Leonardo's Leadership in GCAP: A Strategic Play for Sixth-Gen Combat Air Dominance

The Global Combat Air Programme (GCAP), a multibillion-dollar initiative to develop the world's first operational sixth-generation fighter jet by 2035, is fast becoming a cornerstone of modern defense industrial strategy. At the heart of this project is Leonardo, the Italian aerospace giant, whose technological prowess and strategic positioning within the GCAP consortium make it a prime investment opportunity. As Saudi Arabia's potential entry into the program sparks fresh optimism about expanded markets and funding, Leonardo stands to benefit from a trifecta of advantages: partnership expansion, technological synergies, and geopolitical demand. Here's why investors should take note—and position for this multi-decade opportunity.

Leonardo's Core Role in GCAP: A Catalyst for Tech and Market Growth

Leonardo is a linchpin of the GCAP consortium, which also includes the UK's BAE Systems and Japan's Mitsubishi Heavy Industries (MHI). The program's goal—to deliver a networked, AI-driven fighter capable of dominating next-generation aerial warfare—is underpinned by technological specialization. Leonardo's contributions are critical to subsystems like the Integrated Sensing and Non-Kinetic Effects (ISANKE) system, which enables advanced electronic warfare and communications. This system, alongside its work on avionics and sensor integration, positions Leonardo as a leader in defining the fighter's core capabilities.

The inclusion of Saudi Arabia—long courted by GCAP partners Italy and the UK—adds a new dimension. While Japan's hesitancy persists due to geopolitical and ethical concerns, Riyadh's wealth could alleviate the program's massive development costs. Analysts estimate GCAP's total cost could rival the F-35's trillion-dollar lifetime expenses. Saudi Arabia's $925 billion sovereign wealth fund and Vision 2030 goals to localize defense production make it a natural financier, potentially accelerating timelines and reducing risks for existing partners. For Leonardo, this means not only financial stability but also access to Middle Eastern markets, where it can expand its MRO (maintenance, repair, overhaul) services and subsystem manufacturing.

Partnership Expansion: A Double-Edged Sword with Upside

While Japan's reluctance poses a hurdle, Saudi Arabia's potential entry exemplifies the geopolitical demand reshaping defense markets. Nations like Saudi Arabia, India, and Australia are prioritizing sovereign control over military tech, driven by fears of overreliance on U.S. systems and the need to counter rising regional threats. GCAP's “like-minded democracies” framework (now potentially broadened) aligns with this trend, offering a viable alternative to U.S.-led programs.

Leonardo's strategy leverages this shift. By deepening ties with Saudi Arabia's General Authority for Military Industries (GAMI)—which seeks localization of 50% of defense spending by 2030—Leonardo could secure long-term contracts for subsystem production, training, and AI integration. Meanwhile, its existing collaborations with BAE and MHI create a technological synergy that rivals any competitor. For instance, Leonardo and BAE are jointly advancing the ISANKE system, while MHI's expertise in stealth technology and engine design complements Leonardo's sensor and avionics strengths.

Leonardo's share price has outperformed peers this year, reflecting investor optimism about its role in GCAP's critical subsystems.

The 2035 Deadline: A Catalyst, Not a Constraint

The 2035 deadline is often cited as a risk, but it's also a market differentiator. GCAP aims to be the first operational sixth-gen fighter, leapfrogging competitors like the U.S. Next-Generation Air Dominance (NGAD) program and Europe's FCAS. Leonardo's ability to meet this timeline hinges on its modular design approach, which allows incremental upgrades rather than a single “big bang” rollout. This agility is critical for adapting to evolving threats like hypersonic missiles and AI-driven warfare.

For investors, the timeline creates a clear multi-decade revenue stream. The fighter's lifecycle—spanning production, upgrades, and MRO—could generate hundreds of billions in revenue. Leonardo's focus on subsystems ensures recurring income, even if production volumes remain uncertain.

Risks and Why They're Manageable

• Japan's Hesitancy: Tokyo's concerns over Saudi Arabia's human rights record and ties to Russia/China could delay final approvals. However, Italy and the UK's diplomatic push—coupled with Japan's need to avoid program delays—suggest a compromise is likely.
• Technical Complexity: Integrating four partners' systems risks design compromises. Yet Leonardo's leadership in key subsystems gives it negotiating power to prioritize its technologies.
• Funding Gaps: Saudi Arabia's contributions remain unconfirmed. However, its $142 billion U.S. defense deal (2025) signals a willingness to invest in cutting-edge systems, even if indirectly.

Investment Thesis: Buy Leonardo, Hedge with BAE and MHI

Leonardo is the best pure-play exposure to GCAP's success. Its stock has already gained momentum in 2025, but the valuation remains reasonable relative to its peers. Meanwhile, BAE and MHI offer diversification:

• Leonardo (IT:LDO): Core holding. Its subsystem dominance and Saudi partnerships justify a overweight position.
• BAE Systems (LON:BA.): A stalwart in fighter development; benefits from GCAP's British leadership.
• Mitsubishi Heavy Industries (TSE:7012): Leverages Japan's advanced tech and regional demand.

Rising defense budgets, driven by sovereign tech demands, will underpin GCAP's long-term viability.

Final Take

The GCAP is a generational bet on air dominance—and Leonardo is its engine. With Saudi Arabia's potential entry unlocking capital and markets, and geopolitical trends favoring sovereign defense, this project is primed to deliver decades of returns. Investors should treat it as a strategic long-term play, prioritizing Leonardo while hedging with its partners. The 2035 deadline isn't a finish line but a starting point for a new era of combat air supremacy.

Action Items:
1. Accumulate Leonardo shares over the next 12–18 months.
2. Use BAE and MHI as complementary holdings to balance risk.
3. Monitor Saudi-Japan negotiations closely; a deal could spark a re-rating in 2026.

The skies of tomorrow will be ruled by sixth-gen fighters—and Leonardo is building the wings.