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Tank Battle in Europe! Meet General Dynamics' New Challenger

Tanks -- they're not just for Cold Wars anymore.

In fact, with Russian T-72s running rampant 'round the fields of eastern Ukraine, many people are wondering if main battle tanks -- the 60 to 70-ton armored beasts that generals once expected to joust in Germany's Fulda Gap -- might be needed to fight a "hot war" sometime soon. And if they are needed, will it be American tank-builder General Dynamics (NYSE: GD  ) building them ... or someone else?

Russian T-72s began pouring across the Ukrainian border Thursday. Ukraine's president says there are "hundreds " in the country today. Photo: Wikimedia Commons.

Germany and France hold a shotgun wedding
Over in Europe, the renewed relevance of main battle tanks to modern warfare has spurred two of the continent's bigger rivals -- Germany's Krauss-Maffei Wegmann, or KMW, and Nexter Systems of France -- to contemplate a merger. Their goal: To take the best parts of KMW's Leopard 2 main battle tank, marry them to the advantages of Nexter's Leclerc, and produce Europe's next super-tank.

KMW's and Nexter's plan, as described in "Heads of Agreement" signed July 1, 2014, calls for the two companies to merge their operations under the ownership of a holding company -- probably based in the Netherlands. KMW is currently privately owned. Nexter, owned by the French government, would need to be privatized prior to the merger. At that point, the two firms would contribute their stock to the new holding company, receiving 50-50 ownership of the new, merged company in return. While the deal is not yet set in stone, an April 2015 closing date is anticipated.

But what would the new company look like?

Germany's Leopard 2 main battle tank. Photo: KMW.

Birth of a European tank-building superpower?
KMW and Nexter say their new firm will employ more than 6,000 workers generating nearly $2.7 billion in annual revenue. With $8.8 billion in backlogged orders for weapons systems to be built, the company would have enough work to keep itself busy for more than three years, right from the start.

The combined companies would offer their customers everything the modern armored army needs to roll, too: 155mm towed and self-propelled guns, anti-aircraft guns, and tracked and wheeled armored personnel carriers. The most famous products, though, would be France's Leclerc main battle tank (from Nexter) and Germany's Leopard 2 -- a 62-ton beast of a weapons system, featuring a 120mm Rheinmetall smoothbore cannon that can penetrate 22 inches of solid steel from a range of 1.3 miles. One of KMW's most popular products, the company has sold 3,200 Leopard 2s to 16 separate armies.

Around the world, the Leopard 2's chief rivals include General Dynamics' M1 Abrams ...

General Dynamics' Abrams. Photo: General Dynamics Land Systems.

... Britain's Challenger 2, built by BAE Systems (NASDAQOTH: BAESY  ) ...

Britain's Challenger 2 main battle tank. Photo: BAE Systems.

... and their Russian rivals, which include the T-72, T-80, and T-90 -- of which 1,700 have been built.

Hey! Careful where you point that thing! (The shooting end of a Russian T-90). Photo: Rostec.

What it means to investors
So back to the initial question: Who will build the main battle tanks for Europe's armies going forward?

While defense spending in Western Europe and Central Europe declined 2.4% in 2013, Russia's Ukrainian adventure has defense officials from Poland to Finland to Norway -- and Estonia, Latvia, and Lithuania besides -- all talking up plans to boost military spending. So the $8.8 billion in backlog that a combined KMW-Nexter will start off with could be just that -- just a start.

What makes this merger really interesting, though, is that Britain's tank market is about to open wide up as BAE shuts down its last tank factory there later this year. If Britain can no longer build its own tanks, it stands to reason that the U.K. will soon be buying tanks elsewhere. So who will have the advantage in winning those tank contracts -- General Dynamics, or KMW-Nexter?

With Nexter still state-owned, and KMW a family business, accurate financial numbers are difficult to come by. At last report, S&P Capital IQ data showed both firms to be profitable, but exactly how profitable is hard to say. What we can say, though, is that General Dynamics is probably more profitable than its new rival.

General Dynamics' combat systems unit, while the company's smallest, is still twice the size of a combined KMW/Nexter at $6.1 billion in annual sales. The unit earns 14.8% operating profit margins -- better than BAE was earning on its tanks -- and is General Dynamics' most profitable military business. Meanwhile, the diversified nature of GD's business (which includes the even more profitable civilian Gulfstream unit) helps to ride out the ebb and flow of the cyclical defense industry. That's an advantage that KMW-Nexter will lack.

Long story short, while it's entirely possible that a KMW-Nexter merger will yield a new European "regional champion" in tank building, I wouldn't count on its producing a tank company that can roll right over General Dynamics.

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Read/Post Comments (25) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 03, 2014, at 8:44 PM, MoreBS wrote:

    Lets just build one tank for all allies a French, German, British, US, .......joint development & production. If done properly it would be the best possible tank at the lowest cost sense they'd all have interchangeable parts and the largest possible volume over which to spread the development costs. Lets face it, we are not the top tank designers. Then we move on to say, coastal patrol craft (LCS replacement). We might even find some people who can manage projects.

  • Report this Comment On September 04, 2014, at 12:33 AM, dusty10x wrote:

    Waste of money....Tanks are only good against 3rd world countries now.....Too many weapons available to the major powers to kill them easily to be very useful.......One guy with a laser targeting device and uplink can pinpoint 100's and take them out like stepping on ants....

  • Report this Comment On September 04, 2014, at 12:59 AM, BeachMike wrote:

    Have to agree with dusty10x. The main "battle" tank is the land equivalent of the battleship. They are obsolete for top echelon armies engaging each other. Whoever owns the sky will own the battlefield that tanks compete on. A single A-10 can obliterate any tank column in nothing flat.

  • Report this Comment On September 04, 2014, at 7:08 AM, ronvan wrote:

    Have to agree with all of you. Todays tanks are devastating & fascinating, but really out of fashion.

    How about OUR "elected misfits" understand that the A-10 IS a tank destroyer Proven, coming home all shot up but still flying! How about more advanced "shoulder fired" weapons for ground soldiers? There are many weapons that are available, right now, that can destroy tanks.

  • Report this Comment On September 04, 2014, at 8:58 AM, DucMan wrote:

    The fact that modern day tanks can be taken out of the battle by an individual soldier with a modern anti-tank weapon kinda makes these things obsolete!

    The IDF has the best tanks currently fielded and are the best tankers out there and have proven it in head-to-head contests with Europe's and the US's best.

  • Report this Comment On September 04, 2014, at 11:32 AM, stockingshorts wrote:

    Intimidating, yes, but they are yesteryear's Battle ship. Slow and vulnerable to man portable weapons systems. Knock a tread off and you are stuck! Now you have a 70 ton high tech paper weight.

    Many weapons systems attack armor from the top through the top of the turrets and/or in through the engine compartments where the armor is thinner.

  • Report this Comment On September 04, 2014, at 1:35 PM, Waldo wrote:

    Tanks are like spears. They have seen their day come and go.

  • Report this Comment On September 04, 2014, at 3:18 PM, Impaler wrote:

    After any air battles, tanks win wars on the ground. You guys underestimate the game changers they are

  • Report this Comment On September 04, 2014, at 4:15 PM, gjsuhr wrote:

    France's Leclerc main battle tank renowned for being faster in reverse than any other tank.

  • Report this Comment On September 04, 2014, at 4:38 PM, TheAncient wrote:

    One minor problem BeachMike, they aren't building any more A-10s, once the ones in inventory are used up they are gone. But hey, that's what we have the F-35 for, it is supposed to replace the A-10, F-15, F-18 and F-16 in one neat $100M a copy plane. The main battle tanks like the Abrams can withstand RPG hits.

  • Report this Comment On September 04, 2014, at 4:40 PM, btc909 wrote:

    Just build modern A-10's. The Ruskies will get the hint after several tanks just explode. If you hear an A-10 coming, stop your tank, get out, and run.

  • Report this Comment On September 04, 2014, at 4:42 PM, TheAncient wrote:

    So stockingshorts, think what that from the top weapon would do to infantry. A tank loses a track you have a 70 ton pill box that can reach out 2 miles. Very few nations have and use the weapon you described most relying on the RPG types. To which the Abrams is pretty much immune to. Besides there should be some infantry to deal with enemy ground troops.

  • Report this Comment On September 04, 2014, at 5:59 PM, zybis wrote:

    In fact EU don't have plan against Russia so they just sit useless.Sad news for east Europe countries:(

    The same situation was in Lithuania in 1945-1956 when Lithuanian national partizans fight against Russian army troops invasion into Lithuania but were left alone with their own problems and only promises from USA-"please keep fighting and we will help you"

    which never happened.... so Lithuania and other Baltic states was annexed by Russia.Now goes similar scenario and it's looks more useless and sad looking at EU,USA or NATO position in this situation.

    World returns back minimum 60 years back! World think about it if you still remember these times!

  • Report this Comment On September 04, 2014, at 6:26 PM, tuanp40fool wrote:

    ISIL won in Iraq and Syria because they have tanks. I do not believe tanks are obsolete. It is just like aircraft carrier situation, without the support of escorts, submarine, etc. they are sitting ducks. Tanks without the support of air defense is easy prey to warplanes, but to infantry they are nightmares.

  • Report this Comment On September 04, 2014, at 6:39 PM, quasimodo007 wrote:

    THE evil russian have been Rebuilding their Military the for along time -Tanks, Fighter JETS, Naval power from all that money they made off the EVIL russian Gas pipe lines that sold to the DOWN RIGHT DUMB EU and WAFFLING GB. So Sad

    EVEN Germany Trained theose EVIL russians too who took Crimea ,Georgia and Ukraine . Germany in Fact sold Out Ukraine to the EVIL czar putin/SATAN even when it Ask Ukraine to join the WEAK Minded EU . Now EVIL czar putin/SATAN is going to punish Ukraine , Kosovo,Baltic's and any who do NOT Bow to EVIL czar putin/SATAN

  • Report this Comment On September 04, 2014, at 7:44 PM, juhuhoo wrote:

    Jesus people this isn't call of duty. It's not that simple to take out a tank, and not every damn soldier carries AT weapons. Every weapon has its counter, that doesn't make it irrelevant. I think you nerds been playing a little too much call of duty or battlefield.

  • Report this Comment On September 04, 2014, at 7:54 PM, DerekVance wrote:

    Contrary to many of the posts here. The age of the main battle tank is far from over. Yes, they are more vulnerable then they once were. But in numbers they are still a lethal weapon on the battlefield. The weapons that are man portable and capable of knocking our a M1A1 Abrams or a Challenger 2 or Leopard 2 are not as prolific among our enemies as they are among the NATO forces. A RPG is just about as useful as a potato gun against any of those three tanks. The main threat to a Battle tank or ATC is attack helicopters. And if you own the airspace like NATO likely would, flying up the gut in a whirlybird is suicide against American and European air power. SAM Missiles are a threat to typical aircraft.... But what are they going to do when attacked by anti-radiation bombs and missiles fired from stealth aircraft from 200 miles out..? Just saying... A main battle tank column is still a tough nut to crack... But if I were in any tank other then one of the 3 NATO models, I would be very concerned for the longevity of my crew and myself. T-72s were cannon fodder in Iraq and Afghanistan. T-80, 90's are just up-armored T-72's with reactive armor and a better gun & targeting system. They are still inferior in ever way to a 2014 equipped M1A1, Challenger 2 or Leopard 2 Main Battle Tank. If Russia brings NATA forces to bear upon them... The Russians only weapons that could cause an absolute defeat of NATO Forces would also spell the end of Russia forever.... It all depends on just how crazy Putin the former KGB Clerk really is....

  • Report this Comment On September 04, 2014, at 7:54 PM, HannibalKhan wrote:

    Todays battlefield/s require speed and stealth. Tanks and helicopters have neither. The enemy can hear them coming from fifty miles away. One man with a shoulder held rocket launcher can take any of them out. One $20 thousand dollar rocket launder vs a $10 million dollar tank or helicopter. it don't add up!

  • Report this Comment On September 04, 2014, at 8:36 PM, khaozzer0 wrote:

    The biggest tank improvement has to be the reactive armor being able to take AT hits is a big plus in terms of survivability but other than that its an out dated machine.

    The tank must be re-invented.

  • Report this Comment On September 04, 2014, at 8:59 PM, panzer wrote:

    I was under the impression our illustrious govt. has retired all the A-10 s . I guess when you build the nastiest beast in the valley . It'll have to be replaced with a $ 200 trillion program to do the same thing .

  • Report this Comment On September 04, 2014, at 9:13 PM, LtDan2001 wrote:

    It is clear to me that many of the posters here are little more than "posers". Main Battle Tanks are still very dangerous on the battlefield. Many have posted one soldier with an anti-tank weapon would easily take out a tank. You clearly have no idea of the effective range of anti-tank weapons. The US TOW missile has one of the longest effective ranges at 3700 meters. Top of the line MBT's can accurately strike a target from nearly 4000 meters. I can't speak for Leopard II's, Challengers, or Israeli Merkava's, but the M1 Abrams is actually very quiet on its approach because the engine noise and exhaust are discharged to the rear of the tank. During the Iraq War, not a single M1 was lost to enemy fire from T-72's. In fact, it took several direct hits from other M1's to destroy those tanks the US chose to destroy in place. It is also clear I did not see one post that lead me to believe anyone here has ever watched an Tank Battalion roll toward them. From first hand experience (military exercises), I can tell you it is very unnerving. Keep in mind that was "friendlies" who were not intent on shooting. That's 48 62-ton monsters bearing down on you at 20-35 mph!

    btc909, you won't hear an A-10 coming at you. Like the M1, almost all the the engine noise from an A-10 is behind it.

    DukMan, you may think the IDF has the best tanks and best trained crews on the battlefield, but I will have you know the M1 Abrams has NO equal on the battlefield. It has been considered by military equipment experts as the best MBT in the world for many years. Between its SABOT round and reactive armor (unlike any other), it will be many years before any nation develops its equal. Remember, the US continually improves those tanks at the same time.

    I didn't learn my information playing some $60 video game, I learned the strengths and weaknesses of various MBT, both friend and foe, while serving in the US Army.

  • Report this Comment On September 04, 2014, at 9:35 PM, KoryBustard wrote:

    The only T-72 battle tanks running around Eastern Ukraine are 58 the Ukies recently bought from Hungary. So NATO is going to spend billions more of US tax dollars on updated tanks to fight who exactly?

  • Report this Comment On September 04, 2014, at 9:53 PM, rav55 wrote:

    An Armoured colum requires a concentrated firepower to stop it. Just because a single tank can be stopped by shoulder fired weapons does not mean that an entire column can be stopped using shoulder fired weapons.

    This defensive firepower must at first be coordinated airstrikes with attack helicopters and say tank-busters like the A-10. But this action occurs kilometers away from ANY shoulder fired weapon. And this air assault itself is vulnerable to armoured close support aircraft and SAM missile fire both truck mounted and shoulder launched.

    Warplanners expect casualties to be high with this type of armoured blitz. The taking of Baghdad is a prime example how a mechanized force can penetrate defenses and effectively outrun and gun the opposition. There was NO effective Iraqi defense. However as Rommel learned in North Afrika massed armour against massed armour is warfare of a different sort entirely. That type of warfare is not very likely to ever happen again.

    What is happening NOW in the Ukraine with Russia sending in hundreds of T-72 Tanks is very similar to the United State's invasion of Iraq. While there is some anti-tank capability in the Ukraine military, not enough of it can be massed to be effective against a column

    An armoured colum requires massed firepower to stop it. This massed defensive force is now becomes vulnerable to attack.

    That is the whole point of an armoured column: it is a force commitment of highly mobile massed firepower that to be stopped requires a commitment of defensive force that is NOT mobile and that is the whole issue. The attacking force succeeds if it can draw the defense to a poor position.

    Tanks are never going to be obsolete. Their survival rate may not be very high but if you can put enough of them into a single action to destroy the defense then the losses will have been worth the adventure.

  • Report this Comment On September 04, 2014, at 10:04 PM, Old3rdCav wrote:

    I have read several comments about tanks being "out of style," or they are "land battleships" that have seen their better days years ago. Many of the commenters sound like Call of Duty gamers. The tank, like infantry, artillery and air support make up a combined arms force that when well employed create a mutually supported and devastating force. The days of employing tanks without support pretty much left the military psyche after suffering terrible losses during WW2.

    If you have not been on the bad end of a tank (or better yet, a combined arms force) you will never know the fear they instill. Never mind that you can hear some of them from a mile away. Never mind that you have a pack full of AT rockets on your back. If you find yourself in that situation you will want to avoid these "land battleships" that are looking for you at all cost. Yes, there are some devastating man portable AT systems out there. But not that many and really, how portable are they (Call of Duty is not reality)? Tanks will remain in the inventory of many militaries and will remain an important part of the combined arms force.

  • Report this Comment On September 05, 2014, at 3:52 PM, hank321 wrote:

    Drone tank killers, automated,...that is the way to go. Small, light, fast, cheap.

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As a defense writer for The Motley Fool, I focus on defense and aerospace stocks. My job? Every day of the week, I'm monitoring the news, figuring out the winners and losers, and tracking down the promising companies for you to invest in. Follow me on Twitter or Facebook for the most important developments in defense & aerospace, and other great stories.

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