TKMS Fires Back at Frigate Cost Estimates as Berlin Weighs a Course Correction on Naval Procurement

TKMS challenges reported €40B F127 cost, sees MEKO A-200 order; shares dip 1.8% but remain up 36% YTD.

The German shipbuilder TKMS finds itself at the center of a high-stakes procurement drama, publicly disputing a reported cost explosion for the navy's next-generation frigate program even as it stands to benefit from a rival project being scrapped. The Kiel-based company said on Friday it could not confirm a Spiegel report suggesting the cost of eight F127 frigates had ballooned from an original €26 billion to more than €40 billion — a figure that would put each vessel at over €5 billion.

TKMS insists the circulating sum does not reflect the actual cost components for the shipbuilding itself. Together with Rheinmetall, the company says it is working on a design that precisely matches Bundeswehr requirements, with delivery of the first vessel possible by 2034 if the order is placed promptly. The main cost driver, according to the report, is the US-made Aegis combat system: eight Aegis sets would account for $11.9 billion, with an additional $3.5 billion for SM-6 and SM-2 guided missiles. Germany would become the first international user of the SPY-6(V1) radar.

A Pivot to MEKO A-200s

The F127 debate comes as the Bundeswehr appears to be changing tack on its naval shopping list. The parallel F126 program has been halted, with four MEKO A-200 frigates now slated for procurement at a unit price of €1.6 billion — a signal that the navy is willing to redirect programs when costs spiral. For TKMS, the MEKO A-200 order would represent another addition to an already bulging order book, which stood at over €25 billion for the first nine months of fiscal 2025/26. Because the frigate program emerged after the balance sheet date, it is not yet fully reflected in that figure.

The potential contract slots into a broader pipeline of business development. TKMS is reportedly on the verge of closing a major submarine deal with Canada, while negotiations over a further submarine order with Greece remain at the rumor stage without confirmed status. The company also secured an order for twelve submarines as recently as July. This diversification across multiple naval nations reduces reliance on any single contract, and the current shipbuilding boom in northern Germany — which has driven significant employment growth at the yards — supports the group's ability to work through its growing order mountain.

Market Reaction and Share Price Dynamics

Investors are wrestling with a mixed picture. Higher program costs could translate into larger revenues for TKMS, but they also raise the risk of political delays or cutbacks. The stock closed Friday at €89.70, down 1.8 percent on the day following Thursday's close of €91.30. That puts the weekly decline at 3.4 percent, though the shares remain up 36 percent since the start of the year. The price sits roughly 18 percent below the 52-week high of €108.80 reached on August 14 — a gap reflecting the recent consolidation after a powerful rally from the November low of €56.75.

The F127 cost discussion has weighed on sentiment in the short term without undermining the longer-term uptrend. The company's quarterly results, released about two weeks ago, showed 19 percent revenue growth to €1.89 billion and earnings per share of €0.39, but the shares initially fell on the figures and have traded 6.5 percent lower since. By contrast, the memorandum of understanding signed with Navantia about a month ago triggered a 9.9 percent share price surge.

Structural Backdrop Remains Supportive

Naval chief Jan Christian Kaack has warned of growing Russian presence in the Baltic Sea and shortened warning times — a factor that underpins the fundamental pressure to procure. The six largest German defense companies, including TKMS alongside Rheinmetall, KNDS, Hensoldt, Airbus Defence and Space, and Diehl, grew their combined revenue by an average of 17 percent last fiscal year to €35 billion. At the same time, startups such as Helsing and Quantum Systems are pushing into the market with AI-driven drones, challenging the established players.

Following its IPO in October 2025, Thyssenkrupp retains a 51 percent majority stake in TKMS, consistent with the group's "ACES 2030" strategy. The naval division's operational strength is considered a key value driver for the parent company: JPMorgan raised its price target for Thyssenkrupp from €12.80 to €15.00 about a week ago, maintaining a "Neutral" rating and explicitly citing TKMS's operational performance. CEO Oliver Burkhard has already significantly raised guidance for the current fiscal year, projecting cumulative free cash flow of over €400 million through 2027/28.

Mwb Research reaffirmed its "Buy" rating on TKMS just over a week ago, pointing to long-term visibility from the substantial order backlog. For investors, attention now turns to the defense ministry's concrete decision on the frigate program — a green light would extend the pipeline further and cement TKMS's position as the Bundeswehr's preferred partner, even as the cost debate continues to simmer.