It was a historic moment in the Hague on 25 June 2025, when the representatives of NATO member states, meeting in the Dutch city on the North Sea coast, agreed to increase defence spending to 5% of gross domestic product (GDP) with a view to “defence and deterrence”. The transatlantic alliance would like to achieve the new target in ten years at most. The plan represents a significant increase compared with present expenditure, which currently averages 2.61% of GDP. One consequence of this is that significantly more money will flow into armaments as well as defence and security-related areas such as the protection of critical infrastructure and cyberspace. If Germany, Europe's largest economy, wanted to reach the 5% target right now, defence spending would have to more than double. Adding up the extra spending by key alliance partners such as the United States, Germany, France and Poland, the quartet alone will be spending an impressive EURbn 700 more.
This new money raining down ensures that the positive trend in global military spending observed recently will continue. According to figures from the Stockholm International Peace Research Institute (SIPRI), the USDtn 2 threshold was crossed for the first time in 2021. In 2024, the increasing number of trouble spots around the globe will see a new record of USDtn 2.7 being reached – a rise of 9.4%. The new windfall from NATO is set to give the already prosperous arms industry an additional boost. One of those to benefit is Germany’s Rheinmetall. “An era of rearmament has begun in Europe that will demand a lot from all of us,” said CEO Armin Papperger in his assessment of the current situation, adding: “For us at Rheinmetall it opens up growth prospects for the coming years that we have never experienced before.” The Düsseldorf-based company is not suffering from a lack of growth anyway: following record results last year, Europe's largest manufacturer of munitions has made a good start to this year as well, posting a 46% increase in sales and doubling its profits.
Other companies also keen to get a slice of this billion-euro pie include Europe's largest defence contractor, BAE Systems. The British firm is currently engaged in a strategic offensive aimed at expanding its position in promising defence technologies such as cyber warfare and AI-based solutions. The group is not only active on the old continent, however – it is also a leading player in the USA. BAE has, for instance, just managed to secure a further contract from the Pentagon worth USDmn 172. In second place on the rankings of the major defence companies in Europe is aircraft manufacturer Airbus, which has a large military arm. The Netherlands-based corporation has a wide range of products, from the A400M military transport aircraft through the Eurofighter combat jet, developed and manufactured in collaboration with BAE Systems and Leonardo, all the way to satellite systems. In total, the Defence and Space division accounts for 17% of consolidated revenue. Leonardo’s defence line delivers a significantly higher share of total revenue at 80%, with defence electronics & security comprising the lion’s share. Regionally, the USA is the most important customer for the Italian group’s military products. Other big names in the armaments sector in Europe include the British Rolls Royce, with its engines and nuclear reactors for submarines, and Thales from France. The latter's repertoire extends from radar systems through cyber security to satellite technologies.
It is not only European companies that are benefiting from the new supercycle in the defence and armaments industry, though: the USA is also home to major players, such as Honeywell, the specialist in protective equipment and sensor technology, and GE Aerospace. The aviation and aerospace giant is currently investing around USDbn 1 in its plants and supply chains with the aim of improving manufacturing processes. The company recently managed to secure another contract from the US Air Force to supply GE F110 engines for USDbn 5. Lockheed Martin plays an important role in the fighter jet segment. Software problems caused delays in deliveries at the defence contractor not long ago, but the company is in the process of clearing its backlog after resolving the issues and, in fact, has just delivered 72 of the F-35 fighters to the Pentagon. Lockheed Martin is planning to deliver 170 to 190 aircraft over the year as a whole.
Sources: WDR, NATO