Rheinmetall, Leonardo CEOs say deal paves way for EU defence consolidation

ROME (Reuters) -The newly-formed joint venture between Germany's Rheinmetall and Italy's Leonardo is a first step in the consolidation of the European defence vehicle sector, the chief executives of the two groups said on Thursday.

Rheinmetall CEO Armin Papperger added that the agreement, announced on Wednesday, could capitalise on a European market worth more than 50 billion euros ($53.99 billion).

"My expectation is that, with (this) cooperation only on the vehicle side, there is a market of more than 50 bln euros, a huge market that we can conquer," Papperger said in a recorded message posted online.

"We can help Europe grow, together, and this is a very first small step on the vehicle side for consolidation on the European level," he added.

The move could accelerate the consolidation of defence assets across Europe, a highly political endeavour where diverging national interests have so far proven somewhat of a hurdle.

However, Russia's war with Ukraine has raised hopes for more concerted efforts, with Germany currently considering teaming up with private equity firm Carlyle to jointly acquire a majority in Thyssenkrupp's submarines and frigates division.

Last week, France agreed to buy the ASN submarine networks business from Nokia in the latest sign of a European government wanting to get a tighter grip on defence activities.

The alliance between Rheinmetall and Leonardo, which followed the breakdown of talks between Leonardo and Franco-German company KNDS, is in line with the two groups' broader objective of creating pan-European consortia to develop new combat systems.

The two companies said on Wednesday the deal aims to produce tanks and other land defence systems.

"The target is to create a machine that is cutting-edge for the future. A machine that is cross-domain and interoperable, talking, in the future, to satellites, helicopters and aircraft," Leonardo CEO Roberto Cingolani said.

($1 = 0.9261 euros)

(Reporting by Giulia Segreti and Matthias Inverardi; Additional reporting by Christoph Steitz; editing by Gavin Jones and Paul Simao)