Germany cancels F126, Rheinmetall shares plunge

On June 24 the German Defence Ministry announced it was cancelling the multi-billion-euro F126 frigate programme. Rheinmetall had been positioned to serve as prime contractor; the decision sent the company’s shares sharply lower and erased more than half of its year-to-date gains, leaving the stock over 50% below its year-to-date high.

The ministry cited severe software delays, persistent friction among contractors and projected cost overruns that could have pushed the final bill past €18 billion. Officials said these issues had undermined schedule and budget confidence for what had been planned as the German Navy’s largest postwar naval procurement.

Rheinmetall had targeted the F126 award for completion in the second quarter and expected at least €12 billion in order intake from the programme. The company completed a €1.5 billion acquisition of the Naval Vessels Lürssen shipyard to support execution of the contract; analysts at Morgan Stanley estimate roughly €2 billion of write-downs tied to the halted programme and related assets.

On 24 June Rheinmetall recorded one of its largest single-day share drops. The market reaction also weighed on other defence suppliers, with companies such as Hensoldt, Renk and Saab trading lower as investors reassessed future government spending allocations.

The German government simultaneously announced it will buy eight smaller Meko A-200 frigates from ThyssenKrupp Marine Systems. The purchase price for the first four vessels is about €6.3 billion, with an option for four additional ships at roughly €5.3 billion. TKMS shares rose as much as 14% on the announcement.

The shift reallocates the near-term naval workstream to TKMS and affects shipbuilding capacity and supplier contracts that had been planned around the F126 programme. Companies that had prepared workforce, facilities and capital for the F126 face the task of redeploying those resources.

Investors have been rotating capital within the European defence sector toward firms focused on drones and air-defence systems. Separately, KNDS announced plans for a dual listing in Frankfurt and Paris, providing another destination for defence-sector capital.

Analysts say the cancellation will have direct financial impacts through lost contract revenue and asset write-downs, and will require operational adjustments at Rheinmetall. Several sell-side analysts continue to maintain positive ratings on the company and expect a potential recovery by late 2026 based on its diversified automotive, land-systems and munitions businesses.

The F126 programme had been conceived as a series of larger “super-frigates” for the German fleet. Officials pointed to difficulties integrating complex software and disagreements between contractors as the factors behind schedule slips and rising costs; the government opted for smaller Meko-class ships to pursue a faster, lower-cost procurement path while maintaining naval capacity.