European Defense Sector Slumps on Report of German Military Aid Cut to Ukraine

By Cristina Gallardo

The European defense industry came under pressure Monday after a report that Germany might be halting new military aid to Ukraine.

Shares in Rheinmetall fell 3.8% in mid-morning European trading to 540.40 euros, having fallen as much as 5% earlier. Since the start of the year, the stock was up 89%.

Rheinmetall greatly benefited from German government orders to supply Ukraine with weapons, ammunition and combat vehicles.

But the country's government, Europe's top supplier of military aid to Ukraine, is set to stop meeting new requests for military support from Kyiv with immediate effect, German newspaper Frankfurter Allgemeine Zeitung reported Saturday, citing government documents and emails as well as unnamed officials. Existing programs, however, would continue.

Under current plans, Germany's military support for Ukraine is set to be almost halved in 2025 and cut to less than a tenth of the current amount in 2027, the newspaper reported.

The reports dragged other European defense companies, after a cascade of orders to replenish European ammunition stocks and deliver weapons to Ukraine fuelled months of rises.

Swedish defense equipment maker Saab, which counts the German government as one of its top customers, dropped 5.85% to 241.80 Swedish krona, followed by German defense manufacturer Hensoldt, which fell 5.85% to 34.12 euros.

Meanwhile, RENK Group fell 4% to 24.35 euros, Norwegian group Kongsberg fell 2.6% to 1077 Norwegian krona, and BAE Systems declined 2.7% to 13.14 pounds in London.

French engine maker Dassault Aviation decreased 1.6% to 190 euros while French aerospace and defense company Thales declined 1.4% to 147.65 euros.

The halt of military aid to Ukraine is part of the ruling coalition's plan to reduce overall spending.

German Finance Minister Christian Lindner said last month that Ukraine would have to rely more on cash from "European sources" as well as windfall profits from the nearly $300 billion in Russian sovereign assets immobilized as part of the European Union's sanctions on the country in response to its attack against Ukraine.

However, LBBW Research analysts said the use of these windfall profits is anything but certain and warned that Ukraine's defense against Russia could fail "due to saving complexes in Berlin."

"To plan definitely with [these windfall profits] amounts to a billion-dollar risk for the federal government's budget planning," they write in a research note.

Write to Cristina Gallardo at cristina.gallardo@wsj.com

(END) Dow Jones Newswires

August 19, 2024 05:29 ET (09:29 GMT)

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