US defense firms confront Europe's $4.5B local-control push at Farnborough

European governments are demanding greater control over defense equipment, pushing US contractors to localize production or risk losing market share.

At the Farnborough Airshow this week, US defense contractors encountered a shift in European demand: customers want local production, technology transfer, and sovereign control — not just finished American systems.

"We hear loud and clear: Europeans want more sovereignty, and they want more localized capability," said Daniel Tenney, senior vice president of global business development and strategy at Lockheed Martin.

Lockheed responded by announcing a lower-cost Patriot interceptor developed with European and US partners, and a plan with Germany's Rheinmetall to produce ATACMS missiles in Germany. RTX's Raytheon partnered with European firms to assemble Stinger missiles in the Netherlands. Anduril, making its first major Farnborough appearance, agreed to produce its Barracuda-500M cruise missile in Poland.

The shift threatens US defense contractors' share of Europe's military spending boom. NATO's European members and Canada have sharply increased defense outlays, but a growing preference for local suppliers could reduce future order backlogs for Lockheed Martin, RTX, and other American firms.

The concern is not hypothetical. NATO recently awarded a roughly $4.5 billion contract to Swedish Saab for up to 10 GlobalEye surveillance planes, bypassing a rival solution from US planemaker Boeing. The decision marked a concrete example of Europe choosing homegrown capability over American equipment.

Europeans no longer want finished products — they want access to the underlying technology to build, modify, and maintain equipment themselves, said Fabio Dal Pan, a Milan-based senior partner at Boston Consulting Group. They want "a significant IP transfer," he said.

Localization as a Strategy

US companies argue it remains faster and cheaper to buy proven American systems than develop new ones, while pledging to localize production and technology. Thomas Laliberty, president of Raytheon's land and air defense systems, noted that widely used systems like Patriot benefit from pooled funding across multiple countries for features such as a threat database. "They get a lot of benefit from that collective," he said.

But some European officials worry the US could be less willing or able to provide weapons and parts in the future, particularly if American defense companies need to prioritize US military needs elsewhere. That concern has accelerated Europe's push for independence.

The Sovereignty Imperative

Britain's BAE Systems revealed a new unmanned fighter jet, the Brontanax, which the UK government adopted as its "operational concept demonstrator." The program will have multiple vendors but will be "sovereign," Air Vice-Marshal Jim Beck, the UK Royal Air Force's director of capability and programmes, told Reuters. "We need the right to do what we want with our kit at the point of our choosing," he said.

The trend poses a long-term risk for US contractors. While Europe remains heavily reliant on American systems such as the F-35 fighter jet and Patriot air-defense missiles, there are areas where European alternatives are "good enough" and may even be cheaper, said Sash Tusa, an aerospace and defense analyst at Agency Partners. That includes medium-range air-defense missile systems, he said.

Tom Waldwyn at the International Institute for Strategic Studies described the shift as "of huge concern" for US companies. If the trend toward greater European autonomy becomes entrenched, US defense contractors could face a structural reduction in their addressable market.

This article is for informational purposes only and does not constitute investment advice.