Damen Naval, based in Vlissingen and the largest naval shipyard in the Netherlands, is currently experiencing severe operational difficulties in the construction of six German frigates.

This situation has raised concerns about the company’s financial stability amidst favorable market conditions driven by heightened defense spending due to geopolitical instability in Europe.

Roland Briene, the managing director of Damen Naval, disclosed these challenges during a monthly staff meeting held on May 28, revealing that the German Navy has withheld payments due to Damen's failure to meet critical deadlines.

The project, which is valued at approximately €7 billion, involves the construction of Niedersachsen-class frigates, the largest warships ordered by Germany since World War II. Under the terms of the contract, the majority of the construction is expected to take place at shipyards in Germany, notably in Hamburg, Kiel, and Wolgast.

The delays have been exacerbated by persistent software issues and complex negotiations involving banks, real estate entities, and governmental bodies.

The Dutch Public Prosecution Service has also targeted Damen with legal action concerning allegations of corruption and potential violations of sanctions against Russia.

Despite having a robust order book, Damen faces rising material costs and labor shortages, which have been acknowledged by Briene during his address to approximately 200 engineers, technicians, and managers.

The firm has not constructed a frigate in over two decades, further complicating the project timeline.

Initially, the relationship between Damen and the Deutsche Bundeswehr appeared promising.

In June 2023, Briene celebrated the signing of a contract with Annette Lehnigk-Emden, responsible for procurement in the German military, for the order of six F126 frigates.

The deal was seen as a significant step for Damen to solidify its position in the growing West European defense sector, with revenue projections of €3 billion for 2023.

However, shortly after the additional orders, fundamental design issues emerged.

While the keel for the frigates was ceremonially laid at the Wolgast shipyard, actual construction has not commenced due to deficiencies in the design process, heavily reliant on the French software provider Dassault's 3DExperience program.

Over 800 IT specialists and engineers at Damen are now grappling with this software, which was intended to streamline operations but has instead delayed the creation of the necessary construction blueprints for the ships.

As a result, the German shipyards have been compelled to accept alternative contracts to keep personnel occupied, while Damen struggles to regain control over the construction timeline.

Speculation within the media suggests that delays could extend from 18 months to three years, although Damen has declined to comment on this matter.

The German Navy has established a payment schedule contingent upon the achievement of specific milestones in the construction process.

Failing to meet these milestones jeopardizes the financial inflow for Damen, which faces accumulating costs due to the hold-up.

Briene has indicated that the failure to meet these deadlines could lead to "operational challenges".

To counteract its financial difficulties, Damen has been undergoing restructuring efforts for the past two years.

In 2023, the naval division was spun off into a separate entity, and various assets have been used as collateral for a new €1 billion credit facility.

Additionally, Damen has sold several properties, including shipyards to a Swiss investment firm, resulting in a need for future lease payments that impact cash flow.

As Damen navigates these challenges, it has also received recent orders for four anti-submarine warfare frigates from the Belgian and Dutch navies, which are similarly dependent on the Dassault software for their design.

The potential for delays on these orders raises further concerns about Damen's operational capabilities.

In Germany, the frustration over the delays is palpable, particularly since local shipyards previously lost the contract for the F126 frigates in a failed bidding process.

Moreover, the ongoing legal issues surrounding corruption allegations may further complicate Damen’s operations, with the prosecution's investigations focusing on incidents connected to ship sales across Africa, Asia, and South America.

Official communications from Damen and the German military procurement agency confirm the reported delays, noting that Damen is currently working with contractors on developing a revised and dependable project timeline.