Leaders of all 32 NATO member states gathered in Ankara, Turkey. US President Trump surprised allies with a wave of criticism, once again complaining about insufficient European support in the war with Iran. Allies, for their part, emphasised solidarity and the acceleration of plans to increase defence spending.
For European defence manufacturers such as Rheinmetall, the key question is how quickly NATO member states intend to reach the 5% of GDP defence spending target. After a massive surge of interest in defence stocks, the picture has grown more complicated in recent months. At the end of June, Germany cancelled Rheinmetall’s largest pending contract — the F126 frigate programme worth more than eighteen billion euros — triggering a stock market drop of over 20%.
The summit did, however, bring good news for Rheinmetall. The German giant signed a preliminary agreement with America’s Lockheed Martin to jointly produce ATACMS missiles in Germany. The German government is also planning record defence expenditure of up to 109 billion euros for next year. It is reasonable to assume that across a wide range of procurement projects, Berlin will favour domestic manufacturers such as Rheinmetall.
Even so, Rheinmetall shares remain roughly 45% below last year’s record high. Reversing that trend will require further strategic contract wins.
Sweden’s Saab is faring somewhat better. The company has recently signed several significant contracts, including a deal for sixteen Gripen E fighter jets for Ukraine worth approximately 2.2 billion euros, and GlobalEye airborne early warning aircraft worth around 4.5 billion dollars — intended to replace ageing American AWACS platforms.
These contracts are a good illustration of how allies are gradually seeking to replace American equipment with homegrown alternatives. Saab is well positioned to excel in this space given its product portfolio. Fighter jets and missile systems are among the key capability areas NATO wants to prioritise, and where the US currently dominates. Growth is nonetheless being constrained by production capacity and supply chain limitations — a critical challenge not only for Saab but for the entire European defence industry. Saab’s shares have risen modestly since the start of the year, in contrast to Rheinmetall’s sharp decline.
Increasing defence budgets and the gradual move towards greater independence from the United States remain at the heart of European security policy — and will continue to do so for years ahead, regardless of how the war in Ukraine develops. Already at last year’s Hague summit, allies agreed to progressively raise defence spending to 5% of GDP by 2035.
For European defence companies, the priorities now are contract execution, speed, and margins. Future orders are not the concern — the real question is how quickly they can convert them into profit.
