Following the announcement that the procurement procedure in Germany’s Heavy Transport Helicopter (STH) project has been cancelled;

Harry Boneham, Aerospace and Defense Associate Analyst at GlobalData, a leading data and analytics company, offers his view on the situation;

“This announcement may serve as an indication that, although the defense industry has proved more stable throughout the COVID-19 crisis than other industries, budget implications are beginning to manifest. The cancellation has come not long before a contract was expected to be awarded, indicating that new factors such as COVID-19 may have been taken into consideration.

“The announcement also comes as a blow to Boeing and Lockheed Martin. The commercial aerospace industry continues to suffer severe and ongoing disruption due to the current crisis, and ambiguity regarding a timeframe for recovery remains. In this context, companies such as Boeing that have exposure to both markets are increasingly relying on defense business to offset commercial business impact. This contract would have provided a valuable source of reliable revenue in the medium-to-long term.

“However, the German defense ministry has stated that it remains committed to replacing the CH-53G in a timely manner. The high price tag of this project is in part attributable to the range of add-ons demanded by the Bundeswehr – such as a superior weather radar than the one offered in the Marine Corps’ CH-53K. In light of the budget implications of COVID-19, these additions may no longer be viewed as priorities, with funds better allocated elsewhere. An eventual award may be granted for a no-frills CH-47 from Boeing, or CH-53K from Sikorsky following a re-examination of the project.

“This cancellation and delay may grant the German defense ministry the opportunity to direct support to its domestic defense industry. In the context of COVID-19, the need to maximize domestic industry participation has only become more acute. German bidding partners under Boeing and Sikorsky with exposure to the disrupted commercial aerospace market, such as MTU Aero Sytems and Hydro Systems KG, would have benefited from a stable source of revenue. In order to leverage this project to generate business for domestic industry, future proposals for the project may need to be more involved with local partnerships, enhancing the participation of the German aerospace and defense industry.”