By Pierre Tran

Paris – Two European arms companies, KNDS France and MBDA, recently pointed up their hefty investment to boost production of cannon shells, artillery, and missiles, indicating a willingness to anticipate orders, and their access to extensive funds.

The willingness of those two privately held companies to invest in new plant and parts could be seen in contrast to companies listed on the stock exchange showing reluctance to build up weapon stocks until they win government orders.

That commitment to invest among some unlisted companies also shows how prime contractors have own funds and can tap bank loans and capital markets, while small and medium companies in the supply chain have struggled to find working capital, just to keep up with present orders.
State-owned KNDS France invested €600 million ($648 million) to ramp up production of its Caesar artillery and 155 mm 52 caliber shells from summer 2022, in expectation of orders from France and

European Allies

The scale of that €600 million investment by the KNDS French unit can be seen in the light of the KNDS group reporting March 27 2024 sales of €3.8 billion, up from €3.3 billion the previous year; orders of €11.2 billion, up from €7.8 billion; and an order book of €23.5 billion, up from €16 billion.

There was “satisfactory profitability in line with industry expectations,” the KNDS group said in a statement with the financial results.

KNDS is a Franco-German group comprising the family controlled KNDS Deutschland and KNDS France, with the head office in Amsterdam.

On the French unit’s investment of own-funds for the Caesar, contracts for 78 artillery systems eventually landed. Kyiv ordered six of the truck-mounted cannons in September 2023, with allies ordering the remaining 72, the weapons to be shipped to Ukraine in 2024 and early 2025.

MBDA said March last year the missile company would invest €2.4 billion between 2023-2028 to speed up production, in response to calls by France for higher productivity. That planned investment compared to 2024 sales of €4.9 billion, up from €4.5 billion in the previous year; orders of €13.8 billion, up from orders of €9.9 billion; and an order book of €37 billion, up from €28 billion.

MBDA is a private company jointly owned by Airbus, BAE Systems, and Leonardo, which are listed on European stock exchanges. Those parent companies would have had to approve the investment drive of the missile manufacturer, and the expected return.

Contracts First

French listed companies such as Thales have been ready to invest but have been waiting for arms contracts, a defense specialist said. The industrial workplace has lacked financing from the government to tool up.

For privately held companies such as KNDS France, there was a distinct political dynamic. The state ownership of the KNDS France unit might be seen as making it easier for managers to opt for raising production before government orders rolled in.

It remains to be seen whether KNDS’s readiness to build up stocks without orders will continue if the group completed a reported plan to list on the Frankfurt stock exchange, with prospective shareholders looking closely at capital expenditure and return on capital.

Meanwhile, MBDA has called for client nations to pool their orders for missiles.

There was a case to be made for discounts on joint orders, a second specialist said.

The pursuit of new weapons stems from French support for Ukraine in its fight against Russian forces, and a drive to build up low national stocks of arms, made more pressing from  what appears to be the Trump administration’s scorn for European allies.

“Collective buying” in the European Union made sense, Steven Everts, director of the European Union Institute for Security Studies (EUISS), a think tank, told March 26 the Anglo-American Press Association (AAPA).

The bulk of European spending on arms was at the national level and based on a sovereign decision, he said, but there was a case to be made for buying European-built equipment and on a collective basis.

The European Commission has pledged €1.5 billion for the European Defence Industry Programme (EDIP) for 2025-2027, and there is the European Defence Industrial Strategy (EDIS), both seeking to support companies in the 27 E.U. member states.

“Let’s see how it goes,” he said.

Political Support

A political agenda was set with a June 2022 speech by President Emmanuel Macron at the Eurosatory trade show, when he said the Russian invasion of Ukraine meant France was moving to a war economy.

The armed forces minister, Sébastien Lecornu, followed that up by holding a September 2022 meeting with industry leaders, chiefs of staff, and the head of the DGA procurement office. The minister called on companies to build up stocks of raw material, and companies pledged to speed up deliveries.

However, companies quietly talked of a lack of orders, making the war economy more talk than a bankable walk.

It remained for Bercy, the finance ministry in modern buildings and a helicopter pad on the roof, to find the payment credits to make down-payments, and pay up when deliveries were made. Those payment credits came after authorizations were made, to allow an order to be placed – arguably the easy part.

“There were many statements, but no contracts,” the specialist said, from the industry point of view.

From the government’s view, there was “dialog” with industry to speed up the production cycle, the specialist said. But there was something of a structural problem, with Bercy holding the budget strings, deciding whether “to pay or not to pay.”

That problem stemmed from payment credits in the defense budget already committed to pay for programs under way. Those programs had to be paid for – and the payment credits could not be spent twice.

A shortfall between authorization and payment credits leads to a funding gap.

The significance of credit payments could be seen with Thales executive chairman Patrice Caine pointing up March 4 the importance of arms programs which ran for years over the life of multi-year budget laws. Even when orders related to Ukraine did land, such as a U.K. order worth £1.66 billion for Thales light missiles for Kyiv, they were of relatively little importance compared to the company’s overall order book, he said.

Thales reported a 2024 defense order book of €39 billion.

The 2024 financial results of the leading arms companies, listed and unlisted, showed orders have been made, and order books have hit highs.

But their suppliers are struggling.

New Funding

France has made efforts to raise fresh funds, with the March 20 announcement by the economy minister, Eric Lombard, and Lecornu of new measures to invest in the French defense industrial and technological base.

The ministers launched a €450 million fund, with the state-backed bank Bpifrance offering  the French public a way personally to invest €500 in the arms industry.

Lombard also launched a plan to raise €5 billion from public and private funding, to be invested in the some 4,000 small and medium companies in the military sector, where many owners are struggling with a weak capital base and low cash holdings.

Those companies would need a further €1 billion-€3 billion of equity in the next few years, as France planned to boost spending on arms, he said.
Public investors could invest €1.7 billion of capital, he said, which would be boosted by private investors, to raise up to €5 billion to invest in companies in the arms industry.

That public-private funding for weapons is seen as all the more needed, as the French 2024 public sector budget deficit rose to 5.8 pct of economic output, up from 5.4 pct in 2023. The E.U. ceiling for the deficit is 3 pct.

More generally, rising trade tension from Washington toward the European Union has highlighted a perceived need to boost European industrial capability, with calls for ordering European-built arms rather than U.S. kit.

European stock markets fell sharply March 27 after U.S. president Donald Trump said the day before that the U.S. would charge 25 pct tariffs on imports of foreign cars and car parts.

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By Pierre Tran

Paris – MBDA was beating its own targets in building missiles in larger numbers and greater speed, at a time when the ties between Western allies were shifting, the chief executive of the European missile company said March 17.

Eric Béranger said last year he had forecast there would be a 50 percent increase in production of the Aster surface-to-air missile in 2026 compared to 2022, the year seen as baseline, with the Russian invasion of Ukraine.

“In fact we are very much ahead of this,” he said. The company would deliver this year five more Aster than the company had forecast.

“What I can tell you is we are ahead of time on each of the targets mentioned last year,” he said, and that was true for its range of weapons, including Acheron, common anti-air modular missile (CAMM), and Enforcer.

Béranger was speaking at a news conference on MBDA 2024 financial results, which showed new highs in sales and orders. The company withholds profit figures.

MBDA is a joint venture held by Airbus (37.5 pct), BAE Systems (37.5 pct), and Leonardo (25 pct), with British, French, and Italian procurement offices holding key roles.

The missile company has been responding, along with other European arms manufacturers,  to calls from national procurement and client nations for faster and larger delivery of weaponry in response to the war in Ukraine.

A sign of the times could be seen with President Emmanuel Macron visiting March 18 the Luxeuil air base, eastern France, where the commander in chief said France will order a further batch of the Rafale, and that air base will be home of a future version of the fighter jet armed with a hypersonic nuclear-tipped missile from 2035.

That will be part of “the modernization of our nuclear deterrent,” he said.

Two squadrons of the planned Rafale F5 will be based at Luxeuil, with almost €1.5 billion ($1.6 billion) earmarked to upgrade the base 2026-2032. Some 2,000 civilian and military staff will work on the base by 2030, up from the present 1,200 personnel.

MBDA is developing the ASN4G, a fourth-generation missile which will replace the ASMP-A nuclear-tipped cruise missile carried by the Rafale F4.

The then defense minister, Florence Parly, said in June 2019 Luxeuil would be a base for the Rafale, with the first squadron to be stationed there from 2032.

With recent public debate of Paris offering European allies an independent nuclear umbrella, Macron’s visit to Luxeuil had the significance of “strategic signaling,” afternoon daily Le Monde reported.

That air base is home of the Mirage 2000-5, which Paris is sending to Kyiv. Macron raised the prospect of dispatching further Mirages, some from allies flying the French-built fighters.

On the combat side, Ukrainian forces hit a Russian Sukhoi fighter last week with an Aster missile fired from the Franco-Italian SAMP/T surface-to-air system, Béranger said, citing Ukrainian authorities.

The unit price of an Aster missile is understood to be around €1 million.

Uncertain Behavior

An urgent restocking of European military stores and despatch of weapons to Kyiv have taken a new dimension with the Trump administration, which appears to hold the European allies in low esteem.

“We are today really living through historical moments,” Béranger said. “We are living through a moment where the alliances…are being challenged. We are living the moment where the behavior of historical allies is uncertain.”

MBDA was adapting to “those consequences” by streamlining production, he said.

The company last year built and delivered a third more missiles than in 2023, he said. That ramp up meant production of missiles in 2025 would be double that of 2023. That was “the magnitude” of what was going on in the company.

On the Mistral man-portable missile, the company had hit a forecast four times increase in monthly production in 2024, and there would be a greater increase this year, he said.

The company expected to beat a forecast halving of production time, he said.

MBDA had taken a new approach, he said, with building up stocks of parts in anticipation of orders from client nations, for which “time is absolutely of the essence.”

That meant “increasing risk for MBDA,” he said.

That risk appeared to have delivered financial reward.

MBDA reported 2024 sales of €4.9 billion, up from €4.5 billion a year ago, with orders of €13.8 billion, up from €9.9 billion. The order book rose to €37 billion from €28 billion.

The company booked profit of €640 million, financial website La Tribune reported. MBDA reported 2023 operating profit of €498 million, as reported by website Airitage.

The company was investing €2.4 billion in new plant and equipment over five years to boost production, Béranger said, with that amount appearing to creep up to €2.5 billion.

The company was recruiting 2,600 staff this year, the same number as last year.

There have been several European summits since the remarks by the U.S. vice president at the Munich security conference, he said.

“This is a very specific moment, where Europe is…actively discussing how it wants to take its destiny in its own hands,” he said. “It is a little bit of a moment of truth for Europe.”

Strained relations with the Trump administration has raised pressure for Europe to rearm, with the European Commission calling March 19 for member states and allies to buy arms built in the European Union.

Part of that Buy European policy was a plan to offer access to easy credit with a €150 billion fund, dubbed Security Action for Europe (SAFE), which the E.U. would raise in the capital markets. The U.K. was not – for now – on the list of allies which could tap that E.U. loan.

Design Authority

There has been debate on whether to buy European, Béranger said, whether to depend on suppliers outside the Continent or develop an “internal European capability.”

Designing systems meant “you know them, designing…means you do not ask anybody on how it works, whether to adapt in one way or another,” he said. “You don’t ask anybody outside… for approval of use or adaptation.”

This design authority allowed MBDA to adapt in a few weeks the British Storm Shadow and French Scalp cruise missile to fit on the Ukraine air force Sukhoi fighter, he said.

The question was how much priority should be given to European capabilities, he said.

Asked about a reported row on an attempt to reorganize management, Béranger said MBDA  had to deal with the stakeholders, namely staff, shareholders, and clients.

There was no greater sovereignty issue for France than nuclear deterrence, he said.

That could be the perceived importance of the French manager working on the airborne nuclear-armed missile, with concern Paris stood to lose management weight if a previous planned reorganization went ahead.

The company was seeking to move from a “model which is balanced, which is satisfying everybody” to a new structure, he said. The question was between the three circles – staff, shareholders, and the domestic countries – was there an intersection?

“This is what we are exploring now,” he said.

The company has been working on a reorganization intended to speed up production, as requested by the client nations. There had been a plan for the Italian shareholder, Leonardo, to place two Italian executives in top management posts, but France and the U.K. had objected to the reshuffle, forcing a rethink.

More Aster

France, Italy, and the U.K., partner nations on the Aster missile program, placed an order for a further 218 of the surface-to-air missile, and also signed contract amendments for speeded up delivery of 134 Aster which had been ordered in 2024, the Direction Générale de l’Armement procurement office said in a March 14 statement.

A faster delivery of the 134 Aster meant the missile would be built between 2025 and 2026, the DGA said, reflecting faster production by MBDA and subcontractors.

The statement did not give details of how those orders would be shared out between the partner nations, nor the value of the orders.

The contract amendment with Eurosam covered production of Aster 30 B1 ground and naval missiles, and Aster 15 naval missiles, the joint venture between MBDA and Thales said in a March 11 statement.

The British Royal Navy operates the Aster on its Horizon air defense frigates.

France and Italy sent an SAMP/T missile launcher to Ukraine as part of their military aid, and that system will need restock of Aster weapons.

The armed forces minister, Sébastien Lecornu, told a news conference March 26 2024 there would be an order for 200 Aster missiles worth almost €2 billion, in addition to a previous 200-strong order for Aster. That previous order would have been a deal sealed in December 2022.

On the Rafale, the defense minister has recently spoken of the need for ordering a further 30 fighters, with 20 going to the French air force and 10 for the navy.

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