Defense Sector Growth in Europe and the U.S.: Strategic Procurement Drives Military Equipment Manufacturers

The global defense sector is undergoing a seismic shift as Europe and the United States ramp up spending to counter geopolitical uncertainties. With defense budgets surging in both regions, military equipment manufacturers and suppliers are poised to benefit from a wave of procurement contracts and R&D investments. This analysis explores how strategic defense procurement is reshaping the industry, identifies key players, and highlights the investment implications for stakeholders.

Europe’s Defense Procurement Surge: A Strategic Shift Toward Autonomy

According to a report by the European Commission, European defense spending grew by 10% in 2023 to €279 billion and is projected to reach €326 billion in 2024, with an additional €100 billion expected by 2027 in inflation-adjusted terms [1]. This spending surge is driven by a combination of geopolitical tensions and a push for strategic autonomy. Germany, now the world’s third-largest defense spender, allocated €86 billion to its 2024 budget, while France committed €59.6 billion [1].

The ReArm Europe initiative, a €800 billion plan spanning 2025–2027, underscores this shift. A €1.5 billion fund within the program mandates that at least 65% of defense item costs come from European suppliers, signaling a deliberate pivot toward local production [2]. This has created a fertile ground for European defense primes like Rheinmetall (Germany) and KNDS (France), which are redirecting production lines to meet surging demand for armored vehicles, artillery systems, and tactical trucks [2].

Meanwhile, non-defense companies are entering the fray. BCG estimates that software, aerospace, and automotive firms could access €500 billion in defense-related business over the next four years, particularly in cyber defense, AI-enabled simulations, and MRO services for military aircraft [3].

U.S. Defense Budget: Modernization and Technological Edge

The U.S. Department of Defense’s fiscal 2025 budget request of $849.8 billion reflects a strategic focus on modernization and technological superiority. A 340% increase in missile and munitions spending over the last decade highlights the urgency to replenish stockpiles and counter emerging threats [1]. The One Big Beautiful Bill Act (OBBBA), signed in July 2025, allocated $150 billion for defense priorities, including $29 billion for shipbuilding (e.g., DDG destroyers, Virginia-class submarines) and $24.4 billion for missile defense systems [3].

President Trump’s April 2025 executive order further streamlines procurement by emphasizing commercial solutions and eliminating outdated programs [4]. This aligns with the broader trend of retrofitting existing military assets, a market projected to grow from $20.7 billion in 2024 to $26.4 billion by 2030 [2]. U.S. firms like Raytheon and Honeywell are leveraging these trends, with Honeywell’s 2024 acquisition of Civitanavi Systems in Italy enhancing its European footprint [2].

Strategic Partnerships and Market Opportunities

The interplay between European and U.S. defense markets is fostering cross-border collaborations. U.S. startups like Anduril are partnering with European primes such as Rheinmetall to develop localized versions of their technologies, while Honeywell’s investments in Italy underscore the importance of adapting to European preferences for domestic capabilities [2].

However, challenges persist. The EU’s fragmented defense market, with over 170 different weapons systems compared to the U.S.’s 30, complicates interoperability [5]. Additionally, European NATO members imported 64% of their arms from the U.S. between 2020–2024, highlighting structural weaknesses in the European defense industrial base [5]. The Readiness 2030 package, including the EUR 150 billion SAFE loan instrument, aims to address these gaps by stimulating industrial consolidation and private investment [4].