US arms giants go local as Europe demands defense autonomy

U.S. defense giants like Lockheed Martin are strategically embedding themselves deeper into Europe’s defense industrial base by localizing production and forming joint ventures, such as the co-production of ATACMS missiles with Rheinmetall at the Unterluess site. This approach not only aligns with European demands for sovereignty and local industrial content but also positions Lockheed Martin closer to NATO decision-makers and supply chains, enhancing its role as a preferred supplier amid growing competition from firms like Raytheon and MBDA. However, these moves introduce complexities around cost control and technology transfer that require careful navigation.

The push for European strategic autonomy has compelled U.S. defense companies to significantly adapt their traditional manufacturing and technology sharing models. Raytheon, historically a boutique manufacturer, is now scaling up to support mass production capabilities in allied countries, reflecting a broader shift toward multinational manufacturing exemplified by the U.S. licensing Patriot missile production to Ukraine alongside Japan and Germany. This transition is complicated by persistent supply chain constraints, particularly in critical components like solid rocket motors, underscoring the industrial challenges inherent in localization efforts.

Beyond established players, newer U.S. defense tech firms such as Anduril are also expanding their European footprint to meet diverse national localization requirements, exemplified by Anduril’s UK workforce growth and plans to produce Barracuda-500M cruise missiles in Poland. This diversification highlights how each European government’s unique sovereignty demands are reshaping how U.S. firms approach production and technology transfer, with significant intellectual property sharing becoming a non-negotiable expectation, as noted by Boston Consulting Group’s Fabio Dal Pan.

While these strategic adaptations allow U.S. defense companies to maintain relevance within Europe’s evolving defense landscape, they also carry the looming risk that Europe’s long-term drive for strategic autonomy could diminish reliance on American systems altogether. As Tom Waldwyn of the International Institute for Strategic Studies warns, this shift toward European self-sufficiency is 'of huge concern' for U.S. firms, underscoring the delicate balance between cooperation and competition that defines this new era of transatlantic defense industrial relations.

Europe's strategic autonomy ambitions are vividly illustrated by the collaborative Freya missile defense project involving nine European countries and Ukraine, aiming to bolster Ukraine's defense capabilities independently of U.S. support. This coalition, including France, Germany, and the U.K., not only signals a clear pivot towards European defense sovereignty but also aligns with broader goals to reduce the risk of direct NATO-Russia conflict by enhancing autonomous defense systems, as market odds for such a clash have slightly decreased to 17.5% by the end of 2026.

Driven by growing concerns over the U.S.'s shifting 'America First' stance and a perceived unreliability in foreign policy, Europe has dramatically accelerated its space sovereignty efforts, compressing what was once a decade-long plan into a three-year sprint. Recognizing space as an increasingly critical commercial and national security domain—encompassing missile warning systems and GPS satellites—Europe aims to close the vast gap with the U.S., which conducted 180 orbital launches in 2025 compared to Europe's mere eight, with the European Space Agency targeting a modest increase to 10 launches per year by 2027.

European governments are no longer content with simply purchasing finished defense products; they are demanding significant intellectual property transfers to build, modify, and maintain equipment independently, reflecting a robust push for local control and industrial benefits. This drive is reshaping the defense industrial base as U.S. companies adapt by localizing production and forming joint ventures within Europe, motivated by European concerns that future U.S. support could be constrained by shifting priorities or supply limitations, thereby threatening sustained defense capabilities.

Europe's pursuit of defense sovereignty is also evident in its preference for indigenous systems over traditional U.S. suppliers, exemplified by NATO's $4.5 billion plan to acquire Swedish Saab GlobalEye surveillance planes to replace aging AWACS aircraft, and the UK-based BAE Systems unveiling a new 'sovereign' unmanned fighter jet. These moves underscore a deliberate strategic shift to reduce dependency on American technology and assert greater control over defense capabilities within Europe.

Lockheed Martin's strategic partnership with Rheinmetall exemplifies NATO-led multinational industrial cooperation by localizing production of ATACMS missiles and spearheading a multinational initiative to establish a PAC-3 missile maintenance facility in Europe. This move not only aligns with European ambitions for defense autonomy but also integrates U.S. weapon systems more deeply into European supply chains and decision-making frameworks, positioning Lockheed Martin as a preferred supplier amid shifting NATO procurement priorities despite increased complexity and execution risks.

NATO's expansion of Patriot missile production licensing to allies including Ukraine, Japan, and Germany marks a significant broadening of multinational manufacturing capabilities for this critical U.S. weapon system. This collaborative approach fosters innovation as each nation seeks to develop enhanced missile variants, though persistent global supply chain bottlenecks—particularly in solid rocket motors—continue to constrain production scalability across all involved countries.

Beyond missile systems, NATO is advancing multinational cooperation by negotiating the procurement of 10 Bombardier Global business jets converted for electronic surveillance and AEW&C roles, reflecting a strategic shift towards adapting advanced U.S.-origin platforms to meet European operational needs. This initiative underscores NATO’s broader vision of fostering interoperability and industrial resilience, where European countries serve as industrial backups for one another to rapidly scale production and respond to evolving threats.

NATO officials and industry leaders emphasize that sustained investment and a redefined partnership between governments, militaries, and defense industries are essential to modernize European production lines and win the technological and industrial race against strategic competitors like Russia and China. As Benedetta Berti noted, 'The speed of investment in European production lines needs to be the speed of meeting the threat,' while Camille Grand stressed that success hinges on collective action: 'If we want to win that technological race and that industrial race, we need to do it together.'

Europe's increased defense budgets, exemplified by a 20% surge to approximately €418 billion in 2025, have yet to translate into proportional procurement of weapons and equipment, largely due to budget allocation challenges. Countries like Poland have boosted their equipment spending share from 18% in 2014 to 43% in 2024, while others such as Italy still allocate over half their defense budgets to personnel costs, illustrating structural disparities that hinder the revitalization of the defense industrial base. NATO guidelines recommend at least 20% of defense budgets be spent on equipment, yet many nations fall short, underscoring the persistent tension between political priorities and industrial needs.

Rebuilding Europe's defense industrial capabilities is a generational challenge, as decades of erosion—marked by factory closures, loss of skilled engineers, and supplier consolidation—cannot be reversed rapidly despite political will or funding surges. Camille Grand emphasizes the necessity of sustained, uninterrupted investment and a reimagined government-industry-military relationship to overcome these structural deficits, while Konrad Golota highlights that fostering interoperability and interchangeability among national industries is crucial for creating resilient industrial backups. This slow industrial recovery contrasts sharply with the urgency imposed by geopolitical threats like a resurgent Russia, demanding accelerated yet steady efforts to rebuild production capacity before 2035.

Europe’s defense industrial base is simultaneously undergoing significant consolidation and strategic transformation to secure critical technologies and scale capabilities amid the push for strategic autonomy. Companies such as Leonardo and Indra have led acquisition waves—seven and five respectively—to expand their portfolios in advanced digital, space, and AI-enabled systems, reflecting a shift in procurement priorities from lowest cost to delivery speed, component origin, and supply security. Despite these efforts and a compound annual growth rate of 9.4% in defense spending from 2019 to 2025, Europe’s defense budget remains far below U.S. levels, highlighting the long-term challenge of scaling industrial capacity to meet strategic ambitions.