Norway picks Germany over France in race to supply submarines

OSLO (Reuters) - Norway has picked Germany as its strategic partner for new submarines, making Thyssenkrupp the likely supplier, Defence Minister Ine Eriksen Soereide said on Friday.

Norway plans to buy four submarines and Germany two, while fellow NATO members Poland and the Netherlands may add to the order at a later stage, she said, adding that the cost of the vessels has not yet been determined.

“We first and foremost sought a strategic partner ... When Germany offered to buy identical submarines together with us, that opened the path to close cooperation throughout their expected lifetime,” Soereide told Reuters.

The Nordic country said last April France’s DCNS and ThyssenKrupp were the strongest candidates to supply submarines to replace its existing “Ula class” fleet, built between 1987 and 1992.

“The (decision) means that Germany will accelerate its plans to buy new submarines,” the German Defence Ministry said in a statement, adding it would secure the country’s role in a key technological area for years to come.

The deal will relieve pressure on Thyssenkrupp to intensify restructuring or even sell its naval business, after it lost out to DCNS, which is 35 percent-owned by defense electronics giant Thales, in a $38 billion Australian submarine tender last year.

“Norway will now enter into final negotiations with German authorities. When a government-to-government agreement is in place, a German-Norwegian negotiation towards the German submarine supplier Thyssenkrupp Marine Systems will commence,” Norway’s Defence Ministry said in a statement.

The submarines will be based on the so-called 212-design already in service in Germany and Italy.

Norway’s Kongsberg Gruppen is expected to be a key supplier of equipment to the submarines.

Thyssenkrupp Marine Systems CEO Peter Feldhaus said the agreement would be valuable to industry in both countries.

“We are extremely pleased and proud that we managed to convince Norway of the superiority of our proven technology,” he added.

France’s DCNS said it regretted the decision and stood ready to come back into the bidding if German talks with Norway break down.

“We remain convinced that our offer was superior, in particular in the anti-submarine warfare area, crucial for operations and patrols in the High North,” it said in a statement.

Norway said its aim is to sign a common contract for submarines in 2019, enabling deliveries from the mid-2020s to 2030.

European NATO members are under pressure from new U.S. President Donald Trump to spend more on defense.

Thyssenkrupp is 20 percent owned by activist investor Cevian, which wants the group to speed up its streamlining.

DCNS said after winning the Australian contract it was prepared to enter talks with its German rival “as soon as the German side has got over its loss”, although it denied a report it had proposed an alliance.

The German steel-to-elevators group said afterwards it was not in talks with any potential buyers or joint venture partners for the naval business.

Shares in Thyssenkrupp erased earlier losses on the news to trade flat at 1126 GMT, underperforming the German blue-chip DAX, which was 0.3 percent stronger.

($1 = 1.3079 Australian dollars)

Additional reporting by Georgina Prodhan in Frankfurt, Tim Hepher in Paris, Tom Kaeckenhoff in Duesseldorf and Andrea Shalal in Berlin, writing by Terje Solsvik, editing by Nerijus Adomaitis, Ralph Boulton and Adrian Croft