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The belligerent rhetoric from the US regarding the need for Europe to play a greater role in defense is to unleash new rallyings of continental defence stocks. There is a demand for tanks, soldiers and ammunition. It is not very clear whether the industry is in a position to utilize it.
US defense companies have done a neat job reporting government spending to robust investors' returns. However, Europe is a fragmented landscape, with many different countries sourced to different specifications. The European Commission has a lack of cooperation of between 25 billion euros and 100 billion euros per year.
The scales that European companies have are at least partly from the US market, with two-fifths of sales in the BAE system, or a combination of Europe and the UK. Airbus contributes more than fifth in 2023 numbers, and Leonardo contributes more than a quarter.
Creating a unified US-style market in nearly 30 countries will not happen. However, unified standards and specifications are completely possible. At least the clutches of the country (generally small) are harmonious with, for example, rifle specifications. It can be expanded and allows for more efficient capacity utilization and economies of scale.
Similarly, promoting cross-border co-investment will strengthen supply chains and ultimately reduce unit costs. Defense manufacturers rely on strips of parts and components, and will benefit greatly from accumulation on the scale of Europe.
The integration at the top edge is fantasy. Collaboration isn't like that. Pooled resources, such as manufacturing platforms, R&D, or co-procurement, all serve both capacity and cost.
There are also precedents. Take advantage of the MBDA missile manufacturing joint venture run by BAE Systems in the UK, Airbus in France, and Leonardo in Italy. The trio is also involved in a consortium that produces Eurofighter flagship fighter jets. Leonardo and German Rhinemetal are joining forces to develop and sell new Italian main battle tanks through a 50-50 joint venture.
All of this challenges remain a gap between the legions and the others. As for software, Europe is in the US a few years. After all, the country's high-tech industry was fathered by the pentagon. German drone and defense AI startup Helsing is said to be worth 5 billion euros and beside American Palantia ($270 billion in market capitalization) and its startup Spawn Andrill, reportedly According to the film, it is photographed at a valuation of $28 billion.
Still, the industry's momentum has been growing since Russia invaded Ukraine. Not only are European manufacturers collecting large orders, they are also introducing efficiency into their factories and supply chains. Industry sources say delivery times for equipment have already improved. It also encloses new processes such as 3D printing.
More acceleration is possible. After all, if Ukraine could build a 4mn-Plus drone production from scratch while fighting the war, then pack the gaps beyond the stubborn Europeans and start preparing themselves for the rush of orders It shouldn't.
louise.lucas@ft.com
