Defence industry: how Europe is boosting production

Hélène Mas­son. Mil­it­ary equip­ment and tech­no­logy pro­duced on European soil are diverse and form a rel­at­ively com­pre­hens­ive sup­ply offer­ing: mil­it­ary aero­naut­ics (com­bat air­craft, trans­port and mis­sion air­craft, heli­copters, engines), land arma­ments (heavy tanks, medi­um and light armoured vehicles, logist­ics vehicles and tac­tic­al trucks, artil­lery sys­tems, ammuni­tion of all cal­ibres, com­bat equip­ment), nav­al defence (sub­mar­ines and sur­face ves­sels), mil­it­ary space, mis­sile sys­tems (tac­tic­al and stra­tegic) and defence elec­tron­ics, ICT, cyber and autonom­ous sys­tems (tac­tic­al drones in particular).

France, the United King­dom, Ger­many, Italy, Spain and Sweden are the main European arms design­ers, pro­du­cers and export­ers. How­ever, the Neth­er­lands, Fin­land, Nor­way and Bel­gi­um also have indus­tri­al and tech­no­lo­gic­al cap­ab­il­it­ies in spe­cif­ic seg­ments or in the sup­ply of equip­ment and sub­sys­tems. This offer­ing has expan­ded since Russia’s inva­sion of Ukraine, with a reviv­al of the defence industry in East­ern Europe. The phe­nomen­on is fuelled by strong nation­al ambi­tions in Poland, Hun­gary, the Czech Repub­lic, Slov­akia, Romania and the Balt­ic States.

Accord­ing to SIPRI, France is the European lead­er and the world’s second largest arms export­er for the peri­od 2020–2024. With €18bn in orders, 2024 will be the second highest year on record after 2022, when orders reached €27bn (com­pared to €8.2bn in 2023). His­tor­ic­ally, French exports have been based on com­plex, high-end weapons sys­tems, with sales driv­en by com­bat air­craft (Rafale), nuc­le­ar attack sub­mar­ines (Bar­racuda), con­ven­tion­ally powered sub­mar­ines (Scorpène) and, more recently, artil­lery sys­tems (Caesar self-pro­pelled how­itzers) and mis­sile sys­tems (in par­tic­u­lar Mis­tral and Aster).

French expert­ise in the field of nuc­le­ar deterrence is also widely recog­nised, even though it is lim­ited to the domest­ic mar­ket. The French defence indus­tri­al and tech­no­lo­gic­al base is struc­tured around a core group of indus­tri­al prime con­tract­ors, industry lead­ers (Dassault Avi­ation, Nav­al Group, the French branches of KNDS and MBDA, Air­bus Defence & Space and Air­bus Heli­copters, ArianeGroup) and major sys­tems integ­rat­ors and equip­ment man­u­fac­tur­ers (Thales, Safran). It includes a myri­ad of spe­cial­ised SMEs and mid-cap com­pan­ies, act­ing as sub­con­tract­ors or sup­pli­ers of com­plete solu­tions, such as Eurenco in the field of powders and explos­ives, and Exail for nav­al robotics.

The emer­gence of new region­al pro­duc­tion hubs in east­ern and south-east­ern Europe illus­trates the desire of states that feel threatened to main­tain indus­tri­al and tech­no­lo­gic­al cap­ab­il­it­ies on their nation­al ter­rit­ory in seg­ments con­sidered stra­tegic (armoured vehicles, weapons, ammuni­tion, drones). While this devel­op­ment is intensi­fy­ing intra-European com­pet­i­tion, it is also open­ing up new oppor­tun­it­ies for part­ner­ships between com­pan­ies on the old con­tin­ent through inter-state and inter-industry cooper­a­tion in the field of arma­ments. This increase in cap­ab­il­it­ies and skills across Europe should enable states to rebuild their equip­ment and ammuni­tion stocks more quickly, bet­ter meet Ukraine’s needs and, above all, be bet­ter pre­pared for the demands of a future high-intens­ity war.

Nev­er­the­less, this sharp increase in demand on the European defence mar­ket is fur­ther whet­ting the appet­ites of com­pet­ing com­pan­ies in the United States, but also in Israel, South Korea and Tur­key. To bene­fit from the size of the European mar­ket and res­ist these attacks, indus­tri­al con­sol­id­a­tion will be neces­sary in sec­tors marked by his­tor­ic­al frag­ment­a­tion of sup­ply (land, nav­al, com­bat air­craft), oth­er­wise Europe will lose com­pet­it­ive­ness and be releg­ated to the role of observ­er in the tech­no­lo­gic­al com­pet­i­tion between the United States and China. Polit­ic­al will on the part of European man­u­fac­tur­ing coun­tries will be cru­cial in ini­ti­at­ing these consolidations.

The increase in pro­duc­tion by French defence com­pan­ies grew stead­ily through­out 2023 and espe­cially in 2024. At the fore­front are man­u­fac­tur­ers of artil­lery sys­tems, medi­um and large-cal­ibre ammuni­tion, powders and explos­ives, and mis­sile sys­tems (KNDS, Eurenco and MBDA in par­tic­u­lar). Orders placed by the French gov­ern­ment or European cus­tom­ers (or in anti­cip­a­tion of these con­tracts) have giv­en man­u­fac­tur­ers and their sub­con­tract­ors great­er vis­ib­il­ity, enabling them to adapt their pro­duc­tion tools (mod­ern­isa­tion of work­shops, new machine tools, recruit­ment and train­ing of addi­tion­al employ­ees, build­ing up stocks of parts and raw mater­i­als, relo­ca­tion of facil­it­ies, etc.). This adapt­a­tion pro­cess, which is still ongo­ing, is based on a mix of fin­an­cing: invest­ments from own funds, pub­lic aid and, where applic­able, European sub­sidies. There will always be room for improve­ment. This will depend on the level of orders and the avail­ab­il­ity of human, mater­i­al and fin­an­cial resources, but also on access to raw materials.

Unlike Ukraine, France is not at war, nor has it moved to a war­time eco­nomy, oth­er­wise emer­gency meas­ures, requis­i­tions and pri­or­ity pro­duc­tion would be the order of the day. How­ever, in terms of increas­ing pro­duc­tion capa­city, room for man­oeuvre can be found in the attract­ive defence mar­ket and the dif­fi­culties faced by cer­tain civil­ian sec­tors such as the auto­mot­ive industry. The Ger­man example is a good illus­tra­tion of this. Rhein­metall is redir­ect­ing part of its civil­ian pro­duc­tion while offer­ing Con­tin­ent­al the oppor­tun­ity to take on around 100 employ­ees from a site that is being closed down. KNDS Deutsch­land is set to acquire a fact­ory from the Alstom rail group. In France, Thales decided to shift the pro­duc­tion of one of its plants spe­cial­ising in SIM card man­u­fac­tur­ing to elec­tron­ic cards for fight­er jets start­ing in 2023.

These reori­ent­a­tion pro­cesses can take a year or two, or even longer, depend­ing on the level of tech­nic­al expert­ise required. While SME sub­con­tract­ors, which were hit hard by the Cov­id crisis, are now look­ing for a new lease of life in the defence sec­tor, this diver­si­fic­a­tion strategy requires fin­an­cial resources, as there are many obstacles to over­come, includ­ing secur­ity and safety con­straints, staff train­ing, the acquis­i­tion of new machinery and order noti­fic­a­tion times.

The dif­fi­culty lies in find­ing new fin­an­cial flex­ib­il­ity when the eco­nom­ic and social con­text is strained in many European coun­tries. In June 2025, NATO is expec­ted to set ambi­tious tar­gets for its mem­bers: a min­im­um of 3% of GDP spent on defence – still far from Don­ald Trump’s tar­get of 5% – and 30% of that spent on equip­ment. In March 2025, the European Com­mis­sion presen­ted a pack­age of meas­ures as part of the “ReArm Europe/Preparation for 2030” plan, aimed at stim­u­lat­ing defence invest­ment. It provides for the estab­lish­ment of a new tool (SAFE) in the form of loans to Mem­ber States amount­ing to €150 bil­lion. Mem­ber States are also invited to activ­ate the nation­al escape clause of the Sta­bil­ity and Growth Pact to increase their defence spend­ing (up to 1.5% of GDP per year for a peri­od of four years).

While not strictly speak­ing an €800bn plan, it nev­er­the­less rep­res­ents a power­ful incent­ive to pool needs, make joint pur­chases and pro­duce more in areas of cap­ab­il­ity deemed to be pri­or­it­ies. It paves the way for a paradigm shift towards faster, mass pro­duc­tion through new man­u­fac­tur­ing pro­cesses and sim­pli­fied pro­cure­ment procedures.

Interview by Alicia Piveteau