The Eurofighter Jet Deal and Its Implications for European Defense Contractors

The recent geopolitical shift in Turkey's defense procurement strategy, as it edges closer to finalizing a $5.6 billion contract for up to 40 Eurofighter Typhoon jets, represents a pivotal moment for European defense contractors. This deal, long stalled by political and diplomatic hurdles, now appears within reach after Germany's approval under Chancellor Friedrich Merz. For BAE Systems, Airbus, and Leonardo, the agreement is not merely a commercial windfall but a strategic reinforcement of European industrial unity in an era of escalating global tensions and U.S. export restrictions.

Strategic and Financial Upsides for Key Stakeholders

BAE Systems: The Cornerstone of the Consortium
BAE Systems, holding a 37% equity stake in the Eurofighter consortium, is the lead manufacturer of the Typhoon. Its Warton plant in the UK will be central to production, ensuring continuity in a defense sector that has faced uncertainty due to declining orders. The deal's $5.6 billion valuation, while still subject to final pricing negotiations, guarantees sustained production through the early 2030s. For BAE, this contract is a lifeline. With the UK's defense budget under pressure to fund next-generation platforms like the Tempest, the Turkey deal provides critical cash flow and stabilizes its supply chain. Subcontractors such as Rolls-Royce (engines) and Leonardo (avionics) will also benefit, but BAE's role as the program's backbone is irreplaceable.

Airbus: Reinforcing European Industrial Autonomy
Airbus, with a 20% equity share in the consortium, plays a dual role: it is both a key manufacturer of core components (such as fuselage sections and radar systems) and a strategic advocate for European defense collaboration. The company's involvement in the Eurofighter program aligns with its broader ambitions to reduce reliance on U.S. technology and assert strategic autonomy. The Turkey deal, in particular, validates Airbus's push for international orders, which are essential to sustaining the Eurofighter's production line. For investors, Airbus's exposure to this deal is amplified by its leadership in the Tempest program, a next-generation fighter project that could inherit technologies from the Typhoon.

Leonardo: The Avionics Powerhouse
Leonardo's 20% equity stake in the consortium is tied to its expertise in avionics and radar systems, making it the linchpin of the Typhoon's advanced capabilities. The company's recent financial performance—€6.9 billion in new orders and €4.2 billion in revenue for Q1 2025—underscores its ability to fund long-term projects like the Turkey deal. With a €46 billion order backlog, Leonardo is well-positioned to manage the technical and financial demands of supplying cutting-edge avionics. The deal also opens opportunities for technology transfer and joint R&D with Turkey, potentially expanding Leonardo's footprint in the Middle East.

Geopolitical and Market Implications

The Turkey deal is more than a procurement contract; it is a geopolitical statement. By sourcing advanced fighters from a European consortium rather than the U.S., Turkey signals its intent to diversify defense suppliers amid U.S. restrictions on F-35 access. For European contractors, this deal reinforces the viability of the Eurofighter as a credible alternative to the F-35, particularly in markets wary of U.S. influence.

However, risks remain. The final contract price, currently under negotiation, could impact margins if Turkey's budget constraints force cost reductions. Additionally, geopolitical tensions in the Middle East could delay deliveries or shift priorities. Investors must also consider the broader context of European defense spending, which is rising but remains uneven across member states.

Investment Advice

For investors, the Eurofighter Turkey deal presents a clear upside for all three contractors, but with varying risk profiles:
- BAE Systems offers the most direct exposure to the deal's execution and long-term production stability. Its stock, currently trading at a 12-month high, reflects renewed confidence.
- Airbus benefits from a broader industrial strategy, with the Tempest program and global defense spending trends acting as tailwinds. Its valuation appears undervalued relative to its long-term prospects.
- Leonardo is a high-growth bet, particularly for its avionics expertise and potential to leverage the Turkey deal for regional expansion. However, its exposure to geopolitical volatility is higher.

In conclusion, the Eurofighter Turkey deal is a watershed moment for European defense contractors. It not only secures immediate revenue but also reinforces the continent's ability to develop and export advanced military technology in an increasingly fragmented global order. For investors, this is a rare alignment of strategic necessity and financial opportunity—one that demands careful consideration of both the upside and the geopolitical risks.