European Companies Crank Up Defense Production Plans

To boost output or not to boost output is no longer the question for many European defense companies, since they have booming backlogs amid surging military spending. The question now is how to boost output cost-effectively.

Across Europe, production is increasing for everything from combat aircraft to missiles to air surveillance equipment. NATO members’ commitment to higher spending targets at the alliance’s June summit has only fueled companies’ confidence that government pledges will turn into contracts.

• Germany outlines a record defense spending plan
• Safran ramps up AASM air-to-ground weapon production

“What we have seen in recent months, particularly the step-up in the NATO numbers and the success of the recent NATO summit, is our confidence around the durability of those sort of growth rates continuing,” BAE Systems CEO Charles Woodburn said on the midyear earnings call.

Cranking up output is not straightforward and can take time. Leonardo CEO Roberto Cingolani said addressing the demand could require 30-40% more engineering hours, 10-15% more manufacturing work and 10-20% more strategic suppliers—and that would come with huge costs.

Leonardo suffered financially after investing heavily in commercial aircraft production capacity, only for it to be underutilized for a prolonged period. Now the company seeks to avoid similar missteps. “We want to be lean, clean and agile,” Cingolani said on the second-quarter earnings call.

Leonardo has set up more than 170 projects to enable growth at lower cost. Those include the goal of increasing efficiency of helicopter manufacturing by 40% and fixed-wing aircraft production by about 35%. The company detailed plans to overhaul production sites, such as increasing automation and quintupling capacity at some locations. Leonardo will only pursue investments once those changes are made.

Defense electronics provider Hensoldt has been scaling up since 2022 and is similarly looking ahead. “With the German defense budget rising and visibility on future orders improving, we are preparing a step change in our operations,” CEO Oliver Dörre said on the second-quarter earnings call. “Our focus as management at the moment is to really set the prerequisite that we can digest these massive orders that we expect from the market.”

Hensoldt reported a record order backlog and plans to spend the next several months assessing how to set the stage for having additional production capacity ready in 2027-28.

The past few weeks have only added urgency to those efforts. Germany, Hensoldt’s home market, plans to boost defense spending for 2026 to more than €108 billion ($125 billion)—a record—with additional increases through 2029.

Moreover, several countries have agreed to acquire the Diehl IRIS-T SLM air defense system, which uses Hensoldt’s TRML-4D surveillance and targeting radar. Denmark, Sweden and Switzerland are among the IRIS-T’s new customers, and Slovenia is looking to buy more. Hensoldt sees €2 billion in European potential for the radar.

Demand is so strong for defense equipment that Safran CEO Olivier Andriès expects the company’s sales from those activities as well as space to double by decade-end. Safran generates about 20% of total revenue through its defense and space business, which includes landing gear and wiring.

Safran makes engines for Dassault Aviation Rafale fighters and various military helicopters, as well as the AASM guided air-to-ground weapon, for which demand is increasing. AASM production has risen by a factor of four, and Safran has boosted output of turbojets for guided missiles about threefold. Missile engine output could swell higher, Andriès said.

Missiles are also hot items for BAE, which is a major shareholder of European missile joint venture MBDA, Woodburn said as the company lifted its full-year sales outlook. The Pentagon has been using BAE’s APKWS laser-guided rocket in counterdrone operations. “We’re literally selling them as fast as we can make them,” he added.

Saab, having enjoyed overseas sales success for its Gripen fighter, is similarly looking to raise output. “We will aim for at least a production rate of 20 aircraft a year,” CEO Micael Johansson said on the second-quarter call.

The Swedish defense company is working with Thailand to finalize that country’s purchase of 12 additional Gripens by year-end. Contract talks are underway with Colombia, which aims to replace its Israel Aircraft Industries Kfir with 16-24 Gripens. Saab is pursuing deals in the Philippines and Peru, where a selection may come soon.