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BUNDESWEHR PRIVATISES MAINTENANCE IN €1bn DEAL

27 Jan 05. In deciding to place the maintenance of selected vehicles and weapons systems entirely in the hands of the private sector, the Budget Committee of the German Bundestag has set the course for the one of the most important privatization ventures in the history of the German armed forces. It constitutes another important pilot project involving cooperation between the Bundeswehr and German industry, with the Rheinmetall Group playing a key role.

Soon to be incorporated, the new company Heeresinstandsetzungslogistik GmbH (HIL) is to be awarded a contract in February 2005 under which it will be responsible for ensuring the combat readiness of at least 70% of the weapons systems in the German Army inventory for a period of eight years. HIL, in which the Federal Republic of Germany holds a 49% minority stake, is a joint venture of the companies Rheinmetall Landsysteme, Krauss-Maffei Wegmann and Industriewerke Saar, each of which will hold a 17% share. Rheinmetall Landsysteme, a subsidiary of Rheinmetall DeTec AG, is one of Europe’s leading suppliers of tracked and wheeled armoured vehicles and associated services.
Spread over the lifetime of the contract, the order to be awarded to HIL will be worth some €1.1 billion. In addition, around €670 million in resources have been allocated for those items to be invoiced separately (i.e. transport costs and spare parts). As early as 2005, the company is expected to generate sales of some around €125m, rising to roughly €235m in subsequent years. For the Bundeswehr this will bring savings of some €200m over the lifetime of the contract.

For its part, the German Army stands to benefit from a significant improvement in rates of equipment availability, which will boost not only its operational readiness but also the quality of training. Moreover, this move will enable troops previously assigned to logistics duties in Germany to focus instead on core military activities.

During the course of privatization, the capacity utilization of existing Bundeswehr maintenance facilities will be optimized, and costly duplication of effort avoided. Furthermore, the future inclusion of small- and medium-sized subcontractors will be assured through the award of corresponding service contracts through HIL.
HIL represents an important step in maintaining a competitive private-sector military maintenance capacity in Germany. In this respect, HIL points the way to future forms of cooperation between industry and the military, which will bring tangible benefits to both sides and create scope for the procurement of new equipment for our armed forces.

Comment: A structure as announced here has been under discussion between BAE SYSTEMS and the U.K. MoD for many years. Perhaps the creation of the new BAE SYSTEMS LAND SYSTEMS DIVISION will spur development of a UK style privatization of armoured vehicle support which could also include the privatization of ABRO into BAE LAND SYSTEMS?

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