What’s driving the defence conversation in Europe?

As the aerospace and defence community convenes at Farnborough, Europe’s defence landscape is undergoing a structural transformation. What was once shaped by gradual evolution is now being driven by geopolitical urgency, accelerating pace of technical change, and an increasingly complex regulatory environment.

Across the region, defence is no longer a siloed policy issue. It is becoming central to industrial strategy, technological innovation and economic resilience – reshaping how governments, investors and industry participants engage with the sector.

At Hogan Lovells Cadwalader, our global Aerospace and Defence sector is closely tracking these shifts, supporting clients as they navigate a fast-evolving European and global market.

From ambition to execution: Europe’s defining challenge

Across Europe, a clear shift is underway. Governments are increasing defence budgets, strengthening capabilities and advancing initiatives to enhance resilience and preparedness.

At the same time, there is a growing emphasis on European strategic autonomy—with a focus on strengthening domestic industrial capacity while reducing reliance on non-European suppliers and maintaining strong alliances.

Yet, a consistent theme across the market is that political momentum does not automatically translate into operational delivery. Companies operating across Europe are navigating a common set of structural pressures:

• Complex and multi-layered procurement frameworks across national and EU levels
• Supply chain vulnerabilities and capacity constraints
• Long delivery timelines for large-scale programmes
• Increasing scrutiny of investments, partnerships and ownership structures

Bridging the gap between ambition and execution is becoming one of the defining challenges for the sector.

An ecosystem under transformation

The European defence landscape is also becoming more interconnected. The sector is no longer confined to traditional defence players but increasingly overlaps with other critical industries.

Key developments include:

Technology convergence: Innovation in AI, cybersecurity, autonomous systems and space is transforming capabilities and expanding the role of dual-use technologies.

Evolving funding models: Access to capital is being reshaped by regulatory considerations, ESG frameworks and growing political support for defence-related investment. 

Cross-border collaboration: Companies are engaging more actively in joint ventures, partnerships and multinational programmes to scale capabilities and share risk.

Focus on sovereignty and resilience: As technology becomes increasingly embedded at all levels, from training through to operational decision making, governments are focused on avoiding over-reliance on a single system or technology whilst also navigating challenges around freedom of use from new market entrants and licencing restrictions.

This convergence is creating a broader and more dynamic ecosystem—one that requires companies to operate across technologies, jurisdictions and sectors simultaneously.

Key pressure points shaping the European market

Against this backdrop, several core themes are shaping decision-making across Europe.

1. Public procurement in a fragmented environment

Public procurement remains the primary entry point into defence markets—but it continues to be characterised by complex, highly regulated and often fragmented frameworks.

Even with increasing European cooperation, companies must navigate a combination of EU-level initiatives and national requirements, alongside political considerations and stakeholder dynamics.

Success increasingly depends on the ability to combine legal compliance with strategic positioning across multiple jurisdictions.

2. Strategic transactions under scrutiny

M&A and investment activity in the defence sector is accelerating—but it is taking place in an environment of heightened regulatory and political scrutiny.

Transactions are subject to overlapping regimes, including:

• Foreign direct investment (FDI) controls
• Merger control and competition law
• National security reviews
• Export control restrictions

At the same time, there is a gradual shift toward greater openness to defence-related financing, particularly where investments align with broader European security and resilience goals.

3. Supply chain resilience as a strategic priority

Supply chain stability has become a central concern across the sector.

Companies are responding to:

• Increasing geopolitical risk
• Capacity limitations and workforce shortages
• Greater reliance on complex, cross-border supplier networks

This is driving a stronger focus on long-term partnerships, but with an increasing awareness of the need for robust contracting models with aligned incentives and diversification strategies to avoid creating failure points around dependencies on a single ecosystem, with collaboration becoming a critical enabler of growth. 

4. Rising regulatory and compliance intensity

The regulatory environment continues to expand in both scope and complexity.

Defence companies are operating under increasing scrutiny across areas such as:

• Export controls and sanctions
• ESG and governance expectations
• Compliance and investigations
• Cybersecurity obligations (including frameworks such as NIS2) 

Robust compliance systems and proactive risk management are no longer optional—they are essential to maintaining access to markets and safeguarding business continuity, as well as enabling access to finance products from investors who are increasingly concerned about ethical and reputational risk. 

5. Managing risk in complex programmes

As defence programmes grow in size and complexity, so too does the challenge of managing risk.

Companies are increasingly exposed to:

• Multi-party contractual structures (increasingly involving unincorporated joint ventures to avoid anti-trust/competition filings in third countries)
• Delivery delays and performance issues, with contractual risk allocation and pricing approaches critical to managing risks outside of their control
• Disputes across jurisdictions and enforceability challenges
• Regulatory investigations and enforcement, including in respect of pricing challenges from governments who want to make their budgets go further

Effective contract structuring, claims management and dispute resolution strategies are therefore critical to ensuring successful project delivery in a high-pressure environment. 

Positioning for what comes next

As discussions at Farnborough will certainly highlight, the European defence sector is entering a new phase, defined not simply by growth, but by structural transformation.

And the overall direction of travel is clear: Europe is moving towards a more integrated, more strategically driven and more highly regulated defence ecosystem.

For industry participants, success will depend on the ability to:

• Build resilient, future-proof partnerships
• Build resilient supply chains, compliant across multiple regulatory frameworks
• Align with evolving political and industrial priorities
• Manage risk in an increasingly scrutinised environment

Contacts: Malcolm Parry, Partner, Hogan Lovells Cadwalader