Russia’s invasion of Ukraine has had deep geopolitical impacts. It has significantly changed the context of HENSOLDT’s activities in the defence sector. The focus is now on the German Zeitenwende, or turning point; the strengthening of the European Union as a provider of security, and the revitalization of NATO.
HENSOLDT’s CEO, Thomas Müller, on the new conflict order, the changed role of the defence industry, and why HENSOLDT is prepared to take on responsibility.
Mr. Müller, what consequences does Russia’s war against Ukraine have for the global security order? How do you assess the current geopolitical situation?
The Russian war clearly represents a turning point. It has fundamental and long-term implications for the global security architecture, as Russia has unequivocally posed systemic questions. More acute than ever is the question of what rules will govern the way states deal with each other in the future – the law of the strongest or the strength of the law. This is the core of the systemic competition that we are seeing more and more clearly between liberal democracies, on the one hand, and authoritarian and dictatorial regimes, on the other. China’s aspiration to become a superpower, in particular, is significantly destabilizing the global order. Thus, I share the assessment of many experts that we are heading for the foreseeable future toward a persistent, diffuse conflict order in which there is no real peace even when the weapons are silent. For the foreseeable future, therefore, we will have to be more vigilant than ever before.
Where are the biggest hot spots outside Ukraine at the moment?
Of course, the world is looking first and foremost to Taiwan and the South China Sea. Even if the fears of an immediate escalation have not materialized, this does not change the fact that China is pursuing its interests in the very long term, and the relationship with China is the central geopolitical power issue. In addition, we are experiencing very immediate, tangible knock-on effects of the war against Ukraine when perceived Russian weakness causes conflicts to flare up in former spheres of influence, such as in Kazakhstan or between Kyrgyzstan and Tajikistan. Or when states with a strong energy policy, such as Azerbaijan, exploit their new power of influence to exert pressure. But war also holds enormous conflict potential for our Western democracies right on our doorstep, if the energy crisis, inflation and thus the question of future living standards further fuel dissatisfaction with democratic institutions and possibly bring extremist parties all the way into government. The level of instability we are currently dealing with globally is enormous. And we’re not even talking about the many asymmetric conflicts that have arisen in recent years, especially in Africa and the Middle East, and which of course won’t end just because new, larger crises are in the public spotlight.
What are the military and technological lessons from the war against Ukraine?
This brutal assault is often described as a renaissance of conventional war. But that’s only half the truth. In fact, classic methods of warfare that were thought to be outdated are being used in Ukraine. Above all, however, the enormous importance of digitalized weapons systems, data-driven information superiority, and electronic warfare is becoming apparent. For with these modern technologies, Ukraine can successfully defend itself against a purely numerically superior opponent. On the other hand, attacks on critical civilian infrastructure and societal trust are also increasingly taking place in the digital space – through cyberattacks and disinformation campaigns.
How should the West respond to the new geopolitical reality in the future?
Unity and determination remain the order of the day. How closely the Western community of nations has stood together since February 24, 2022, has surprised many. We must continue to do so even as the price of war becomes ever more palpable to ourselves – as hard as that is. Russia is waging a war of aggression with a nuclear threat and must not be allowed to succeed. This is another reason why supporting Ukraine is in our very own interest and means a great responsibility for Germany and Europe. We at HENSOLDT contribute with our high-performance radars for the air defence and artillery detection of Ukraine. A second central aspect, especially for us in Europe, is to achieve further progress in cooperation in the defence sector, on a political and industrial level. After all, with the war, security has once again become a central task of the state. We can only do justice to this task by standing shoulder to shoulder as a strong Europe. And third, we must think of defence and security in a more comprehensive way than we were used to in the past. Today, we are talking about overall resilience, from military defence to the question of how robust the digital checkout system in the supermarket is. Our resilience as an economy is about putting supply chains to the test. Finally, Russia’s war has also put an end to hopes that economic dependencies could prevent conflict. Today, we see how China is becoming increasingly isolated. This makes it all the more important for us as Europe to work on our technological sovereignty, especially in the digital sphere.
What does this triad mean for German foreign and defence policy?
It is essential that what our partners already take for granted becomes more and more accepted here in Germany: namely, the realization that Germany has a natural leadership role in Europe – if only because of our geographic location, population size, and economic strength. We must accept this role and actively assume it as an anchor of stability that assumes responsibility in Europe. In doing so, we should use our weight above all as a unifying actor for common positions in the EU, also with the US. We should be honest with ourselves and learn from past mistakes when it comes to dealing with authoritarian states and our own defence capabilities. We can no longer afford to close our eyes to reality.
As CEO of a leading technology company, how are you experiencing the Zeitenwende in security policy? What is your interim conclusion after one year?
The special fund for the Bundeswehr is an important step toward filling critical gaps and creating planning security, especially for major innovation projects. We should not play this down either. At the same time, of course, words must be followed by deeds: A sustainable increase in the defence budget is needed to develop the Bundeswehr into an army fit for the future. Otherwise, the special fund will quickly fizzle out. In terms of implementation, the Zeitenwende means a joint show of strength, because credible military deterrence is based on three pillars: political will, well-equipped armed forces, and an efficient defence industry. As a technology leader and strategic partner of the German government, HENSOLDT is excellently prepared to make its contribution. We have grown massively in recent years, expanded our team and international production network, and can now provide decisive support. It is important to me that the epoch shift strengthens the capability development and industrial base in Germany and Europe. We must work with policymakers to ensure this happens, because competitors from other regions have naturally also rediscovered Europe as a market.
What are the prerequisites for this feat of strength to lead to a lasting Zeitenwende?
We should be clear that ultimately Germany’s credibility and our partners’ trust in us are at stake. And let’s be clear: We as an industry are also rightly measured by the success of the special fund. At the same time, it is well known that the procurement processes for the Bundeswehr must be simplified and accelerated. We saw what is possible here with the delivery of our German air defence system to Ukraine, when politics and industry were able to report completion at record speed. We also need much more innovation-friendly processes. Up to now, many tenders for the cyber sector, for example, have included unnecessarily narrow technological specifications from the political side instead of specifying the goal and giving technological pioneering spirit free rein. So a lot can already be achieved through processes and structures. But one point is crucial for me: The Zeitenwende can only succeed in the long term if it is supported by broad social acceptance. In addition to the shift, we also need a change of mentality for defence. We must finally engage in an honest debate about what we expect of the Bundeswehr and what price we as a society are prepared to pay for it. We owe this to the people who risk their lives for us. But we have not yet reached that point. We are discussing tank deliveries to Ukraine very intensively, but we have so far avoided a real understanding of the role of our own armed forces.
And what does industry have to contribute to a successful Zeitenwende?
It is also up to us whether this debate takes place in society. In the past, we have been too reluctant to explain our contribution to security and the protection of democracy and freedom. We are changing that – for example, with a social media campaign in which our employees regularly have their say and talk about why their work makes the difference for a safer tomorrow. And of course, as a reliable partner, the defence industry must deliver reliably. At HENSOLDT, we have proven that we can manage demanding large-scale projects in a disciplined manner and deliver them on time, within budget, and to the agreed quality standard. This strong focus on implementation is also related to our history and positioning. On the way to HENSOLDT’s independence, the cooperation with KKR as a financial investor has greatly driven our entrepreneurial development professionally. Today, the combination of the German government’s holdings and entrepreneurial investors is a model for success.
How do you view the first National Security Strategy with the expectation of a new, responsible role for Germany in the world?
There is no doubt that it is important to define a long-term strategy beyond the immediate reactions to the Ukraine war. The fact that this is being done in this form for the first time speaks for itself and documents the new status of security and defence in German politics. Whether it will lead us as a society to seriously address these fundamental issues remains to be seen. The preceding white papers have also addressed many correct and important aspects, but have remained largely inconsequential in this respect.
NATO has already formulated its new strategy in the summer of 2022: Is NATO back in Cold War mode?
This look in the rearview mirror fails to recognize the scope of today’s challenges. While alliance defence is once again NATO’s primary purpose, crisis management through out-of-area operations continues to gain relevance. After all, the systemic conflict between the West and China and Russia is being fought globally and is also taking place beyond the alliance’s borders. It is not for nothing that the new strategic concept describes a fundamental realignment and transformation of NATO. In addition to increasingly crucial cyber resilience, the focus is on defending the technological edge in seven disruptive technologies – from quantum computing to hypersonic threats to space-based warfare. The impact of climate change on security preparedness and vice versa are now also among NATO’s core tasks. It is back to full strength, and only as strong as its member states make it. The planned accession of Sweden and Finland is also historic because it strengthens both sides.
What kind of a role is there still for Europe as a security policy player?
I see no conflict of goals here – on the contrary: The Strategic Concept envisages a strong European pillar in NATO. And I am convinced that transatlantic cooperation will only function in a stable way if Europe is not perceived in the US as a freeloader in terms of security policy. The EU must take its security more into its own hands. The US will foreseeably focus more on the Indo-Pacific region, and no one knows what the US presidential election in 2024 will mean. For this reason, too, strategic autonomy must not remain a declaration of intent for us. And Europe is moving in the right direction: The EU reacted quickly to Russian aggression, launched strong sanctions, and provided military support to Ukraine. With the Strategic Compass, since March 2022 we have had for the first time a basic security policy document that has been adopted by all EU states and contains a common vision and clear goals. This is a major step toward greater commitment and capacity to act. This momentum for a European security architecture must be used now! Politically, the Franco-German partnership must remain the strong driving force. And we must also implement the European idea at the technological level – through coordinated procurement and development, but also through harmonized export control regulations.
Isn’t the ability to act quickly more important today than European cooperation?
We must achieve both goals and not play them off against each other. The ability to act quickly follows directly from European cooperation. It would be extremely short-sighted if the current pressure to act were to lead to a relapse into national egoism. Today, more than ever before, it is true that no EU state is in a position to maintain all capabilities for the multiple challenges and scenarios. We can only achieve technological sovereignty and interoperability by working together, not by each acting on its own and buying off the shelf outside Europe. European cooperation also gives us the strength to get the best results from the capabilities of all partners in our key national technologies. And, of course, it’s also about preventing waste of money. In times of great economic stress, we cannot afford to make less than ten percent of our investment in armaments jointly at European level.
How can closer European cooperation in the defence sector succeed?
Here, too, the Strategic Compass gives me cause for optimism. In the past year, we have seen a number of other developments that point in the right direction such as the Joint Defence Procurement Task Force as an EU initiative or multilateral cooperation programmes such as the “European Sky Shield” initiated by Germany for joint air defence. These are all important steps that we should support – for example, by further strengthening European procurement structures. I am also very pleased that the interim blockades on FCAS, the central system for the air superiority of the future, have now been cleared. This project stands like no other for the ambition of future-oriented European defence! At HENSOLDT, we have always been committed to actively shaping European cooperation. We are currently intensifying our cooperation with our anchor shareholder LEONARDO from Italy and also see this alliance as a possible nucleus of a broader European partnership.
HENSOLDT has set itself the goal of becoming the largest platform-independent provider of sensor solutions in Europe. Where do you stand on this path?
We are also keeping our word on the realization of our strategy and implementing what we announced to our shareholders. Three years after our IPO, we can now say: We have kept all our promises and achieved some of our goals much faster than planned. In terms of sales, we grew twice as fast as the overall defence electronics market, more than doubled our order backlog, and expanded our presence in key international markets. Above all, however, we have further strengthened our focus on technology and innovation and invested significantly in research and development. The fact that HENSOLDT is now moving forward powerfully as a strong company is not only good news for us. After all, we develop mission-critical components for the defence systems of the future. You can also see this in HENSOLDT’s central role in key national and European projects such as FCAS, MGCS, the Eurodrone, and PEGASUS.
What is changing for HENSOLDT as a result of the new geopolitical reality?
With the changing world situation, a new era lies ahead for the defence industry. It brings with it new expectations of us, and we are ready for them. The Zeitenwende shows that we are on the right strategic course. We will further accelerate our development into a solutions provider for end-to-end information superiority based on the plug-and-play principle. The fact that we have expanded our portfolio in key areas to achieve this has also been confirmed by the war in Ukraine: The further digitalization of sensor technology, the fusion of sensor data, data analysis, cyber security, and the progressive integration of artificial intelligence are our focal points here. However, it is just as important to me that HENSOLDT has remained a focused pure-play provider of sensor solutions and will continue to be so in the future. This is because we have created a strong, long-term growth platform. With the aim of creating the most comprehensive situation report possible, the networking of platforms is also gaining further momentum across domain boundaries. Defence electronics will thus play an even greater role in growing defence budgets.
In the public perception, war overshadows other pressing issues such as sustainability. Is the green transformation of the defence industry off the table?
That would be fatal. We must not let up on climate protection. In the defence industry, we create a basic prerequisite for sustainability with security and, conversely, must understand sustainability as an elementary component of security provision. As HENSOLDT, we are not alone in this attitude: In addition to NATO, many of our customers also focus on this dichotomy. HENSOLDT’s ambition is to set new standards in sustainability in our industry as well. We see ESG as an important factor for our business success. For example, we already ensure that our products are as compact, lightweight, and energy-saving as possible. This will increasingly become a competitive factor in the future. With our ESG strategy, we have also analyzed our own carbon footprint and defined clear interim targets to become carbon neutral by 2035 at the latest. We are achieving this with persistence and many large and small measures such as at our sites. In Kiel, we will save up to 40 tons of CO2 per year in the future by supplying electricity via photovoltaics and hydrogen. In Oberkochen, our new building for HENSOLDT Optronics will achieve a degree of self-sufficiency of more than 70 percent with an intelligent energy concept. The fact that our diverse initiatives lead to measurable results is also shown by the latest ESG rating by Sustainalytics. HENSOLDT is once again listed there as the only company in the aerospace and defence industry with a “low risk” rating, thus making it the leader. We have once again improved on our very good rating from the previous year. So you see: HENSOLDT is firmly going its way.
Modern sensors and optoelectronics are highly digitized systems, with artificial intelligence playing an increasingly important role for their performance. The result: superior situational awareness. Together with 21strategies, a provider of particularly sophisticated AI applications, HENSOLDT is already researching the next generation of artificial intelligence for defence applications, the “third wave.”
Celia Pelaz, Chief Strategy Officer and member of the HENSOLDT Management Board, and Yvonne Hofstetter, cofounder and Chief Executive Officer of 21strategies, on the potential of artificial intelligence, its limits, Europe’s digital sovereignty, and cooperative innovation in the defence sector.
Ms. Hofstetter, you develop AI for investment funds, for hedging exchange rate and commodity risks – and for military applications: How did this unusual portfolio evolve?
Yvonne Hofstetter: In all the cases mentioned, humans are exposed to a complex dynamic environment, even if decisions on the financial and commodity markets cannot be compared in their scope to those in defence. In real time, humans are challenged to make trade-offs under uncertainty, based on ambiguous information in a highly volatile environment. Next-generation AI gives them more confidence in this regard. For defence systems, this raises serious societal, legal, and ethical issues. Defence is where our roots lie, and where we have returned to by founding 21strategies. After all, we developed our early AI technologies in the military research labs of the late 1990s.
Ms. Pelaz, to what extent is AI already being used at HENSOLDT today?
Celia Pelaz: We have been dealing with technologies that are today incorporated under this term for many years – even at the time when HENSOLDT was not yet an independent company. With AI, we can no longer differentiate ourselves from the competition only by how well a sensor solution perceives a situation. Today, we are increasingly differentiating ourselves by how intelligently the sensor processes what it perceives, interprets it, analyzes it, and, amid all this, how it can build information from data.
And what does that mean in concrete terms?
Celia Pelaz: AI first helps a radar or optronics device to increase detection performance, for example, when image stability leaves something to be desired. Then AI assists in the task of correctly classifying objects – for instance, as a bird or as a drone – and tracking them accordingly. At the next level, the object data and contextual knowledge are combined via AI in such a way that tactically relevant information is generated from them, such as whether the object is an enemy platform. Here, AI is also important in what is known as multisensor data fusion – when it comes to combining and analyzing data from an increasing number of sensor sources distributed across networked platforms. This also increasingly applies to publicly available data from the Internet, so-called open-source intelligence. All of this results in a comprehensive, consistent, and up-to-date situation report. AI thus relieves the soldier, supporting them with options for action so that they can make the right decisions. And AI enables systems such as radars or jammers to learn for themselves and adapt to unknown situations. This is what we call cognitive systems.
Let’s look at the defence industry as a whole. What role will AI play in tomorrow’s security?
Celia Pelaz: A very central one. The ability to extract relevant information from data is becoming an increasingly important factor in determining whether someone is superior or inferior in a conflict. It’s a tiny needle in a huge haystack. Modern defence applications produce so much data that we very quickly reach the point of human overload. In the public debate, we often discuss AI as a potential source of error. In reality, the error rate of AI, especially in routine tasks, is lower than that of humans. AI is acting with increasingly more performance. It is therefore becoming relevant at more and more levels of weapon systems. At HENSOLDT, we recently bundled our competencies in a central AI hub to more closely integrate expertise from the various domains and projects. And we are thus facilitating collaboration with partners, because AI is also a driver for more cooperation: There are many highly interesting players with extremely specialized know‑how at times. So the potential that AI holds for our industry is enormous. All the more reason for me to call for a realistic, responsible AI debate. Some of what is being suggested out there in the market is too much hype for me instead of serious innovation.
In what way?
Celia Pelaz: Giving the impression that AI is the solution to all problems simply misses the reality. Even the momentum we see in deep learning and neural networks does not relieve us of the task of developing and funding other, innovative core technologies for the defence of security and freedom. Realistically, AI is an important lever for achieving higher levels of performance for defence systems. But the technological foundation – like the one we are laying with leading sensor and optronic solutions – remains essential.
Yvonne Hofstetter: I can only emphasize that. AI is nothing more than a toolbox of mathematical theories and information techniques. And above all, there is no one artificial intelligence: Depending on the problem you are facing, you have to select certain techniques from this toolbox and use them for the specific purpose. Machine learning, for example, is only the best solution in certain cases. For many problems, especially all those where you don’t have to estimate anything at all, direct calculations are much better suited, much more accurate, and above all comprehensible.
Celia Pelaz: And that is precisely why, as a defence solutions provider, we must also master the full range of AI, either through our own capabilities or partnerships. The basis is always our application know‑how – the deep knowledge of our customers’ mission requirements and doctrines.
HENSOLDT and “21strategies” are jointly researching third-wave AI. What is that?
Yvonne Hofstetter: The third wave of AI revolves around training the tactical behavior of machines, among other things. Instead of simply processing mass data, such as that generated by radars, a machine selects the decision from a large number of possible options in order to achieve a specific goal. Such machines are already known from somewhere else – from the gaming community. There, intelligent machines have the task of defeating humans in games like Starcraft. Battlegrounds are much more complex than the most complicated game. In our joint “GhostPlay” project, we are investigating which tactics intelligent machines develop in the battlefield and what human soldiers can learn from them. To do this, we are modeling a digital twin of the battlefield and available sensors and effectors with their physical properties. We then present these models to the tech stack and pit AI against AI. One example is so-called SEAD missions with the goal of taking out air defence systems. Here we observe, on the one hand, how AI manages the tactical interplay of the individual components of the defence system and, on the other hand, guides the sensor-effector network of the attacking swarm of unmanned systems.
Celia Pelaz: For HENSOLDT, early and open-ended engagement with such AI-based decision-making processes is a logical consequence. After all, we have long since moved beyond developing the five senses and are increasingly developing the central nervous system of defence applications. With edge computing, data-driven intelligence is moving even closer to sensors and is already often embedded in them. Using integrated systems to perceive external impressions, process them, and convert them into reactions is our core business today.
The topic of autonomy is precisely what triggers great reservations about AI among the general public.
Celia Pelaz: We must also conduct the discussion in this direction in a factual and nuanced manner. The “killer robots” often cited in the argument against AI have little to do with reality. The first question to be asked here is basically banal: Are we really talking about autonomous systems or systems remotely controlled by humans after all? Or about AI that primarily processes, fuses, and analyzes data? If we are dealing with autonomy in the narrower sense, the crucial question is that of what we call the “system of interest.” What is the intention behind the action? How does the system that I want to enhance with AI work? In which situation and in which context? Based on this, we should define what AI may and may not do. In critical applications, the principle of “human-in-the-loop” must always apply. In other words, humans remain responsible and make the final decision; AI supports them.
Yvonne Hofstetter: Just as it is not ethical per se to act as soon as people are involved, technology is not unethical per se. Values can certainly be integrated into technology. The only question is how and which values we prioritize and translate into system functions. GhostPlay takes an important step here. It is the first AI system in Germany designed for military users that follows the new standard for value-based technology 1.
What does this standard do in concrete terms?
Yvonne Hofstetter: It describes process steps and test criteria for the development of value-driven technology – without itself prescribing a specific set of values. Many legal and ethical demands have already been made on AI, for example by NATO or the EU. But how do I get from these imprecise claims to a technology that implements values? This is where the IEEE 7000TM‑2021 standard, introduced at the end of 2021 by the World Electrical Engineers Association, comes in. It is the first standard that addresses technology but calls for ethics. For the first time, engineers are called upon to follow a standard to translate values into technology. For this purpose, IEEE 7000TM‑2021 even introduces a new profession, the so-called “Value Leads.” They are trained in ethics and have to channel a “system of interest” through the standardized process, measure it against ethical criteria, and ensure appropriate technical precautions. ISO standardization has already followed suit. That’s another reason why I think it’s fundamentally important for tech companies to build up expertise in this area.
Celia Pelaz: I see this as a great opportunity for us Europeans in particular. In the energy sector, we are currently experiencing very painfully what it means to become geopolitically dependent. We must do everything we can to ensure that we do not experience a similar development in the tech sector. A central key to this is social acceptance. And we can only achieve this if we can transparently explain how we anchor our moral compass in our technologies. From a purely technological point of view, we in Europe are in a really good position in global competition in many areas, including AI. But we often encounter social reservations that inhibit innovation and lead to technologies being regulated before they have even been developed. Ultimately, the question is whether we will succeed in establishing a sovereign digital infrastructure in Europe.
What else is needed for a digitally sovereign Europe?
Yvonne Hofstetter: First of all, the political will. In this millennium, Europe has deliberately dispensed with digital sovereignty and made itself comfortable as a free rider of Silicon Valley. We let the Americans do their thing, imported their values along with the algorithms, and failed to build up or maintain our own capabilities in many areas. For example, in search engine algorithms or cloud infrastructures, I now consider it unrealistic that Europe will be able to come up to par in the foreseeable future. We need to find our gap to fill with other issues. In my view, we in Europe are strong in the development of concepts, for example. That is, in complex digital solutions that are specifically designed to meet the particular requirements and needs of a specific sector or area of application, such as defence. In this respect, we are also further ahead in our approach than many IT companies from Silicon Valley, which rely solely on knowledge gained from data and believe that experts are no longer needed.
Celia Pelaz: We must confidently and resolutely define which capabilities we in Europe absolutely want and need to master ourselves. That is the central first step. Perhaps we as Europe cannot achieve digital sovereignty everywhere, but we cannot be dependent on others in core areas. Because we don’t know exactly what we’re buying as a black box, or whether we’ll even get it tomorrow. This is precisely why we need to develop AI for our defence in Europe ourselves, for example. It is a key technology for Europe’s digital sovereignty, and we must ensure that it is in line with our values and thus finds social acceptance. This also requires implementation strength – otherwise concepts will remain just concepts in the end. We need a strong innovation ecosystem, especially in the defence sector.
What are the challenges for an innovative defence sector? How could such an innovation ecosystem of established players and start-ups develop better?
Yvonne Hofstetter: This is not only, but also a question of money. In recent years, the German defence sector has suffered from image problems. Money has not been invested in building up the capabilities of the Bundeswehr, but has been handed out to society as a peace dividend. But the smaller the defence budget, the more the few industry players can secure that budget against direct competition. Today, we are confronted with a largely closed sector in which new players are hardly able to gain a foothold. As a result, research institutes, many of which are doing excellent work, have little incentive to spin off companies. Innovations thus remain stuck as studies in the institutes and do not transform into products, such that some research investments are not really effectively invested.
Celia Pelaz: In addition to financial resources, we can also achieve a great deal by changing processes, especially in procurement. Significantly faster and simpler procurement cycles would not only ensure that innovations reach customers more quickly. In this way, we would also prevent startups from having to hold out for years until their work can pay off economically, possibly being crushed by bureaucracy beforehand. In our industry, the public sector will always be the most important customer. In this respect, investments in disruptive technologies will always remain a gamble for young companies with the uncertainty of whether they will be commissioned by the public sector. Public-private partnerships are the right way to provide planning security and incentives for innovation. Without NASA, SpaceX would not even exist! We can learn a lot from such examples when we look beyond our own backyard.
Where do you see role models?
Yvonne Hofstetter: When it comes to building bridges to the start-up world, I think the concept of DARPA as an agency of the U.S. Department of Defense is very interesting. It awards contracts solely on the basis of technological innovation, without regard to the person. If something is technologically groundbreaking, then a contract can go to a one-man company. This has worked very successfully for decades.
Celia Pelaz: With the DIANA Accelerator, NATO recently sent out the right signal, and the same applies at another level to the Bundeswehr’s “Cyber Innovation Hub”. The example of Israel shows just how innovative close cooperation between the military, society, and the defence industry can be. There, every industry representative, whether start-up or large corporation, was in the military in his youth. They know and understand each other, and together they are fighting a threat to which the population does not turn a blind eye. In the US, we see that innovation also thrives on being able to tap into a huge market through a single point of contact. In Europe today, the opposite is often still the case. We have to change that. More European cooperation in politics and industry means more technological progress and more security!
HENSOLDT has been marked by dynamic growth ever since it was founded. As the company’s order backlog, its revenue, and its profit have reached new heights, so too have the dimensions of its workforce and international production network. With Europe’s new reality for security policy and Germany’s Zeitenwende (turning point), the defence industry today has to deal with new requirements and expectations. At the same time, increased macroeconomic risks are just as much a part of the new reality as the intensified competition for the talents of tomorrow is.
Chief Financial Officer Christian Ladurner and Chief Human Resources Officer Lars Immisch on intelligent, far-sighted growth management and what it requires.
Mr. Ladurner, you have known the company longer than the brand has existed: What makes HENSOLDT special for you?
During my time as an officer, the cohesion and sense of community in the Bundeswehr were the most formative experience for me: this unconditional team spirit of achieving things together and standing closely together when challenges seem insurmountable. I found it again at HENSOLDT – in an almost familial atmosphere that the company has preserved as it has grown strongly and become increasingly international. You have to set an example of this kind of corporate culture and, as a member of the Management Board, I see this as one of my most important tasks.
What has changed for you personally with your move to the Management Board?
The range of topics has once again become much wider, and at the same time the focus is on the concrete need for decisions. For me, the focus is now on how we on the Management Board strategically lead the company into the future. Seeing how well what was long my job is now being done by others has made it very easy for me to let go of a lot. In return, I now invest significantly more time in communication – with investors, analysts, and journalists, but also within the company with our finance team. Our project teams who are close to the product in development or production have an incredibly strong group dynamic and justifiable pride in what we have achieved together. In the same way, we want to create even more of a common home base for our experts from Accounting, Treasury, Investor Relations, and IT in their local areas. This is also important for our performance as a finance team. Because we have big tasks ahead of us.
On the subject of “big tasks” – as CFO, how are you preparing HENSOLDT for the so-called Zeitenwende?
We can already foresee today, before the concrete effects of the Zeitenwende become apparent, that we will grow sustainably in the coming years. The Zeitenwende will provide additional impetus in this direction, but we have laid the foundation with the many long-term, multiyear projects for which HENSOLDT has been commissioned. This is both the result and the beginning of hard work. Because growth must be managed and cleverly designed. We don’t just want to get bigger with our business, we want to become even more customer-focused, more powerful, faster, and more efficient. The aim is to further improve our value creation and generate more value. In the finance division, we have strong levers to do this.
Which levers are particularly important to you?
First, it is our task to create the economic leeway for our strategy and to make innovation financially possible. Innovation has always been the central asset of our company, crucial for success with our customers and driving value on the capital market. Secondly, with our holistic view of the company, we are also a driver of efficient processes that are stringent from start to finish. With the HENSOLDT GO! programme for operational excellence, we have driven these end-to-end processes in recent years and will also roll them out globally in 2023. The focus on processes will accompany us in the long term so that we can grow intelligently and offer integrated solutions across divisions and countries. And third, I see finance as a catalyst for the digital transformation of the company. We want to be able to make data-based decisions on any topic at any time. To this end, we are working intensively on our data governance and system landscape with the aim of transforming HENSOLDT into a real-time company. All of these tasks have become more urgent because of the Zeitenwende. It is therefore also an accelerator for the financial system of the future.
What characterizes this finance organization of the future?
Step by step, we are becoming the navigator and “enabler” for the company. Twenty years ago, the focus of finance was still very much on reporting – in other words, looking back. Today, we are also casting our gaze much more strongly into the future and making a strategic contribution. To do this, we need powerful tools and new competencies. We therefore also need to transform ourselves, and to this end we have set up the Vision Finance programme on three pillars: data-driven corporate financial management, a high-performance finance community organization, and talent development.
You took up office at a time of major economic risks – from inflation to the energy and supply chain crisis. How is HENSOLDT arming itself against this risk situation?
Without question, we live in times of high uncertainty. As HENSOLDT, our long-term project business, in which compensation for price increases is usually contractually agreed, means that we are affected by inflation to a lesser extent than others and are therefore more robust. But of course, we also have to be vigilant and act with foresight. We have secured our refinancing on attractive long-lasting terms. In the supply chains, we take precautions at an early stage wherever we see potential problems. In this way, we have succeeded in keeping the challenges well under control and have started 2023 with a manageable risk situation. The motto here is that we must be even closer to our business and environment in volatile times. That’s why Vision Finance also provides end-to-end transparency for operational, non financial key performance indicators, such as parts availability, delivery reliability, and adherence to technical milestones. Because as a company, we are like our customers: If we have a clear situation report, we are able to act.
In response to the Zeitenwende, are you planning further acquisitions to serve the market?
Our philosophy has not changed as a result of the Zeitenwende. We will continue to look at options for targeted acquisitions. However, for us this is always linked to very clear criteria: Only if the acquisition is clearly value-enhancing and the partner fits us technologically, entrepreneurially, and in terms of their geographical presence will we become active. We also regularly look at potential strategic investments for technology partnerships. In innovation fields that are becoming increasingly relevant for us, such as artificial intelligence, there are many startups and young companies with strong tech expertise. They often need a financial boost and benefit from cooperation with an established technology company, but rely on great freedom in their entrepreneurship. In these cases, strategic investments can be a win-win solution to jointly advance promising technologies.
How does the international capital market view Germany and the Zeitenwende?
During the past months, I have had the opportunity to talk to many investors and analysts, most recently in the UK and the US. Non-European market players in particular are keeping a very close eye on whether Germany keeps its word and reliably implements its announcements. It is very clear that Germany’s cautious, hesitant role over the past decades in the area of security and defence has left its mark. Generalist analysts who have not yet been more intensively involved with defence are much more impatient and understandably much quicker to ask the question of confidence. Others, who know our sector well, know that it can take a very long time after a political declaration of intent before a contract is awarded. And that it is part of our entrepreneurial expertise to optimally shape this business with long lead times in order to be ready with the right product at the right moment.
And how do you experience the capital market’s view of HENSOLDT? What’s behind the significant share price increase in 2022? The reputation of the defence industry as a safe haven in crises? Or something else?
The central currency on the capital market is trust. That is why we are being rewarded for the fact that HENSOLDT reliably implements what we promise. This applies both to our corporate strategy and to our medium-term plans, such as those we announced at our IPO and then consistently delivered. And it applies to the fact that we are disciplined in converting our record order backlog into highly profitable results, because we process major projects in a structured manner and deliver them to the customer on time, within budget, and in the agreed quality framework. HENSOLDT is a reliable partner for customers and investors: For us, it is absolutely central to live up to this status 100 percent, even in times of the Zeitenwende. This is because the valuation of our company also shows that the importance of security and defence for our society has increased significantly since February 24, 2022. This also includes the fact that the proportion of investors with a clear ESG focus in our free float has grown from around 6 percent at the end of 2021 to over 20 percent now. The capital market is therefore increasingly appreciating that security is the basic prerequisite for sustainability. The view of our industry and our company has evolved. We also want to confirm this trust and show that we can do even more.
Normally, the capital market formulates expectations for companies. Think about it the other way around: What would you like to see in your collaboration with investors and analysts?
For me, the dialog with investors and analysts is a very important element of our early warning system and often sets valuable stimulus points for our discussion in the Management Board. I am therefore very pleased that the capital market is following HENSOLDT increasingly closely. I would like not only to maintain this exchange, but also to intensify it and make it even closer. We have resolved to either create more platforms for this ourselves or to participate in them. This also applies above all to dialog with international contacts, now that the European defence sector has come much more into focus worldwide. We want to use this opportunity to explain our smart growth plan and build further trust.
Mr. Immisch, you have been Chief Human Resources Officer at HENSOLDT since October 2022. What surprised you the most when you started?
Definitely the company’s unique spirit! The strong culture and identification of the employees is immediately noticeable. This is amazing for a young company that emerged from predecessor organizations steeped in tradition. The fact that HENSOLDTians enjoy working here is also shown by the ranking “Most Wanted Employer 2022” by ZEIT and the employer rating portal Kununu: We are ranked second in the entire electronics sector! Now HENSOLDT is moving from a kind of startup phase to a stage in which we are shaping the company of the future in order to realize further growth and high ambitions. I am very much looking forward to helping shape this continuous change.
What does the Zeitenwende mean for you as Chief Human Resources Officer? Do you have to massively expand the workforce in times of a shortage of skilled workers?
Thanks to the growth of recent years, we are already in a good position to take on more responsibility. We will continue to strengthen ourselves in the future, but we are proceeding responsibly with a sense of proportion. After all, you also have to handle rapid growth sensibly on the personnel side in order to be able to work well together. And of course, we first have to be able to assess what specific requirements and orders will result from the Zeitenwende. That’s not just a mere political declaration of intent. In some places, we are also making advance payments – for example, with the decision to produce a significant tranche of our TRML‑4D high-performance radar for air defence in order to keep delivery times as short as possible. To this end, we are immediately bringing new employees on board in production. Above all, however, our task in the foreseeable future will be to monitor very closely how our personnel requirements might change. This is not just a quantitative question, but one of the right structure in terms of skills and qualifications. For us, of course, it is primarily a matter of building up the right competencies in the right places. Together with focused structures and processes, this is the key to operating efficiently and growing sustainably in times of rising costs.
Which talents, above all, does HENSOLDT have its sights on? And how does the shortage of skilled workers make itself felt?
Even though HENSOLDT is very well positioned, we also of course feel that there are simply too few applicants in many areas, especially among the highly trained specialists in high-tech professions. Today, we are increasingly hiring more in the IT area and are therefore not only competing within our own industry, but also with e‑commerce providers and many other industries. This makes strategic skills management all the more crucial for us. We need to be able to better anticipate which profiles and qualifications we will need in the future. This applies to several years in advance and just as much to the medium-term perspective. Because if I only start recruiting the employees I need as soon as we’ve secured the major project, it’s far too late. We have to get there much earlier and understand very precisely how the geopolitical context, technological trends, and the needs of our customers are developing. This is a challenging but crucial task in order to attract top people with the technology profiles that are our focus: systems engineers, software developers, and IT professionals. We are also increasingly recruiting experts in programme and project management, as the implementation of complex large-scale projects is increasingly shaping our business. With all these qualifications, I have to think of the bon mot “The battle for talent is over. It’s the talents who have won.”
And what’s to be done in view of this new restructuring on the labour market?
Of course, we have to position ourselves in all areas so that our claim to be the employer of choice is fulfilled. But for the defence industry in particular, we also need to talk more about what we do and why we do it. Today, we see a much greater openness in society to appreciate our contribution to the defence of democracy and freedom. But we also need to engage in this debate when the war in Europe hopefully ends soon and society’s perception may change again. In addition, two aspects come up far too short for me in the discussion about the shortage of skilled workers: On the one hand, we have the task and the opportunity to help young people grow into the talents of tomorrow through proper training. That’s why we have once again significantly expanded our commitment to training and dual study programmes and are helping to shape the concept of courses such as Embedded Systems in order to get young people more excited about technology again. On the other hand, the further development of our own talent, which we already have on board, is enormously important to me. Particularly in our industry, with long project durations but short innovation cycles, the balance of experience and young, fresh impulses is essential.
What impact does the war in Ukraine have on HENSOLDT’s recruiting?
The change in awareness of defence is also clearly reflected in the applicant market. At the same time, the Zeitenwende has further intensified competition in our industry for the best minds. It’s therefore truer than ever: We need to go to the talent and be closer to the people. This starts with such simple things as having more person-to-person dialog on platforms like LinkedIn to give more insight into which personalities work for us. But it also includes broader issues: Should we offer the ability to work entirely from home for certain jobs and profiles? Do we need hubs in regions with strong talent pools? Can we secure particularly sought-after skills through partnerships? We need to find answers to these questions.
How does HENSOLDT win over employees and applicants? What are the strongest factors?
Many of our employees and applicants are motivated above all by making a tangible contribution to the defence of peace and freedom. They develop the best possible equipment for people who risk their lives for our society. In addition, it’s also very much about the fascination of high technology. At HENSOLDT, employees can help shape progress in specialized fields that few other industries can match, from sensor data fusion to aerospace. The personal security offered by a job in a comparatively crisis-resistant industry is also seen as attractive again. Conversely, as an industry leader on the topic of sustainability, we fulfill a basic requirement to convince the applicants we want in favor of HENSOLDT. Together with the team, my predecessor Peter Fieser set up a sound ESG strategy that we are consistently implementing. In doing so, we are pursuing ambitious goals such as carbon neutrality by 2035, which is a tough job and requires significant investments. But this is also money very well spent from an HR perspective.
And how do you start further promoting HENSOLDT as an attractive employer?
On the one hand, we will continue to work on our great strength, our corporate culture. For any company, this is an ongoing task that is crucial to success, especially in growth organizations. I want us to translate what guides and shapes us in a very comprehensible way and to carry it into every corner of the company. This also applies to the international subsidiaries that have joined the HENSOLDT family through acquisitions in recent years. We will certainly not impose this cultural process from above and define it in PowerPoint presentations, but we can and must create the right platforms for employees. This brings us to a second point, leadership culture: Many outsiders still think of the defence industry in terms of “command and obedience.” However, that’s not the reality at HENSOLDT. When employees go to the Management with their idea that our technologies could also be suitable for protecting wildlife, that’s great. But here, too, we can’t simply put a check mark on it; we have to permanently promote an inclusive leadership culture of open doors. Teams rightly and increasingly expect transparency, participation, and flexibility. This is accompanied by new leadership challenges, especially when we collaborate remotely. These cultural issues lead directly to two other very tangible focus topics that we are working on.
Which ones are they?
On the one hand, it’s about the new world of work, for which, after the pandemic, we have definitely not found all the answers across all industries. At HENSOLDT, there is a 50 percent rule for hybrid working between office and from home. This works very well, but in the long term it is more a question of which activities require a team to work together on site. Then we need to understand what collaboration and communicative workplaces of the future will look like that meet the realities of our business and the needs of employees. In Oberkochen, where we will inaugurate our new high-tech campus by 2025, this cultural transformation will be reflected architecturally as a kind of beacon. In all of this, we are also particularly thinking about those employees who can’t work from home, because they are working on classified projects or in radar production. On the second topic, diversity, the target picture is simpler: As a company, we have to be a reflection of society, even in our industry. With regard to the proportion of women in management teams, we at HENSOLDT have clear interim targets that point the way, and I am very happy about the strong role models in our ranks. As a technology company, one of the problems we have to deal with is the low proportion of female graduates in technical professions. This is not an argument to sit back and relax – on the contrary. We will do our part to change that.
HENSOLDT combines strong innovation with an attractive, robust business model. The macroeconomic environment in 2022 was shaped by high inflation, volatility all across the economy, and disruption in global supply chains. Even in this challenging context, HENSOLDT maintained its successful growth trajectory. The company recorded significant growth in revenue and income along with high profitability.
For HENSOLDT, sustainability is not merely a strategy. The company sees it as an attitude and way of thinking. Whether with our products, sites, or supply chains, we take our responsibility toward the environment, society, and in terms of corporate governance seriously. Security is the foundation of a sustainable future and security is at the center of what we do every day.
The Sustainability Report provides updates on the progress and developments of the ESG Strategy 2026 and tracks the sustainability-related initiatives of all the company’s divisions.