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June 24 (Reuters) – Germany scrapped a landmark frigate program following delays and expected cost overruns, sending shares in the country's top defense firm Rheinmetall RHMG.DE, which was supposed to get the contract, into a tailspin on Wednesday.
The plan to build six F126 frigates has been fraught with problems for a while, with Germany examining whether to contract Rheinmetall's NVL division after initial supplier, Dutch Damen Schelde Naval Shipbuilding, could not meet timelines and budgets.
Germany's defense ministry said it would terminate the program, saying continuing it would have pushed the bill for six ships to more than €18 billion ($20.4 billion), up from around €10 billion expected initially.
Instead, Berlin will switch to eight smaller Meko A-200 frigates from Thyssenkrupp's TKAG.DE marine division TKMS TMS.DE at an expected total budget of €11.6 billion, confirming earlier plans.
The decision was taken due to "significant delays, huge cost overruns and unforeseeable risks," the defense ministry said in a statement.
Shares in Rheinmetall, Europe's largest ammunition maker, fell as much as 16.7% to their lowest level in nearly 15 months and were set for their sharpest daily fall ever. TKMS's stock was up 8.2% at 1000 GMT.
Since the F126 order was placed in 2020, more than €2 billion has been spent on it, German magazine Der Spiegel reported earlier. Rheinmetall offered in May to take over the project for a total of €12.8 billion, the magazine said.
The defense ministry had said in March it planned to buy four Meko A-200 frigates from TKMS as a stopgap to meet NATO anti-submarine commitments from 2028, with deliveries from end-2029.
On Wednesday it said it now aims to buy a total of eight Meko frigates "primarily for anti-submarine warfare," at about €6.3 billion for the first four and €5.3 billion for an option on four more if exercised by end-2026.
Rheinmetall CEO Armin Papperger said in May the group expected to sign the F126 deal in the second quarter.
TKMS said in a statement it was pleased to be contributing to the strengthening of the German navy, adding it had already begun preparatory work in February, plans to deliver the first Meko A-200 frigate in 2029 and sees scope to involve other German yards if the option for four more ships is exercised.
Rheinmetall declined to comment.
Amid the complex rearmament efforts in Europe, where Berlin and Paris have scrapped their joint FCAS fighter jet project and their MGCS tank program is running about a decade late, Franco-German tank maker KNDS on Wednesday set out plans for a dual Frankfurt-Paris IPO that sources told Reuters could value it at about €15 billion.
In a sign of increased competition, both TKMS and Rheinmetall are in the race to buy smaller peer German Naval Yards Kiel.
($1 = 0.8814 euros)
(Reporting by Emanuele Berro, Holger Hansen, Kirsti Knolle, Sabine Siebold and Matthias Inverardi; Editing by Christoph Steitz and Elaine Hardcastle)
