1.66 billion ($2.1 billion) deal to supply a further 5,000 lightweight multirole missiles (LMM) to Ukraine. The Thales U.K. unit builds the LMM weapon in Belfast, Northern Ireland.

Ukraine was of little “consequence” for orders for Thales in 2025 and 2026, Thales executive chairman Patrice Caine told a news conference, when asked how he saw the suspension of American military kit for Ukraine.

Caine was speaking on the 2024 results at offices just a short walk from the Arc de Triomphe,  a Napoleonic tribute to the French military, and the resting place of the unknown soldier.

The Thales order book was “very large,” he said, and orders for Ukraine were “not material” for the group. The company had limited exposure to Ukraine, with orders for Kyiv accounting for less than one percent of the group’s orders, he said.

Australia, France, and the U.K. were the core markets, with the company not dependent on just one nation in the world market, he said.

The company seeks to maintain its book-to-bill ratio above 1, stacking up orders to sales.

Thales’ business cycle ran five, six, or 10 years, he said, with the long cycles tied to multi-year military budget laws, which offered decades of “strong growth.”

There has been little growth in markets in Europe for the company, apart from Britain and France, he said. Growth came from the Middle East, Asia, and Southeast Asia, with some nations keeping up a steady development path. Client nations such as the United Arab Emirates, Saudi Arabia, India, and Indonesia were investing, he said.

“Europe has rediscovered a certain reality,” he said.

France and the U.K. are leading efforts to form a “coalition of the willing” to back Ukraine, with formation of a European peacekeeping force if Kyiv and Moscow agree a ceasefire.

If French and British troops were deployed to Ukraine as peacekeepers, “it would be hard for Merz to stay out,” a researcher from the European Council on Foreign Relations, a think tank, said March 3 at an informal discussion of the German election results.

That was a reference to Friedrich Merz, leader of the CDU conservative party,  expected to be the next chancellor of Germany.

There were political announcements, and there was converting announcement into orders, which gave “long-term visibility,” Caine said. There was a “translation” of increasing defense spending to two percent – or three or 3.5 pct – of gross domestic product.

That would have medium and long-term effect, but it would not change 2025 company results, he said. Growth came from execution of orders. A valuation was not just for 10 years, but for “a generation,” and it did not just come from Ukraine.

A company could invest in plant, and speed up production, once an order was signed and the equipment developed, he said. Development took time for kit such as radar and sonar.

Higher Output

One of the priorities for 2025 was boosting production, he said, which included tripling onboard systems for the Rafale fighter, notably the radars; tripling output of the Ground Master radar; quadrupling missiles and rockets, dubbed “effectors”; and also tripling satellite communications and kit for cockpits.

The company’s shareholder base was around two thirds in North America and the U.K., with a third in France, Caine said. That trend was likely to continue.

The U.S market for inflight entertainment, military kit, cybersecurity, and ID products  generated some 500 million, he said, which meant the company was “below the radar” in the expected transatlantic tariff war.

Thales reported 2024 adjusted operating profit of €2.4 billion, up 5.7 pct on a like-for-like basis, on sales of €20.6 billion, up 8.3 pct.

The electronics company reported a six percent rise in orders to €25 billion, with a five percent gain in orders for its defense sector to €14.7 billion, which was a record for that segment, the company said in a statement with results. Those orders took the defense order book to a record €39 billion, up 12 pct, the equivalent of 3.6 years of sales, Thales said.

Thales reported 9.6 pct growth in orders from emerging markets, worth €4.3 billion. Orders rose 7.9 pct from mature markets to €16.3 billion.

“The record order book provides unprecedented visibility for all our activities,” Caine said, forecasting “accelerated, profitable and sustainable growth over the coming years, starting in 2025.”

On the U.K. ’s £1.66 billion deal for LMM for Ukraine, that was “the largest contract ever received by Thales in Belfast and the second largest MoD has placed with Thales,” the U.K. ministry of defense said in a March 2 statement.

That large deal followed a £162 million contract signed September 2024 for 650 LMM, the ministry said, with the first batch of that September order shipped before last Christmas.

“This new contract will continue deliveries,” the ministry said March 2. That LLM order will create 200 new jobs, while supporting 700 current positions.  Thales Northern Ireland will deliver on the contract, worth an initial £1.16 billion, with a prospective further £500 million order, the MoD said. The Thales U.K. unit will work with a Ukrainian industry partner, which will build launchers, and command and control vehicles for the missiles in Ukraine.

That March 2 announcement of missiles draws down on the U.K.’s £3 billion a year financial package for Ukraine. The September 2024 order was mainly funded from that £3 billion package, with contributions from Norway through the International Fund for Ukraine, the MoD said.

Thales supplies the active electronically scanned array (AESA) RBE2 radar for the Rafale, which is being upgraded to the Mk 4.1 standard.

Ukraine said March 7 the Ukrainian air force flew Mirage 2000 and F-16 fighters to hit Russian cruise missiles, marking the first announcement of use in combat of the French-built fighter.

France announced March 6 the launch of its Composante Spatiale Optique-3 (CSO-3) military spy satellite on the new Ariane 6 rocket, from the Kourou space center, French Guiana. That was the third and last satellite in the MUSIS (Multinational Space-based Imaging System) program.

“It illustrates the ambition of the (military budget law) to maintain and strengthen the national capability on the mastery of space,” the armed forces ministry said in a statement.

Berlin and the European Way

Meanwhile in Berlin, Friedrich Merz, a former lawyer, has called for talks with London and Paris to explore putting Europe under a European nuclear umbrella, in case the Trump administration pulls out of the Nato alliance.

Merz has also called for increased German spending on military and infrastructure, funded by an easing of the “debt brake” written into the German constitution to avoid over-borrowing by the state.

The Green party has resisted Merz’s bid to boost the nation’s debt, but was ready to support moves to strengthen the military and stimulate economic growth, Reuters reported March 10.

A detailed think tank report on the European call to arms sets out the delicate task at hand.

“The European defense industry finds itself at the center of forces both centrifugal and centripetal, a perilous situation which makes it all the more urgent for the agreement of European states on common aims on equipment and industrial ambitions, under the threat of future consolidation moves pursued purely out of national pressure or influenced by factors outside Europe,” said a report titled European Re-armament: Defense Industry on the Precipice, from the Fondation pour la Recherche Stratégique (FRS).

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