OSNABRUECK, Germany: Volkswagen has reached a preliminary agreement to move one of its German plants into defense production under new ownership, as the automaker restructures sites struggling with weak demand, high costs and competition from lower-cost Chinese rivals.

Under the initial terms, Volkswagen will sell its Osnabrueck factory to Israel's Aurelius Capital and the German state of Lower Saxony. Labor officials said the move could preserve about 1,400 of the plant's 1,800 jobs.

The agreement comes days after Volkswagen unveiled a major restructuring plan involving job cuts and a simpler corporate structure. The company has warned that as many as four German plants could face closure or repurposing unless alternative uses are found.

Aurelius Capital and Lower Saxony, Volkswagen's second-largest shareholder, signed a statement of intent on September 7 to take over the Osnabrueck plant, where vehicle production is due to end in 2027.

Volkswagen said an initial "anchor project" would involve 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 defense systems.

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

A person familiar with the matter said additional projects could include converting Volkswagen Amarok pickup trucks into military vehicles. The person also said Polish defense company WB Group could carry out similar conversions involving vehicles from MAN, which is owned by Volkswagen's Traton business.

Lower Saxony and WB Group declined to comment on the plans, which were first reported by German newspaper Frankfurter Allgemeine Zeitung.

Defense production is increasingly being considered as an option for underused automotive plants, with companies including Rheinmetall and Continental pursuing similar initiatives.

Under the proposal, Aurelius would take a majority stake in the Osnabrueck site alongside Lower Saxony. State premier Olaf Lies said Lower Saxony's involvement would be similar to its 2024 purchase of a stake in the Meyer Werft shipyard.

Lower Saxony spent 200 million euros (US$232 million) at the time for a 40 percent stake in Meyer Werft.

"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.

Aurelius lists cybersecurity, drone technology and satellite systems among its areas of focus.