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