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Investing.com -- European defense stocks retreated Wednesday, dragged lower by a sharp selloff in Rheinmetall after Germany said it was scrapping plans to build what would have been the largest warships the country has commissioned since World War Two.
Shares in the German munition manufacturer plunged more than 13% after the Financial Times reported that Berlin is abandoning the F126 frigate program, a contract the German defense giant had been set to lead at a cost of €12.8 billion.
The rout spilled into other European defense firms, with Hensoldt, Indra, BAE Systems, Thales, Saab AB, and Leonardo falling between 1% and 5%.
Defense Minister Boris Pistorius and other senior officials told industry representatives and lawmakers that Germany would instead procure eight smaller Meko A-200 frigates, the FT reported, citing people with knowledge of the matter. Around €2 billion in sunk costs are expected to be written off.
The blow landed particularly hard for Rheinmetall, which had been expanding aggressively into shipbuilding, including a €1.5 billion acquisition of Naval Yards Lürssen this year, with the F126 program central to that strategy.
Conversely, TKMS, the German shipbuilder that already has a contract to deliver four Meko A-200 frigates at roughly €1 billion apiece, jumped more than 9% by mid-morning in Europe as the government’s shift effectively broadens its role.
The F126 had been troubled from the start — beset by cost overruns, software-related delays, and strained relations between Germany’s procurement agency and Dutch shipbuilder Damen Naval, which first won the contract in 2020.
The broader cancellation now comes as Berlin pushes ahead with a €780 billion defense modernization drive through 2030, seeking to cement its standing as a leader in European security.
