The companies benefiting from Europe’s defence revival


Two years into Russia’s full-scale assault on Ukraine, Europe’s defence industry is booming.

The conflict and rising geopolitical tensions elsewhere, including in the Middle East, have boosted the order books of large established players and their suppliers. Global defence spending hit a record $2.2tn last year, while in Europe it rose to $388bn, levels not seen since the cold war, according to the International Institute for Strategic Studies.

These new orders have transformed the fortunes of Europe’s defence contractors, with the combined backlog of the region’s top seven companies in the sector — including BAE Systems, Leonardo and Saab — rising to near-record highs of more than $300bn.

Ground warfare in Ukraine has unexpectedly depleted national stockpiles of ammunition and other artillery, benefiting not only Germany’s Rheinmetall and Scandinavia’s Nammo, but also smaller suppliers.

Military spending commitments by European governments have also sparked renewed interest in the sector, which had previously been shunned by many investors, with shares in the region’s contractors outperforming those of their US rivals.

Which companies have benefited from ground warfare?

Ukraine has forced policymakers to confront something that governments had never planned for, even during the cold war, according to Trevor Taylor from the Royal United Services Institute: “A sustained, conventional war on land.”

The EU pledged to deliver 1mn artillery shells to Ukraine by the end of this March, a target it has admitted it will fail to hit. Much of the defence sector has struggled to increase production quickly enough after decades of under-investment.

The huge surge in demand has turned the spotlight on Europe’s four main ammunition producers: Germany’s Rheinmetall, Britain’s BAE Systems, France’s Nexter, and Nammo, owned by the Finnish and Norwegian governments. 

Suppliers of explosives and propellants, including Chemring of the UK and France’s Eurenco, have also been winners.

Of the main manufacturers, Rheinmetall has enjoyed the biggest change in its fortunes, going from being sidelined by many investors over ethical considerations to the star of the country’s new defence era.

“Some months ago, people wanted to ban us, to say that this industry is a very bad industry, is a harmful industry,” CEO Armin Papperger told the Financial Times shortly after Germany’s 2022 announcement that it would inject €100bn into defence in response to Russia’s invasion of Ukraine. “It’s a totally different world now.”

Shares in Rheinmetall have quadrupled over the period, catapulting the company into Germany’s blue-chip Dax index. It has committed to boosting the output of artillery rounds and forecasts total sales will double by 2026 compared with last year.

Nexter, meanwhile, has been increasing production of the Caesar howitzer — a long-range artillery launcher — that has proved valuable to Ukraine on the battlefield.

The fortunes of smaller manufacturers have also been boosted. William Cook, a family-owned British manufacturer, has seen revenues in its defence business jump 20 per cent from 2022 to 2023 thanks to a UK government contract to supply replacement tracks to Ukraine for its Soviet-era armour. One of only two European producers of tank tracks, it expects a further 40 per cent increase this year.

“Whenever and however it ends, the war in Ukraine has reminded Nato and its allies that the era of armoured warfare in Europe is not over and they need to equip and train their armies accordingly,” said William Cook, group commercial director.

Susanne Wiegand, chief executive of the Bavarian defence supplier Renk, which makes gear boxes and transmissions for tanks and frigates, said the speed with which European governments were trying to ramp up their military capabilities would encourage greater standardisation.

This would help address bottlenecks across defence supply chains as well as allow companies to scale up, she said.

Boon for air and missile-defence systems 

While the ammunition crunch has brought national arms makers to the fore, renewed interest among European nations in air and missile-defence capabilities has proved a boon for the region’s manufacturers.

Sweden’s defence champion Saab may be better known as the maker of the Gripen fighter jet but, according to Sash Tusa of research firm Agency Partners in London, its other weapons have “really come into massive demand due to Ukraine”.

Among Saab’s products, the standout was the NLAW anti-tank missile, which had been sent to Ukraine by the thousand from the UK, Tusa said. He described the company’s air-defence radars as “another complete Cinderella product for the first two decades of the century” when “literally no one cared about ground-based air defence, because ‘we’ had air superiority, and none of the wars we chose to fight (Iraq, Afghanistan) had an enemy air force”.

After securing orders worth €9bn in 2022, Europe’s biggest missile-maker MBDA, owned by BAE Systems, Airbus and Italy’s Leonardo, last year agreed £6bn in contracts for air-defence equipment with Poland, as well as contracts with Germany and France to scale up missile production.

“We are seeing a rapid evolution of threats on the battlefield that industry has to adapt to face. Air-defence equipment is in high demand,” said Éric Béranger, MBDA’s chief executive. 

Germany’s Hensoldt, which produces air-defence radars as well as sensors, has also seen demand for its products grow. Its chief executive Thomas Müller last year said the company was producing radars without pre-orders — something that would have been unthinkable before the war in Ukraine.

Other beneficiaries include Paris-based defence electronics group Thales. It supplies parts for Dassault Aviation’s Rafale jet, as well as communications equipment for armies and radars for surface-to-air missiles, and assembles the NLAW for the UK at its site in Belfast.

How has Ukraine driven defence technology?

Ukraine has proved to be a testing ground for innovative technologies such as sensors, robotics and unmanned systems. Some of these have been developed by smaller, technology-led companies. 

Gundbert Scherf, co-chief executive of European defence technology start-up Helsing, said the conflict in Ukraine had demonstrated that the new innovators could work together with traditional prime contractors rather than as competitors.

Founded in 2021, Helsing uses artificial intelligence to process vast amounts of data and analyse information to create real-time pictures of battlefields.

Ukraine “is moving at such speed, the innovation cycles are three to six months”, he added. The war was showcasing the “best of both worlds: you need the unique capacity of the primes to produce at scale and integrate, coupled with the software and AI companies’ ability to innovate at speed”.

These smaller companies’ speedy deployment of their products in Ukraine underlines the changes sweeping through the defence industry.

Tekever, with operations in Portugal and the UK, has been among a host of small drone makers to have used events in Ukraine as a springboard. The company has developed civil and military unmanned aerial systems.

Defence procurement will also have to adapt to keep up with the rapid advances offered by more agile technology companies. The shift towards “software-enabled devices requires agile, iterative development cycles”, said Ricardo Mendes, Tekever chief executive. 

Other start-ups with products deployed in Ukraine include Estonia’s Milrem Robotics, whose autonomous vehicles are used to carry casualties and clear routes for soldiers on the battlefield. A surveillance platform made by Monaco-based MARSS Group is protecting critical infrastructure in Ukraine from threats such as drones.

The challenge for defence procurement departments was keeping up to date with technological advances, said Cynthia Cook at US think-tank the Center for Strategic and International Studies. It can take up to five years before a new programme even starts because of the decision-making over specific requirements followed by securing the funding needed. “By then there is a new technology.”

Additional reporting by Sarah White in Paris and Song Jung-a in Seoul

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