Turkey's Growing Defense Spending and Its Impact on UK Aerospace and Defense Stocks

Turkey's defense budget has surged to $33.7 billion in 2025, a near-tripling since 2021, driven by a strategic pivot toward indigenous military capabilities and regional security demands, according to a Nordic Monitor report. While this growth falls short of NATO's 2% GDP benchmark, it has created a fertile ground for international defense partnerships. For UK aerospace and defense firms like BAE Systems, Turkey's procurement strategies-particularly its collaboration with Turkish Aerospace Industries (TAI)-represent both a significant market opportunity and a complex geopolitical chessboard. This article examines how Turkey's defense spending trajectory and its partnerships with BAE Systems are shaping the investment landscape for UK defense stocks.

Strategic Alliances: TAI and BAE Systems' Synergies

The partnership between TAI and BAE Systems has evolved into a cornerstone of Turkey's defense modernization. A 2025 Memorandum of Understanding (MoU) between the two entities focuses on uncrewed air systems (UAS), leveraging TAI's expertise in drone development and BAE's global sales network. This collaboration extends to the Eurofighter Typhoon program, where BAE Systems plays a pivotal role in final assembly and avionics integration. Turkey's recent acquisition of 20 Typhoon jets-valued at £8 billion-has been hailed as a landmark deal, supporting 20,000 UK jobs and reinforcing BAE's position in the European defense ecosystem, according to a Turkish news source.

Simultaneously, BAE's involvement in the TAI TF Kaan fifth-generation fighter jet program underscores Turkey's ambition to reduce reliance on foreign suppliers. By providing engineering consultancy and design support, BAE Systems is indirectly contributing to the localization of advanced aerospace technologies in Turkey, as noted in a Herdem Law analysis. However, this partnership is not without tension. Turkey's push for full industrial independence risks limiting technology transfer, potentially capping BAE's long-term gains in the region, according to the same Herdem Law analysis.

Financial Implications for BAE Systems

BAE Systems' financial performance in 2025 has been bolstered by Turkey-related contracts. The company reported a £27 billion order intake, including £4 billion in Typhoon-related deals, according to a Morningstar report. A £133 million contract for the Striker II Helmet Mounted Display (HMD) further solidifies BAE's role in enhancing pilot situational awareness, with the technology set to be integrated into Turkey's Typhoon fleet, according to a The Aviationist report. Analysts note that these contracts align with BAE's strategic focus on "sovereign capability" and NATO-aligned markets, positioning the firm to benefit from broader European defense spending trends, according to the Morningstar report.

The Eurofighter Typhoon's Long-Term Evolution (LTE) program, which includes AI-driven avionics upgrades, is another growth driver. BAE Systems' development of the Large Area Display (LAD) for the LTE initiative ensures its continued relevance in the Typhoon's lifecycle, with potential spillover benefits for export markets, according to a The Aviationist report. However, the company's exposure to Turkey's economic volatility-marked by currency depreciation and fiscal constraints-introduces risks that could temper long-term earnings visibility, as noted in the Nordic Monitor report.

Investment Considerations: Balancing Growth and Geopolitical Risks

For investors, BAE Systems' exposure to Turkey's defense sector presents a dual-edged sword. On one hand, the company's partnerships with TAI and its role in the Eurofighter consortium offer a clear revenue tailwind. On the other, Turkey's geopolitical tensions-such as its exclusion from the F-35 program and strained relations with the U.S.-could disrupt procurement timelines or shift defense priorities, according to a Simple Flying analysis. Additionally, the UK's "NATO First" policy, which prioritizes domestic industrial needs, may limit the depth of technology transfer in Turkey's indigenous projects, according to the Herdem Law analysis.

Despite these challenges, BAE's diversified portfolio and strong order backlog provide a buffer against regional headwinds. The company's 8–10% revenue growth projection for 2025, driven by both UK and international contracts, suggests resilience in a volatile defense market, according to the Morningstar report. Analysts remain cautiously optimistic, with some noting that BAE's strategic alignment with NATO's modernization goals could mitigate risks associated with Turkey's economic fluctuations, as noted in the The Aviationist report.

Conclusion

Turkey's defense spending surge, while constrained by GDP benchmarks, has catalyzed a new era of collaboration between UK and Turkish defense firms. For BAE Systems, the Eurofighter Typhoon deal and TAI partnerships represent a strategic inflection point, offering both immediate revenue gains and long-term positioning in a critical NATO ally. However, investors must weigh these opportunities against geopolitical uncertainties and Turkey's push for self-reliance. As the defense sector navigates this complex landscape, BAE Systems' ability to balance international partnerships with domestic industrial priorities will be pivotal to its sustained growth.