Is IRIS² heading for a rethink?

SNEAK PEEK

— The EU’s IRIS² satellite communications network project is increasingly troubled.

— NATO seeks to make procuring arms faster, the alliance’s procurement agency boss Stacy Cummings told me.

— The U.K. and Germany team up on defense as fears grow that U.S. presidential contender Donald Trump will ditch Ukraine if he wins in November.

Good morning, and welcome to Morning Defense. The first Hungarian-made Lynx KF-41 infantry fighting vehicle has come off a Rheinmetall production line.

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DRIVING THE DAY

IRIS² DEAD ON ARRIVAL? The consortium aiming to build and operate the EU’s troubled IRIS² satellite communications network has until Sept. 2 to get its act together, two officials briefed on the program told Josh.

This isn’t the first deadline for the military-grade constellation, but with Airbus and Thales Alenia Space exiting the SpaceRise consortium in recent days for an easier ride as contractors, this one is pretty significant.

Big picture: With costs spiraling and the European Commission and industry at odds over expectations for the network (which is intended as a local alternative to Elon Musk’s Starlink), there is no longer any guarantee that IRIS² will move forward in its current shape.

Costs up: The consortium’s latest offer for the program is €11.4 billion, the officials told Josh, adding that SpaceRise had found around €4.4 billion in private funding to cover part of that figure. Much is from the satellite operators involved.

Black hole: The EU is chipping in €2.4 billion, with the European Space Agency expected to add around €600 million from its own coffers. That still leaves around €4 billion to be covered, if in fact that total proves sufficient to complete IRIS².

Budget crunch: Get ready for a row over the EU’s next seven-year budget. Last time around, EU countries weren’t willing to contribute the billions needed to get a program such as IRIS² off the ground. But Internal Market Commissioner Thierry Breton managed to scrape together the €2.4 billion required to start things off from various pots of EU cash.

Capitals may well be asked to pay to complete the constellation once things are up and running after 2027, which sets up a major drama. In an earlier letter calling on the Commission to put the “exorbitant” IRIS² on ice, Germany’s Vice Chancellor Robert Habeck predicted that the shortfall might complicate EU budget talks.

More deadlines: The final offer (we’ve been here before) must be in by Sept. 2; the tender evaluation board will then scrutinize the plan by Sept. 25. That could allow contracts for IRIS² to be sealed in early October if — and it’s a big if — the SpaceRise team can work it out.

Worst-case scenario: After so many switch-ups and missed deadlines, if a deal can’t be reached by September, the idea of building and operating IRIS² as a public-private partnership under a 12-year concession will likely have to be changed, one official said.

AGENDA

FARNBOROUGH: The air show continues today.

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NATO

MAKING PROCUREMENT FASTER: Arms procurement agencies across Europe are looking for ways to develop and buy weapons faster — and NATO is no exception.

“We have put in place processes specifically to speed up when we have urgent requirements,” Stacy Cummings, general manager of NATO’s Support and Procurement Agency (NSPA), told me in an interview.

“When we look at the processes that served us well while executing €3 billion in contracts, and the ones we need as we’re executing €10 billion in contracts, we have to always be looking at how to make them more efficient and faster.”

New rules: “One of the updates to our regulation allows us to competitively award prototypes, then use that competitive process and the prototype process to move us into production contracts,” Cummings said. The new rule will allow NSPA to better support the development of new capabilities and the onboarding of commercial dual-use technologies into defense, she added.

Price hikes: Prices have risen since the Ukraine war started, the top NATO official said: “We can certainly see that there are areas of the market where the entire supply chain is challenged, and that is going to bring higher prices. We’ve certainly seen the results of inflationary pressure in the work that we do.”

EDA, OCCAR and NSPA: Cummings said she’s working closely with the European Defence Agency (EDA) and the Organisation for Joint Armament Cooperation (OCCAR) to ensure “we’re not at risk of creating duplication or competition.”

It would make sense for EDA to take a leadership role in consolidating requirements across Europe, and for OCCAR and NSPA “to help support that in the execution phase,” she added.

NSPA’s strong suit, Cummings told me, is that it can work with countries throughout the equipment’s life cycle: “When nations decide to work together multinational[ly] to acquire or procure capability with NSPA, they can also decide to work together to sustain and support that capability.”

NATO’S MANY GAPS: NATO countries in Europe lack air defense systems, long-range missiles, troops, ammunition, the means to communicate securely digitally, and logistics infrastructure, according to a Reuters investigation.

DEFENSE COOPERATION

LONDON, BERLIN TEAM UP:  Europe’s two largest donors of military aid to Ukraine — Germany and Britain — are buddying up in a defense pact as fears grow that a victory for Donald Trump in November’s U.S. presidential election could spell disaster for European security.

More from Josh and Nette here.

Hotline: U.K. Defense Minister John Healey and his German counterpart Boris Pistorius have set up a chat to talk privately, they said in Berlin.

EUROPE’S AIR FORCES FLY TO JAPAN: Germany, France and Italy will take part in joint exercises with Tokyo this summer as threats from Moscow and Beijing grow, Stuart reports.

EDIP

STRICTER ELIGIBILITY FOR EDIP: Regarding the European Defence Industry Programme (EDIP), the Commission wants stricter criteria to decide which companies can benefit from EU money, Timo Pesonen, director-general for Defence Industry and Space, told lawmakers on the Committee on Industry, Research and Energy (ITRE) Wednesday.

‘Flexible’ EDIRPA and ASAP: For the European Defence Industry Reinforcement through common Procurement Act (EDIRPA) and the Act in Support of Ammunition Production (ASAP), the starting point for eligibility was to “stick” to the European Defence Fund blueprint, described by Pesonen as a “very carefully balanced regulation” that allowed firms from third countries to benefit from EDF money, as long as they are located in the EU and fulfill certain security guarantees.  

“We have agreed together with co-legislators on flexibility on EDIRPA and ASAP under the urgency of the situation,” he added.

‘Rigorous’ EDIP: “With EDIP we want to be more, let’s say rigorous,” Pesonen told MEPs. Brussels wants to “draw the line”: EU countries can buy whatever they want with their own money, but “when there is European taxpayers money involved, it should be targeted to European industry.” 

Innovation office in the fall: The EU’s innovation office in Kyiv — advertised in March when EDIP was first presented — will arrive “in early autumn, we will have an office together with an External Action Service [branch],” Pesonen said, referring to the EU’s diplomatic service. 

Filling gaps: The Commission official said the EU executive branch is working to address the gaps left by 20 years of low investment: “What we are doing [is] an analytical work to identify these gaps and then to present [the outcome] to the political leaders” in October.

No quibbling: Marie-Agnes Strack-Zimmermann, the newly-elected chair of the Security and Defence Subcommittee (SEDE), was at the hearing and provided an account of squabbling over competences between SEDE and ITRE.

“From September [SEDE] is to be transformed into a full committee” she began — although other lawmakers say the issue remains to be decided. She then argued that, given the situation in Ukraine, “we shouldn’t be quibbling,” complaining that “we didn’t have a joint committee meeting prior to this meeting.” It would have “sent out a very clear signal,” she stressed.  

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INDUSTRY

PLANS FOR HANWHA FACTORY IN ROMANIA ADVANCE: Hanwha Aerospace and Romania will sign an offset contract in the coming months that will see the South Korean company build a factory from scratch in the country, according to DefenseRomania. We previously reported that Hanwha Aerospace wanted to turn Romania into a weapons production hub for Europe, the Middle East and Africa. Romania recently purchased 54 K9 howitzers and 36 K10 refueling vehicles from the Asian contractor.

RHEINMETALL IN UKRAINE: The German company has announced plans for a plant inside Ukraine, and on Wednesday said a contract had been signed with the government “with a total value in the low three-digit million euro range.” Production should start in 24 months.

LOCKHEED MARTIN LOOPS SPAIN INTO SUPPLY CHAIN: The U.S. defense giant — which has a long history of working with Spanish companies — is integrating Indra, Escribano Mechanical and Engineering and ICM into the supply chain for SPY-7 radar systems, namely for F-100-class frigates.

UK SIGNS MISSILE CONTRACT WITH THALES: The U.K. defense ministry is buying Martlet missiles from Thales UK to replace those donated to Ukraine, Defense News reported.

AIRBUS LAUNCHES MRTT+ PROGRAM: The European company has launched a second-generation A330 Multi-Role Tanker Transport program that will consume less fuel and have an extended range, according to Breaking Defense.

SAAB’S SECRET ORDER: The Swedish military contractor has received an order for defense systems and equipment worth 6.6 billion Swedish krona (about €564 million) from an unnamed Western country.

CZECH REPUBLIC LOOKS FOR ANTI-TANK MINES: The Czech defense ministry has published a call for bids for land mines. The deadline is Aug. 27.

DEFENSE SPENDING

FRENCH BANKS INVEST IN DEFENSE: France’s Crédit Agricole and BNP Paribas have invested in Eiréné, a Weinberg Capital fund dedicated to the defense industry, according to Les Echos. That’s a shift for the French banking sector, which has long been reluctant to put money into the defense sector, dismaying French Armed Forces Minister Sébastien Lecornu.

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