In ConversationPoint of View

Taking responsibility for the big issues of our time

2. December 2022

The Russian invasion of Ukraine marked a turning point in history – and for the defence industry, too. Armin Papperger has been at the helm of Rheinmetall AG since 2013. In this interview, he discusses the Group’s evolving image, Germany’s ability to defend itself, his commitment to environmental sustainability – and how Rheinmetall is reconciling these imperatives.

“Hydrogen-based drives will play a major role in the future of mobility.” (Images: Henning Ross)

Mr Papperger, on 27 February 2022, a Sunday, the Federal Chancellor proclaimed a historical ‘Zeitenwende’ (turning point) in a speech to the German Parliament. Where were you on that day?

I was at home, watching TV. I felt very tense about what would come, but basically knew what he would say. That’s why we were already well prepared at Rheinmetall and able to submit a so-called ‘potential list’ so quickly. It showed what we could supply at short notice – to the Bundeswehr, of course, but also to support Ukraine.  

Were you surprised by the Russian invasion of Ukraine?

No, not really. You don’t order 150,000 troops to the border for no good reason. Once the troops were in place, there was basically no turning back for Putin. For me, it was clear from the outset that the attack would happen. What I didn’t foresee is that it would come from several directions at the same time.

The war in Ukraine isn’t just a regional conflict. Is what we’re seeing also a Russian attack on Western values?

Yes, that’s my impression.It’s obvious that Russia isn’t willing to support a rules-based world order. And in the long run, that’s the biggest problem: even if Putin is gone someday, we can’t assume that whatever government comes afterwards in Russia will necessarily mean a return to business as usual.

Which brings us to Rheinmetall and the defence sector. Do you get the feeling that the industry’s image has changed since the ‘Zeitenwende’?

Yes, I think that our image has changed for the better, but I don’t know if it’s going to last. In Germany, there are already clear signs of war weariness setting in, even though we’re not directly affected. I therefore worry that compassion and solidarity could soon evaporate, and with it, the will to look after our own security. That would be fatal.

How do things stand when it comes to making sure Germany can defend itself again? A lot of gaps need plugging at the Bundeswehr, both structural and material …

I think politicians genuinely want to whip the Bundeswehr back into shape. This is a process that will take at least five or six years. The 100-billion-euro package is a great opportunity for the Bundeswehr, but we can’t just let it be a flash in the pan. Achieving and maintaining NATO’s two percent goal over the long haul is more important…

Roundtable discussion at Rheinmetall headquarters in Düsseldorf: (from l–r) Oliver Hoffmann, Chief Editor of DIMENSIONS, Dr. Philipp von Brandenstein, Head of Corporate Communications, and Rheinmetall CEO Armin Papperger. (Image: Henning Ross)

… according to which member states are supposed to spend two percent of their gross domestic product on defence…

Right. Because we won’t be able to meet this goal if we order equipment for our armed forces and then probably can’t even afford to maintain it due to a lack of funds later.

What is Rheinmetall’s responsibility in these times?

We’re Germany’s biggest defence contractor, with something like 1,600 products in our portfolio. Rheinmetall is a vital part of the country’s national security architecture – and that also goes for our defence industry in general. Without this industry, Germany would lose political influence in Europe and beyond.

Back to policy. Do you think that Germany is doing enough to support Ukraine?

Ukraine needs an enormous amount of support at every level, to include reconstruction after the war. Whether we’ve reached the limits of what’s affordable in the meantime is not for me to judge. That’s something for politicians to decide on, and will require broad consensus, including in society at large.

Our European neighbours expect Germany to take on a leadership role. What do you think? Is Germany a reliable partner, especially in Central and Eastern Europe?

I know several heads of state there quite well because we’re present in these markets. They’re looking to Germany and definitely want us to take the lead as a nation. But this requires quick, efficient decision-making. Arguably Germany has room for improvement in this department.

What tactical and technical conclusions have you drawn from the war in Ukraine? The Russians have lost a tremendous amount of equipment, including thousands of tanks. Does the main battle tank have a future?

Sure, of course it does. Otherwise, our new Panther KF51 main battle tank wouldn’t have created such as stir or attracted so much attention when we recently presented it, and not just in defence circles. Today, the Panther has everything it needs, including more powerful main armament. Russian tanks like the T72 are practically defenceless against antitank missiles. This requires active protection of the kind Rheinmetall has developed. The Panther is protected from drones, too, thanks to our Top Attack Protection System. With countermeasures like these the main battle tank clearly has a future. Besides, it’s plain to see from the situation on the ground in Ukraine that tanks are still a tactical necessity.   

Mr Papperger, as far as the media are concerned, you’re Germany’s top arms supplier. You’re also getting more political attention. How do you feel about this new role?

I would prefer peace. Personally, I would be happy to do without this role. At Rheinmetall, we have an obligation to society, an obligation we need to live up to. Our core mission is to supply the armed forces of Germany and its NATO partners with the best possible equipment. 

In the meantime, more than 90 percent of your sales are to NATO countries and other friendly nations. But there are several customer countries that are always controversial. What do you think of the governing coalition’s efforts to tighten the regulations covering German arms exports?

We’ll certainly be able to supply our partner nations in future with no problem, first and foremost NATO and EU countries. It would be helpful to have a list of other approved countries, which would give us a clear basis for doing business. But here I see a fundamental problem: if every country makes its own rules, Europe won’t be able to grow together, and it makes industrial cooperation more difficult. Which is why I’d like to see a uniform European regulation for arms exports. As things stand today, German industry is at a major disadvantage. Our foreign competitors even cite being ‘German-free’ as a positive attribute in joint projects, because the lack of German participation makes it easier to market defence products internationally. This can’t go on.

Should Germany supply arms only to democracies?

That’s a political decision. Military cooperation is an instrument of foreign policy, and defence projects are part of it. Look, Germany tells Arab countries, “Please give us lots of your natural gas.” And here’s what they say: “Other countries were ahead of you. And unlike you, they help us out in other areas – for instance, when it comes to defence. Go to the end of the queue.” It really makes you think.

One country that you can’t sell military equipment to is China. But you have a strong civil sector presence there, with ten locations, primarily serving customers in the automobile industry. What potential risks do you see there for Rheinmetall?

I do indeed see certain risks in our civil operations, especially if the Chinese government insists on taking an even harder nationalist line. Most of our companies there are 50/50 joint ventures, with the Chinese government onboard. On the Executive Board, we keep a sharp eye on developments and make decisions accordingly.

Let’s get back to the historical ‘Zeitenwende’ for a moment. It’s a political expression, first and foremost, but your company has had to adapt to a dramatically altered situation. Is this a turning point for Rheinmetall too?

Yes, we’re now on a trajectory that’s bringing us significant growth – but also demanding a great deal of us. We’ve got to meet our customers’ requirements. To do this, we need to substantially increase our capacity. We’ve been gearing up production at our plants, moving to two or even three shifts. We’re boosting capital expenditure, too – even though we’ve already invested a lot. For example, we have new plants in Hungary, Australia and Great Britain. But we’re also considering increasing our capacity through new acquisitions.

Have new orders been coming in since the ‘Zeitenwende’?

Yes. The first major order was a contract for personal protection equipment for infantry worth almost 300 million euros. Now we’re on the verge of the second lot of Puma infantry fighting vehicles being ordered for the Bundeswehr, including retrofits of existing vehicles. Decisions are coming soon on a new 6×6 vehicle and a vehicle for airmobile operations. In addition, decisions on ammunition are on the way – in fact, we’ve already booked the first orders. We also expect to get a significant share of the digitization work currently in the pipeline. So, decisions worth several billion euros are currently pending.

It takes two years from the day a tank is ordered to the day it’s delivered. Why does it take so long?  

The biggest problem right now is sourcing the necessary materials. If you order special steel for armour today, for example, it can take eight or even twelve months to arrive. Besides, tanks need tracks, guns, electronics… The delivery time for electronic components can be 24 months. In short, it can easily take a year and a half or even two years before a tank is ready to roll and qualified. On the other hand, assembling a tank goes relatively quickly.

Your defence business makes up an increasingly large share of Group sales. In view of this trend, what is your strategy?

For the foreseeable future, most of our business will certainly be in the military sector since this market is growing extremely quickly. I assume that around 80 percent of our business will be military-related by 2025.

But here’s something that’s very important to me: Rheinmetall is a technology enterprise and I want it to stay that way in future. We don’t want just to be a defence contractor. We’ve got terrific new technologies that extend well beyond the defence sphere – hydrogen technology, for instance. There are plenty of promising applications in the ‘warm home’ domain – by which I mean heating systems. We have new sensor technologies for the civil sector, too, and are developing a concept for an electric motor for a new hybrid military vehicle. My goal is to have our five divisions so thoroughly integrated that it’ll be almost impossible to tell the difference between our civil and military business. Moreover, we’re also considering whether we can use civil production facilities for producing military components in future. This is no trivial matter, because the security requirements in the military sphere tend to be especially strict.

You announced Rheinmetall’s transformation into a technology enterprise over two years ago. What concrete successes have resulted to date from closer cooperation between the two parts of the Group formerly known as Automotive and Defence?

We’re already making good headway. There are a whole bunch of examples. We have solutions in the field of automated driving and teleoperated driving. And we’ve got power electronics that we’re developing in Silicon Valley that can be used for military purposes. As I’ve already mentioned, we’re also developing high-performance electric motors for military applications. In the civil sector, we’ve teamed up with various cooperation partners to develop sensors that can detect a person’s condition, which can determine if somebody’s fit to drive. This has military potential, too, of course. We’re also pursuing this kind of cross-linking in air conditioner compressors and mobile fuel cell systems, but also in the realm of digitization and guarding against cyber threats.

In Hungary, we’re going to build a plant for capacitors that’s technologically unique. The components are necessary wherever a power storage unit is located between a battery and a motor. We have a patent in Europe and now plan to introduce these high-tech components together with our American partner throughout Europe, and potentially in Asia as well. This is an example of the technological leadership we’re seeking, with both military and civil applications.

The future looks bright for hydrogen technology. What does Rheinmetall’s strategy in this area look like?

I’m convinced there’s a megatrend moving in the direction of hydrogen as a climate-neutral energy source. Four years ago, we started doing in-depth research into hydrogen. I think hydrogen-based drives for mobility will play a significant role, especially for trucks. We know that the biggest challenge in establishing a global hydrogen economy is having to produce large amounts of green hydrogen as cheaply as possible. And that’s exactly what our project E²NGEL aims to do: we’re developing electrodes for alkaline electrolysis that don’t contain precious metals and work really well, thus helping to cut the cost of producing green hydrogen.

Whether it’s with solar panels, wind or waterpower: we’re going to be able to use renewable energy to produce green hydrogen. In South Africa, we’ve just presented a turnkey, mobile, modular solution that can generate, store and transport green hydrogen that’s CO2-free. We can set up four containers and sustainably supply 30 or 40 households with climate-neutral energy, pretty much anywhere. As you can imagine, a capability like this would also be very useful during deployed military operations.

So, you’re already offering a complete system solution?

Yes. But our technologies are also present in various other components. In the government-backed LORICA project, for example, we’re working on an innovative pressure tank system for hydrogen that will be able to store hydrogen on ships, trucks, buses, trains and cars. We’re also making a decisive technological contribution when it comes to transporting and trans-shipping hydrogen.

In the fuel cell systems domain, we’re cooperating with well-known partners like Ballard and Cellcentric to make fuel cell systems more efficient, less expensive and durable thanks to components like our hydrogen recirculation blower.

As one of the world’s top pump manufacturers, we’re predestined to play a major role in the hydrogen world: our electric coolant pumps can already be used in fuel cell systems today. We’re also one of the world’s biggest valve makers, which lets us offer products that are vital for the safe operation of fuel cells.

Finally, we also happen to be specialists in the field of thermal management, which is very important in fuel cells. As you can see, we’ve made a major commitment here – and we’re well positioned to take advantage of this now. Things look very promising.

So, the civil use of technology continues to play a role for you?

Absolutely. For me, ultimately it doesn’t really matter if the task at hand is civil or military. I like technology and I like our people. I want the men and women who work for Rheinmetall to have decent jobs that are as secure as possible. Our defence business is experiencing a boom now, which helps us all – and that goes for both the military and civil side of the house at Rheinmetall.

You expect your military business to grow by well over 10 percent a year. How do you plan to square this increase in output with Rheinmetall’s sustainability goals? After all, you want to be CO2 neutral by 2035 …

We’re already doing a lot in this area. Year in, year out, we’ve been investing eight-figure amounts in sustainability. Our priority at Rheinmetall is obviously to cut our CO2 emissions. We can’t be completely CO2-free, but we can compensate for the greenhouse gases we emit. How do we do this? In South Africa, we’re building a big solar field where we’re going to generate electricity for producing green hydrogen, which we also want to make available to other users.

“We are now investing tens of millions of euros every year in the area of sustainability.” (Image: Henning Ross)

Most electricity in South Africa is generated in coal-fired power plants…

True – there’s an urgent requirement for action there. But a lot can be done. As I’ve already pointed out, we’re counting on hydrogen technology in South Africa. Using leftover electricity, we want to produce green hydrogen, which will mean that our five factories in South Africa can operate quasi-CO2 free. We’re switching from coal as an energy source to hydroelectricity and solar power. And South Africa’s just one example among many.

Let’s have a look at Germany: at your Unterlüss plant in the Südheide, there’s currently a big hole in the ground. Are you building there for a CO2-free future?

Yes, that’s the site of our new woodchip powerplant. Unterlüss is our biggest plant in Germany, with over 2,000 employees. We have a lot of land – 54 square kilometres, to be exact – much of it wooded. In future, we’re going to turn dead wood and branches that would normally just rot away on the forest floor into woodchips. The thermal energy produced by the powerplant will supply the entire plant, including the production of tanks, guns and ammunition.

Do you have a clear idea of Rheinmetall’s total CO2 footprint?

Yes, of course. We collect data from all over the Group, so we know what our monthly CO2 emissions are and what energy sources produced them. This lets us work out ways of saving energy and switching to renewable sources. In the medium term, I don’t just want to pay for green electricity – if we did that, we’d still be electricity consumers. I want us to be energy producers in the medium term – that would be a real contribution to sustainability. We’re looking into setting up our own wind farm, by the way. We need to find a suitable location. To meet Rheinmetall’s energy needs in Germany, we’d need around 16 wind turbines with an output of 4 megawatts each. This would mean an investment in the three-digit million-euro range, which we would of course have to do gradually. But over the course of several years, it’s definitely doable and a project near and dear to my heart. This way, we could be completely CO2-free, rather than just CO2-neutral thanks to offsets. That would be worth almost any effort!

Mr Papperger, you’ve been at the helm of Rheinmetall for nearly a decade now. As you see it, which of your decisions during this period have done the most to shape the company’s destiny?

I think the most important thing I’ve done is picking the right people. A company’s success depends on teamwork. This means having loyal staff, including in key executive positions, of course. We have highly motivated people, who are totally dedicated to Rheinmetall and its mission. For me, that’s the most important thing. I’d like to express my thanks to everyone who works hard for Rheinmetall. I’m especially grateful to my long-serving companion Helmut Merch, who for the past ten years has performed a great service to the Group as CFO. He will be taking his well-deserved retirement at the end of the year after a 40-year tenure at Rheinmetall.

Another important decision was eliminating the artificial demarcation between Defence and Automotive. We’ve succeeded in turning Automotive into an organization capable of exploiting opportunities in other important growth sectors such as hydrogen technology. This means that we’re entering a new epoch in very good shape – an epoch of robust growth, by the way. We’ll be growing by between 10 and 20 percent a year, which means we’ll need a very stable, highly motivated team. I’m happy to say that that’s exactly what we have.

And this team needs reinforcements. Anybody who’s looking for a challenge should contact us at Rheinmetall! We’ve got lots to do and are looking for good, loyal people. Success is sexy, as I like to say, and Rheinmetall has plenty to offer these days, with secure jobs and excellent opportunities for personal development in Germany and around the globe.

Armin Papperger (Image: Henning Ross)

ARMIN PAPPERGER
Born in 1963, Armin Papperger has been Chief Executive Officer of Rheinmetall AG since 1 January 2013. At the same time, he is responsible for the Defence sector as Chairman of the Corporate Boards. After graduating with a degree in engineering, he began his career in quality management in the Defence sector of the Rheinmetall Group in 1990. Having held a number of further posts in this area, he became Managing Director of various subsidiaries of the Defence sector in 2001. In July 2007, he was appointed head of the Weapon and Ammunition business unit. At the beginning of 2010, Papperger assumed responsibility for the Vehicle Systems and Weapon and Ammunition business units on the Defence Corporate Board. He has been a member of the Executive Board of Rheinmetall AG since 1 January 2012.

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