Rheinmetall’s chief executive, Armin Papperger, was caught off guard by the German government’s decision to cancel the multibillion-euro F126 frigate programme, a move that has significantly impacted the company’s strategic plans and share price. The announcement came on a Tuesday in June 2024, just months after Rheinmetall completed a €1.5 billion acquisition of Naval Vessels Lürrsen (NVL), a naval group with four shipyards along Germany’s northern coast and about 2,100 employees. This acquisition was largely motivated by expectations that Rheinmetall would become the lead contractor for the six F126 frigates intended for the German navy.

The F126 programme, initially awarded to Dutch shipbuilder Damen Naval in 2020, had encountered technical difficulties, including software issues, which led to rising costs and delays. Amid these challenges, German defence officials had been exploring the possibility of transferring the lead contractor role from Damen to Rheinmetall’s newly acquired NVL division. In November 2023, an agreement was brokered to begin a six-month due diligence period assessing the feasibility of this transition. Rheinmetall submitted a formal bid in April 2024, offering €12.8 billion net (€15.2 billion including VAT) to take over the project.

Despite these steps, Defence Minister Boris Pistorius announced the cancellation of the programme, citing an increase in projected costs from an estimated €10 billion in 2020 to roughly €18 billion, including €2.3 billion already spent. The ministry instead opted to purchase eight smaller, less expensive Meko A-200 frigates from German rival ThyssenKrupp Marine Systems (TKMS), which are expected to be delivered more quickly. Pistorius stated that the rising budget was “simply unacceptable,” a position supported by senior figures in the German navy and parliament.

The decision has sparked controversy within the defence sector. While German officials maintain that no contractual obligations were broken—emphasizing that Rheinmetall never signed a binding contract—the company and those involved in the programme prior to the cancellation have disputed this, asserting that Rheinmetall was explicitly encouraged to undertake due diligence to assume the lead role. Only a week before the cancellation, top officials from the defence ministry met with Tim Wagner, head of Rheinmetall’s naval division, without indicating any doubts about the project's future.

Following the announcement, Rheinmetall’s shares fell by nearly 20 percent. Industry observers characterized the decision as a significant setback for the company and a blow to Papperger’s leadership, which had already faced criticism after disappointing first-quarter results early in the year. Analysts pointed to an overestimation of Rheinmetall’s leverage with the government and overly optimistic assumptions about profitability and synergy opportunities in the naval sector.

Despite the setback, German officials acknowledged Rheinmetall’s ongoing importance to the country’s defence industry and indicated that it would continue to play a key role as a "national champion." Defence Minister Pistorius noted that TKMS’s CEO, Oliver Burkhard, had expressed willingness to subcontract some work under the new Meko frigate contract to Rheinmetall's shipyards. However, some industry insiders questioned the viability of Rheinmetall’s role as a subcontractor after investing heavily to become a primary contractor.

Rheinmetall reaffirmed its commitment to integrating NVL into its operations, viewing the expansion into the naval sector as strategically necessary. Still, critics within the industry described the acquisition and the associated focus on the F126 project as an expensive gamble that ultimately did not pay off. The German government’s shift in naval procurement strategy reflects ongoing concerns over cost management and timely delivery amid a rapidly evolving security environment.