Canada taps Germany's TKMS for submarines ahead of NATO summit

By Maria Cheng

OTTAWA, July 6 (Reuters) - Canada said on Monday it has selected Germany's TKMS to build up to 12 submarines for its navy, deepening defense ties with Europe ahead of a NATO leaders’ summit centered on higher military spending.

TKMS, majority-owned by German conglomerate Thyssenkrupp, beat out a competing offer from South Korea's Hanwha Ocean 042660.KS.

"This procurement will be the largest in Canadian history," Prime Minister Mark Carney told a news conference in the Atlantic port of Halifax. He did not give the cost of the purchase.

"In a more dangerous and divided world, Canada must do more to defend ourselves, secure our sovereignty, and support our allies," he said.

Carney, speaking just before flying to a NATO summit in Turkey, said Ottawa would now enter talks with TKMS.

Canada is under pressure from the United States to increase defense spending and has said it hit NATO's ​military spending target of 2% of GDP earlier than originally planned. NATO leaders have agreed to spend ​5% of GDP on defense and security-related investments by 2035. Canada has the world's largest coastline and currently has only one functioning submarine.

"This was a difficult, close decision between two highly qualified suppliers," Carney said.

TKMS was ​offering its 212CD class submarine model, which it is also supplying to Norway's navy ​under a joint development program.

Shares in TKMS earlier rose as much as 12.9%, hitting their highest level in nearly four months.

Carney had previously said that ⁠submarines proposed by Germany and by Hanwha Ocean would both meet the needs of the Canadian navy and that the winner of the bid would likely depend on the economic benefits offered.

TKMS has offered to reallocate boats from the German and Norwegian orders, allowing for early delivery of the first four submarines by 2034, compared with the previously promised 2036, Carney said. He added that Canada would receive tens of billions of dollars in investment from TKMS.

"The TKMS platform is optimized for Arctic waters and fully NATO interoperable, allowing it to communicate seamlessly, share intelligence, and carry out joint missions," he said.

Hanwha Ocean said in a statement it did its utmost to win but was "unable to overcome the barrier posed by NATO alliances." Carney said the decision to go with Germany did not mean Asia was less of a priority for his government, which has sought to increase trade and ​business ties with Asia. 

TKMS said it hopes the 212CD, with its diamond shape, 74 meters (243 ​feet) in length and non-magnetic ⁠steel, will become the new NATO standard.

"This is a major strategic initiative that will bring Canada, Germany and Norway together for decades to come," German Chancellor Friedrich Merz said. 

TKMS CEO Oliver Burkhard told journalists the bid had received strong support from the German and Norwegian governments. He added that the order, the single biggest in the company's history, would increase its order backlog by more than 50% once a firm contract was concluded.

He said the conclusion was targeted for the end of 2026, while Carney said it would come no later than the end of 2027.

(Reporting by Caroline Stauffer, Katharine Jackson, Rachel More, Friederike Heine, Christoph Steitz and David Ljunggren; Editing by Howard Goller, Nick Zieminski and Edmund Klamann)