Leonardo Targets Major Partnership with Rheinmetall for Armored Vehicles After KNDS Impasse.

According to reports from Il Sole 24 Ore on July 2, 2024, the Italian defense group is in advanced talks with the German company Rheinmetall to form a joint venture focused on producing armored vehicles for the Italian military. This strategic alliance is set to handle future contracts for the production of 280 tanks derived from the Panther model and over a thousand infantry fighting vehicles based on the Lynx model.
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The Panther KF51 is a German main battle tank produced by Rheinmetall (Picture source: Rheinmetall)

The estimated value of this agreement is around 20 billion euros, spread over 10 years. Sources indicate that a preliminary agreement (memorandum of understanding) between the two companies is expected to be signed on Wednesday, July 3, 2024. The partnership aims to position Leonardo on the international stage for the development of the Main Ground Combat System (MGCS), a future European heavy tank project led by France and Germany.

Analysts view this potential alliance positively, noting that it would resolve the stalemate that emerged after the announcement on June 11 of halted negotiations with KNDS. In December of last year, KNDS and Leonardo had signed an agreement to form a "strategic alliance" with the goal of "creating a true European defense group" and "cooperating more closely in the field of land defense electronics." This rapprochement aimed to facilitate the "implementation of cooperative programs between European nations," such as the Franco-German Main Ground Combat System (MGCS) project and the Armored Infantry Combat System (AICS) program launched by Rome.

A month earlier, Germany and Italy had strengthened their partnership in land armament, expressing their intention to jointly explore "new areas of cooperation" in projects like MGCS, AICS, future long-range artillery, and collaborative combat. Additionally, the German branch of KNDS and Leonardo had signed a memorandum of understanding for the "joint implementation of the combat tank acquisition program based on the Leopard 2A8 solution."

However, negotiations were terminated on June 11, 2024, without any precise details on the reasons for the break being officially communicated. It is speculated that differences over the terms of the agreement and strategic objectives contributed to this decision. This rupture occurred despite the Italian government's planned investment of over 8 billion euros to acquire 132 Leopard 2A8 tanks, as well as 140 other derived vehicles (engineering, recovery, etc.). Italy hoped to obtain significant industrial offsets, highlighting the importance of this partnership between Leonardo and KNDS Deutschland.

As a result, Leonardo explored other partnership options, notably with Rheinmetall, which now seems to be nearing conclusion, to strengthen its position in the European military vehicle market and participate in large-scale defense projects such as MGCS. This new direction could allow Leonardo to overcome the impasse created by the break with KNDS and continue to play a key role in the European defense industry. This would enable Leonardo to participate in the European MGCS project, thus strengthening its position in a highly fragmented sector.