Rheinmetall’s €73 Billion Backlog Meets a Wall of Worries as Berlin Air Show Opens

Rheinmetall unveils AI drones, spy satellites, and hypersonic defenses at ILA Berlin, but stock drops 25% YTD as KNDS IPO threatens land-systems dominance.

Rheinmetall enters the ILA Berlin this week with its most ambitious product lineup in decades — autonomous drones, all-weather spy satellites, and a mobile air-defence system that can zap hypersonic missiles. The stage is set for a showcase of European defence sovereignty. Yet the stock, at roughly €1,202, has shed nearly a quarter of its value since the start of the year and sits 40% below the record high struck last September. The message from the trading floor is clear: potential does not equal profit.

The company’s transformation into a pure-play defence contractor is complete. Now the real test begins, and it comes from three corners at once. A state-backed rival is gearing up for an IPO that could directly undercut Rheinmetall’s core land-systems business. The first-quarter numbers disappointed analysts. And geopolitical winds are shifting in a direction that historically weakens defence stocks.

A Showcase Built for the Order Book

On 840 square metres of the Defence Park, Rheinmetall is displaying four projects that could define its next growth phase. The most headline-grabbing is the MQ-28 Ghost Bat, a collaborative combat drone powered by artificial intelligence. Under a system-leadership role, Rheinmetall will adapt Boeing’s platform for the Bundeswehr, which expects first deliveries by 2029. Maintenance and logistics fall to the German firm as well.

Space is another frontier. Through its ICEYE Space Solutions joint venture, Rheinmetall is assembling a German satellite constellation that uses synthetic-aperture radar to see through clouds and darkness. The unit recently secured a billion-euro order for reconnaissance services. On the battlefield, the FV-014 loitering munition combines surveillance and strike with a 100-kilometre range and 70 minutes of endurance. The Skyranger 30 — a mobile anti-aircraft system mounted on a Boxer armoured vehicle — has already drawn orders from several EU states and is being shown with MBDA missiles capable of countering hypersonic threats.

Meanwhile, production of F-35 centre fuselage sections continues in Weeze. The eighth section is already on the line, and Rheinmetall will deliver 400 of these components to Northrop Grumman.

The KNDS Shadow

Just as Rheinmetall tries to impress potential clients, a formidable new competitor is taking shape. The German and French governments plan to float the Leopard 2 maker KNDS on the stock exchange this summer. The company is valued at up to €20 billion, and Berlin and Paris will retain significant stakes. A state-anchored rival with a deep product catalogue directly threatens Rheinmetall’s land-systems franchise — the very business that made it a defence heavyweight.

Rheinmetall is also looking to expand beyond its traditional footprint. It has submitted a non-binding offer for the Kiel-based shipyard German Naval Yards, a builder of frigates. A due-diligence review is under way, though rival TKMS has also signalled interest, setting up a potential bidding contest.

Revenue Miss and a Cash Drain

Operationally, the first quarter was a letdown. Sales reached only €1.94 billion, missing analyst expectations by 15%. Heavy investment pushed free cash flow deeply into negative territory. The company is pressing ahead with the sale of its legacy Power Systems automotive division to Aequita, a deal valued at roughly €350 million, which should close by the end of the year.

Still, the order book offers a buffer. The backlog climbed to €73 billion — five times the planned annual revenue. Management is holding its full-year guidance, betting that this record pipeline will eventually translate into earnings.

Politics and the Calendar

External factors are turning more cautious. Signs of progress in US-Ukraine peace negotiations have put pressure on defence stocks, eroding the “escalation premium” that had lifted Rheinmetall shares in earlier months. The next sector catalyst will come in early July, when NATO holds a summit in Ankara. But the real reckoning arrives on 6 August, when half-year results are due. By then, the market will demand evidence that a €73 billion backlog is converting into cash flow, not just headlines.

For now, all eyes are on the ILA. Chancellor Merz is scheduled to open the fair, and several ministries have sent delegations. Every handshake in front of the Skyranger 30 will be scored by investors as a potential contract. The fair closes on 14 June — and by then, Rheinmetall needs to show that its promises are turning into binding orders, not just more letters of intent.