The Turkey-Eurofighter Typhoon Deal: Strategic Implications for European Defense Stocks and Geopolitical Risk Exposure

In July 2025, a seismic shift in European defense dynamics unfolded as Turkey edged closer to securing a landmark deal to procure up to 40 Eurofighter Typhoon jets. This procurement, valued at over $5 billion, marks a strategic recalibration for both Turkey and its European partners. For investors, the deal offers a unique lens to analyze the investment potential of key defense stocks—BAE Systems (UK), Airbus (Germany), and Leonardo (Italy)—while navigating the interplay of geopolitical risk and NATO's evolving priorities.

The Strategic Rationale: Turkey's Air Force Modernization and European Industrial Interests

Turkey's pursuit of the Eurofighter Typhoon is driven by necessity. Excluded from the F-35 program after its 2019 purchase of Russian S-400 air defense systems, Ankara faces a critical capability gap in its aging F-16 fleet. The Typhoon, a 4.5-generation multirole fighter, offers advanced radar systems, long-range missile compatibility, and agility to counter regional threats—particularly Greece's Rafale fleet and potential F-35 acquisitions. For Europe, the deal revives a struggling Eurofighter program. Production lines for the Typhoon had slowed to 14 aircraft annually, but Turkey's order could push output to 30 units per year, ensuring sustained revenue for the consortium.

Germany's recent policy shift under Chancellor Friedrich Merz has been pivotal. After years of hesitation, Berlin approved the sale, prioritizing NATO cohesion over political friction with Ankara. This pragmatism aligns with Europe's broader push for strategic autonomy, reducing reliance on U.S. military hardware. For Turkey, the deal diversifies its procurement base while maintaining NATO ties—a delicate balancing act that underscores its growing regional influence.

BAE Systems: Stabilizing Production and Securing Export Momentum

As the UK's lead partner in the Eurofighter consortium, BAE Systems (37% stake) stands to benefit most directly. The Turkish contract, alongside orders from Saudi Arabia and Qatar, ensures production continuity at its Warton plant through the early 2030s. This is critical for BAE, which has faced production risks due to declining orders in recent years.

Financially, BAE has shown resilience. In Q2 2025, the company reported $5.76 billion in revenue and $406 million in earnings. Analysts project 2025 EPS of $0.75 and revenue of $30.54 billion, with 2026 estimates at $0.83 and $32.56 billion, respectively. The stock currently trades at 1,862.50 GBp, below its average analyst price target of 1,906.13 GBp. BAE's management is optimistic about securing 150 additional export orders, leveraging AI and electronic warfare upgrades to outcompete rivals. However, production line stability hinges on securing fresh orders, as highlighted by trade union warnings about potential closures.

Airbus: Indirect Gains in a Resurgent Defense Sector

While not a direct partner in the Eurofighter consortium, Airbus benefits from the broader defense spending surge. The company's military and space divisions are poised to capitalize on NATO's rearming agenda and global demand for advanced systems. The Typhoon deal reinforces European defense collaboration, bolstering Airbus' role in next-gen projects like the Tempest program.

Airbus' stock has risen 1.61% in recent sessions, reflecting confidence in its diversified portfolio. The company's exposure to the Eurofighter deal is indirect but significant, as it underpins Europe's push for strategic autonomy. With defense spending in the UK and Germany set to increase (the UK pledged 3.5% of GDP by 2030), Airbus is well-positioned to benefit from long-term contracts in both military and civilian sectors.

Leonardo: Avionics Expertise and AI-Driven Upgrades

Leonardo, the Italian partner in the Eurofighter consortium, serves as the avionics supplier for the Typhoon. The company's expertise in radar and electronic warfare systems positions it as a key player in the European defense ecosystem. The Turkish deal ensures a steady revenue stream, with Leonardo's 83% defense revenue segment gaining momentum.

Analysts have raised Leonardo's fair value estimate due to global security concerns driving defense growth. The company is also investing in AI-driven avionics upgrades for the Typhoon, enhancing its relevance in a rapidly evolving market.

Geopolitical Risks and Strategic Considerations

While the deal is a win for all parties, risks persist. Turkey's economic instability, including 40% inflation in 2024, could strain long-term funding. Geopolitical tensions with Greece and domestic political shifts in Ankara may also disrupt procurement timelines. For the consortium, geopolitical friction—such as U.S. pressure over the S-400 purchase—remains a wildcard.

However, the strategic necessity of the deal—both for Turkey's air parity and Europe's industrial interests—provides a strong backstop. The UK's defense spending commitments and Germany's pragmatic stance under Merz act as stabilizing factors.

Investment Thesis: Balancing Risk and Reward

For investors, the Eurofighter deal presents a compelling case. BAE Systems offers direct exposure to a critical contract with growth potential, while Airbus and Leonardo benefit from broader defense sector tailwinds. Turkey's defense exports, which surged to $7.1 billion in 2024, further diversify the risk profile.

Key Takeaways:
1. BAE Systems is the most direct beneficiary, with production stability and export optimism.
2. Airbus gains indirectly from Europe's defense renaissance and strategic autonomy goals.
3. Leonardo leverages its avionics expertise to secure long-term relevance in the global market.

Investment Advice:
- Long-term investors should consider BAE Systems and Leonardo for their exposure to the Eurofighter program and AI-driven upgrades.
- Diversified portfolios may include Airbus for its broader defense and space capabilities.
- Geopolitical risk mitigation can be achieved by pairing these stocks with ETFs like PACX (aerospace & defense) or XUBK (Turkey-focused).

In conclusion, the Turkey-Eurofighter Typhoon deal is a strategic inflection point for European defense stocks. While geopolitical risks linger, the alignment of military modernization, industrial revival, and NATO cohesion creates a compelling investment narrative. As global defense spending climbs, the consortium's role in bridging capability gaps and fostering strategic autonomy will likely remain a key driver of value.