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