European defence spending is rising, but the continent remains far more fragmented than the United States, with too many different platforms and requirements. Leonardo CEO and general manager Lorenzo Mariani says reversing that trend will take years, but argues that joint procurement, stronger supply chains and greater investment in key technologies are already moving Europe in the right direction.
Speaking in Cernobbio, Mariani said Europe needs to tackle the problem from two directions: increasing defence funding while reducing the number of different systems and platforms in use.
“Everyone is moving in the right direction when it comes to spending,” Mariani said, pointing to the increase in military budgets across Europe and the United States. But higher spending alone will not close the gap with the US, he argued.
The other part of the equation is reducing the number of different military requirements and platforms. Mariani said the EU’s Safe programme, which provides funding while encouraging cooperation and joint contracts, represents a step in the right direction.
Joint procurement is just as important as joint development, he added. The Fremm frigates offer one example: when another European country adopts a platform already in service elsewhere, as Portugal has recently done, it avoids adding another system to an already fragmented European defence market.
However, Mariani cautioned that reducing fragmentation will take time. Ships, helicopters and tanks can remain in service for 30 to 40 years, meaning Europe cannot quickly replace the large number of platforms currently in operation.
Europe needs stronger industrial incentives
Greater defence spending could also weaken the incentive for European companies to merge, according to Mariani. Historically, industrial consolidation has often accelerated when defence budgets were under pressure and companies were forced to find ways to use limited resources more efficiently.
The creation of missile manufacturer MBDA is one example. The company emerged after the sharp decline in defence investment following the end of the Cold War.
With governments now spending more, that pressure to consolidate has weakened. At the same time, European countries are increasingly emphasising national sovereignty, creating another obstacle to industrial integration.
Mariani said companies therefore need to think beyond short-term business cycles and develop strategies spanning 10 to 15 years. Governments, he argued, should also create incentives that make cooperation economically attractive.
European competition rules will be another factor. Mariani said the European Commission’s discussions over proposed industrial projects had been constructive, but warned that Leonardo would not accept major structural remedies that could undermine the rationale for European consolidation.
He also pointed to MBDA as an example of how difficult it would be to create major European defence champions under today’s competition framework.
Strategic autonomy does not mean replacing the US
Mariani does not believe European strategic autonomy requires the continent to completely replace American military systems.
A continued US presence in Europe is compatible with a healthy transatlantic relationship and a balanced NATO, he said. European companies, meanwhile, should remain free to expand their sales in the US.
“There are technologies where America is ahead and will remain ahead for many years,” Mariani said.
For Europe, the priority should instead be to strengthen resilience in critical supply chains and close technological gaps in areas such as drones and, to some extent, cyber capabilities.
Europe cannot consider itself strategically independent if critical components can suddenly become unavailable because of American national-security priorities, Mariani argued. While it is understandable that components are prioritised for US missile production when necessary, such dependence creates a vulnerability for European defence industries.
Drones emerge as a key priority
The war in Ukraine has also challenged the assumption that modern warfare necessarily requires increasingly expensive and sophisticated weapons.
Highly capable missiles are still needed against advanced threats, Mariani said, but simpler systems that can be produced in much larger quantities can also play an important role. Italy and France are already moving in that direction, drawing lessons from the Ukrainian battlefield.
Leonardo is also deepening its cooperation with Turkish drone manufacturer Baykar. The joint venture is already operational, particularly around the TB3 drone, with plans to establish production and assembly capabilities in Italy.
Leonardo’s goal, however, is not simply to manufacture Turkish-designed drones. The company wants to integrate its own payloads and technologies, adding capabilities that could allow the systems to compete in higher-value markets.
For smaller drones, Leonardo plans to establish an Italian industrial base through a partnership, acquisition or other M&A transaction involving one or more Italian small and medium-sized companies.
The company has also established a presence in Ukraine and signed agreements with several local companies to gain access to the experience accumulated by Ukrainian manufacturers through battlefield deployment.
Mariani said that cooperation could provide the foundation for the development of Italian and European drone technologies.
More acquisitions likely
Leonardo’s recent acquisition of US-based Raft, a company specialising in artificial intelligence and software for command-and-control systems, particularly advanced air-defence systems, is unlikely to be its last deal.
Mariani said Leonardo remained open to programme agreements, joint ventures and acquisitions, particularly in areas where the company is not among the world’s largest players.
Leonardo’s broad portfolio is an advantage, he said, but also means the company cannot lead every individual defence technology sector.
In areas where investment has lagged for years, trying to catch up organically may not always be the most effective strategy. Partnerships or acquisitions can provide access to companies that have already developed the necessary technology and expertise.
For Leonardo, Mariani said, successful deals should not simply add scale. They should bring new ideas and sustainable projects while strengthening the company’s position, benefiting Italy and contributing to greater consolidation across Europe’s defence industry.
Be First to Comment