(Bloomberg) -- Italy’s Leonardo SpA and Rheinmetall AG of Germany agreed to form a joint venture to build combat tanks in Europe, combining efforts on fighting vehicles as defense spending rises across the region.
The collaboration represents one of Europe’s most prominent cross-border military contracting alliances since the start of the war in Ukraine. The venture, headquartered in Rome, will develop a new main battle tank for Italy and a Lynx fighting vehicle, and will eventually sell tanks to other clients abroad, the companies said Tuesday.
“The Italian customer is the first one,” Rheinmetall Chief Executive Officer Armin Papperger said at a press conference in Rome on Tuesday, “but we are positive that we will get others very soon.”
European leaders have pushed for consolidation in the defense sector to bolster competitiveness and improve regional security after Russia invaded Ukraine in early 2022. With geopolitical tensions also rising in the Middle East, sales of military equipment have boomed.
In August, Papperger told analysts on a call that revenue at the venture could potentially total €20 billion ($21.8 billion) from Italy alone over several decades.
Papperger said Tuesday that the companies won’t need to build further capacity because Leonardo and Rheinmetall already operate major production sites, including at the JV’s logistical headquarters in La Spezia.
The companies will each own an equal share of the newly established Leonardo Rheinmetall Military Vehicles. Labor will also be divided 50-50 with 60% of the work to be carried out in Italy, according to a statement.
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Russia’s invasion of Ukraine exposed a range of issues, from compatibility of ammunition to the ability to quickly scale up production. Europe’s fragmented defense landscape has led to competing fighter jets programs sap military budgets, and left European arms makers much smaller than US counterparts such as Lockheed Martin Corp.
“A safer Europe can only be achieved with big industrial actors,” Leonardo CEO Roberto Cingolani said at the press conference. “Sometimes that means to give up some company sovereignty, or lose a small share of the domestic market to be competitive in a global market.”
The companies announced the plan for the tank venture in July. It comprises orders worth €8.2 billion for 132 tanks and 140 combat vehicles, to be developed and delivered by 2037, according to Italy’s national defense plan.
Rheinmetall is currently expanding both within and beyond Europe. It has two joint ventures in Ukraine — a tank manufacture and repair hub as well as an ammunition factory — and acquired US track-system maker Loc Performance Products LLC for $950 million in August.
Leonardo is a partner on the Global Combat Air Program, a next-generation fighter-jet platform, with BAE Systems Plc in the UK and Mitsubishi Heavy Industries of Japan.
The Italian firm is also the second-biggest shareholder in Munich-based radar and sensor maker Hensoldt AG, which provides air defense systems to Ukraine.
(Updates with executive comments from press event)
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