European defence autonomy: rearming with purpose

Europe’s defence and aerospace expansion is a structural, multi-decade industrial cycle, but investors should focus on companies able to convert political commitments into production and profitable growth.

• The July 2026 NATO summit in Ankara confirmed the shift from temporary spending increases to implementation, following the 2025 commitment to raise defence and security spending to 5% of GDP by 2035, including 3.5% for core military capabilities and 1.5% for resilience.
• New commitments included more than $50 billion of procurement, $40 billion for counter-drone capabilities and €70 billion of military assistance to Ukraine for 2026-2027; five member states already exceed the 3.5% core-defence target.
• The EU’s Readiness 2030/ReArm Europe package aims to mobilise up to €800 billion, while SAFE provides €150 billion for joint procurement and requires at least 65% of loan-funded contract components to come from the EU, Ukraine or EEA/EFTA countries.
• European prime contractors’ revenue has risen by an average of 57% since 2021, but parts, labour and factory capacity are constraining execution; the stalled FCAS fighter programme and cancelled German frigate order show that political alignment and procurement speed remain material risks.
• Civil aerospace backlogs exceed 16,000 large commercial aircraft, equivalent to roughly 12 years of production, while CFM International’s engines power more than 60% of the global narrowbody fleet; in space, dual-use businesses serving government and commercial customers may be more resilient.

Takeaway: Higher European spending creates long-duration opportunities across defence, aerospace and space, but investors should be selective and favour companies with defensible technology, strategic relevance, credible production plans and manageable programme risk.