Volkswagen finds defence future for German plant amid major overhaul

OSNABRUECK, Germany, Sept 7 (Reuters) - Israel's Aurelius Capital and Volkswagen's home state of Lower Saxony plan to take over the German automaker's Osnabrueck plant and convert it to defence production, in a move labour officials said could preserve about 1,400 of the site's 1,800 jobs.

The deal offers a potential blueprint for other Volkswagen sites facing an uncertain future as Europe's largest carmaker embarks on its biggest ever restructuring. Volkswagen has warned that up to four German plants could face closure or repurposing unless alternative uses can be found amid weak demand, high costs and growing competition from China.

Israel-based Aurelius Capital and Lower Saxony, Volkswagen's second-largest shareholder, signed a statement of intent on Monday to take over the factory, where vehicle production is due to end in 2027.

The agreement comes days after Volkswagen unveiled a major revamp to cut jobs and simplify its structure, highlighting how rising defence spending in Europe could help absorb excess manufacturing capacity in the automotive sector.

Defence production is increasingly being seen as a solution for underused automotive plants, with companies including Rheinmetall and Continental pursuing similar initiatives.

Under the proposal, Aurelius would take a majority stake in the site alongside Lower Saxony.

"Osnabrueck brings with it something that cannot be built from scratch: many years of experience with demanding products, precise manufacturing processes and high-quality, well-coordinated teams and a strong tradition," Aurelius Capital's Tomer Jacob said.

The investor lists cybersecurity, drone technology and satellite systems among its focus areas.

The deal would secure around 1,400 of the plant's 1,800 jobs, Volkswagen's works council said in a separate statement.

No further details were disclosed and the plans are yet to be finalised.

Volkswagen said an initial "anchor project" for Osnabrueck would be a cooperation with Israel's Rafael Advanced Defense Systems, one of the key partners behind Israel's Iron Dome, Arrow and David's Sling air and missile defence systems, confirming what sources told Reuters in May.

"These plans involve the potential manufacture of systems and components for air defence systems for Germany and Europe," Volkswagen said, adding the cooperation could pave the way for further such deals.

(Reporting by Christoph Steitz in Frankfurt and Christina Amann in Osnabrueck. Editing by Friederike Heine and Mark Potter)