To a key story now and a massive pivot by Germany, that country looking to unlock hundreds of billions of euros for defense and infrastructure investments in a dramatic shift which has seen European bonds plunge, the Euro surge, equity markets of Germany jumping three percent. It comes after the US pau's military support for Ukraine in the EU put forward a package worth up to eight hundred billion euros to
help countries increase defense spending. Joining us now is someone incredibly well placed to talk about the impacts of this, Oliver Dirt, CEO of Hensalt. It is a defense company that makes radars, amongst other technology. The chancel in waiting of Germany Friedick Murch saying, whatever it takes is the mantra Olivia, thank you for joining us. When do you expect to see this money deployed? How much and how significant will it be for the defense space of Germany?
What will it mean for new orders for you in the business going forward?
Well, thanks for having me, Tom, And indeed it's a true paradigm shift. I think first time in history since decad we're turning from a design to budget principle to really a design to capability principle. I mean, we've always believed that this would come in. So looking at at the orders, I mean, if I compare it to the last Extraordinary budget, it took probably about a year un till those orders came floating in, and I think we have to take that time because first the Parliament has
to approve the principle that has been introduced yesterday evening. Second, as it's a design to capability, those capability documents have to be built up. I mean for conventional like the Eurofighter, the twenty additional Eurofighter and other framework contracts that.
Can come very quickly.
But what I also understand that this will be a lot about new smart armament, new innovative products, where I think we need a dialogue with industry that come in.
That would be then the second step of those orders.
Okay, how quickly do you think it will flow through then? I mean looking to China, for example, which is also hosting a major political meeting, they have a deadline of twenty twenty seven for a modern military in China twenty forty nine for it to be among the world's best. One suspects that they're targeting to be the best military in the world. What about Germany? How quickly? How soon?
Well, I think first of all, we have to note we're not starting from scratch. I mean looking at the one hundred billion extraordinary budget that hasn't been in place since since almost three years now, so we are producing according to this budget. I think also looking at Handshold, we took the responsibility also in anticipation of additional budgets.
With one billion.
We build a new plant for the weapon sites optronics in ober Korchen. We have put in place a new logistics center to boost s up the supply chain. And from all these past investments we still have fifty percent of capacity headroom, headspace, so that we can.
Deliver quite quickly.
And I mean also Germany has seven twenty nine a deadline in their minds. I mean looking at Russia and the reconstitution after potential ceasefire in Ukraine, and in that regards again I mean we have done something already. There are quick steps to vamp up, and then, of course the more important thing is that we have a long term planning security.
Now, what is the biggest challenge to that ramp up if it's not funding at this point.
Well, it's it's manifold, and I'm really happy that that we had a lot of discussion with the outgoing government, which is pretty much in consensus with the new government coming in.
Also, I recently traveled to Brussels.
We're talking to the new Commissioner of European Defense Industry, and I think key topics are our bureaucracy. I mean budget, as you said, is the initiative requisite, but then we're talking bureaucracy. I mean we definitely have to easn the business for defense players, looking at qualification and a couple of registrative acts that are out there, access to raw material, talking broader for industry, for Hansholt as we have a very deep coverage of our supply chain.
That is not the critical pass. And last, but not least, it's about.
Personal I mean here we're taking advantage of a struggling automotive industry in Germany. But if we want to be innovative, I mean, looking at AI, we will need a total different set of engineers as we walk forward.
Yes, I was reading about the people that you've hired from that sector into your business. In terms of rearmament in Europe and independence, how much do you think there is going to be an emphasis on technology that is independent from the United States in terms of the weapons build out.
Well, of course, I assume that this will be an evolution, not a revolution. It will be a transformative pass over the next years. I mean, first of all, it's about conventional capabilities. Air defense is at the very top of the agenda here. Handshould with our battle proven radar can play a significant role. I think also what we see from Ukraine is electromagnetic warfare. We haven't taken care a lot of that in the past decade, so that is
vamping up. So for example, with our Pegazos signal intelligence aircraft, that's a similar capability where we today depend on the US. So that's about We had the first flight last year, that's about to come in and we would be ready once the aircraft is ready to produce more and of course looking at the vehicles. But for the innovative capabilities, I think it's about intelligence, surveillance, reconnaissance, where we today
still have a strong dependency here. It's about networking European capabilities and having effective software algorithms that bring the data together to have information superority, decision superiority, and in the end also effectors a seperiority, and space is a topic. I mean, we're discussing as handsholt to bring some of our sensors into the space. We see great opportunities with new constellations. And last but not least a challenge for
US is addressing the UAV. So we so far we have been rather on the past of larger UAVs helicopters, aircraft, but now we see those mass smaller UAVs. So here we about to initiate partnerships with UAV vendors to look at new payloads that we bring in that have to of course also be smart and connectable.
Yeah, when we taught you av as, we're talking unmanned area vehicles or roans effectively, aren't we, Oliver? The UK and the US have a uniquely close military partnership. Does that make the UK uniquely exposed in terms of our over reliance on the US?
Well, I think definitely.
I mean looking at Europe now, because I think important in the current discussion, as we see evolutionary pass going forward, we should not turn our back on the US. But I think the view is really to take responsibility for defense in Europe and here as we saw Minister President Starma in inviting the Europeans, I would see that the German French engine has to really be revived. Around that, we have the Weimarra triangle with Poland, and we see that now UK and probably the Baltics and also the
Nordic countries are entering the game. Recently, visiting the Munich Security Conference, we could see that there's still a kind of divide between the NATO and EU members, where some of them are feeling the breath of Putine in the sense of a true threat, and others are rather reluctant. So I think it depends on a coalition of the willing, where the UK is, at least to my perception at the moment, a strong player.
A strong player.
Okay, interesting, what if there is a truth in Ukraine with Russia. What if that war is somehow resolved, Does all of this defense spending fade the rush that we've seen in this week, the sudden kind of realization and huge ramp up in spending. Does that falter if there is a truce?
Well, yes, I mean if we look into the past, I mean I share that concern because we had a lot of volatility in the past three years after the Zeide and vendor where which you could also see at the volatility of our stock prize going up and down whenever there were news about the ceasefire and Ukraine. To make it very clear, from a business perspective, we depend on a very low digit one digit percentage on the Ukraine business. Despite that this is a top priority for
US to stand with Ukraine. But but but business wise, I mean, if there would be a ceasefire, it it it it, It.
Doesn't have a great impact.
On the other hand, I definitely see and that also reflects the discussions I had in Brussel and Berlin. Everybody is well aware that a ceasefire and Ukraine looking at the broader threat from Russia, is really increasing that threat because Russia would would would use this time for reconstitution and and with now US drawing back, I think they they will dare as we see twenty twenty nine to to to test the Article five of NATO, and in that regards I can only strongly recommend to to sustain
that activity. But what we see with a rearm plan from from Osula Fondeline and also what what Fredrichmertz and his coalition potential coalition partners have introduced yesterday evening that is aiming at a long term I would say one decayed spending of re arming you Bob or to say it with the words of Trump, Europe and Germany are back.
Yeah, well, that's a nice line to end it on, but I don't want to end it on that. One quick one before you go, Oliver, Oliver, the interoperability challenge of European defense. The US has one main battle tank, Europe has more than a dozen battle tanks. How it's a fragmented space. Are you willing to play your role in terms of consolidation? How willing are policymakers across the EU to push through for a more coordinated defense industry?
No?
I think definitely we have to work on both sides.
I mean that's a discussion I had with also the Defense Commissioner and what I see in these defense papers. The white paper is about to release on EU level, the fading German government has released the paper. So this is about harmonizing capabilities, and I think here we need a strong political impetus to really force the nations, based on budget incentives and so on, to harmonize on the other hand, industry has.
To take responsibility.
And again whenever we talk consolidation, we're very quickly in this mood that the big players go together and so on. I'd rather drive it from partnership. For me, consolidation is a means to an end. You saw that Hansholt has recently announced cooperations with Lockheed Martin with SAP, so we're working on a lot of other cooperation and I think from that regards, we are absolutely tom ready to drive interroperability across the system, especially if you look at software defined defense.
That's a true momentum.
While hardware stays head to regenius, you put software and data algorithms on top to bring that interoperability even in a heterogeneous landscape.