Arnout Nuijt

The CEO’s of Rheinmetall and Leonardo sign a deal (Leonardo)

In order to achieve the desired strategic autonomy in the field of defense and to reduce the dependence on American weapons systems, the European Union is investing a handsome sum of its money in the further development of the European arms industry. But the defense industry is by definition an international sector, so how European are European defense companies actually? Of course, in companies that are largely in government hands, such as large naval shipyards like Italian Fincantieri and the French Naval Group, or – even more French – Dassault, ownership structures are clear. But what about the large and privately run champions of Europe’s defense industry?

The three large and sexiest European players in the field of defense are currently the private groups of BAe Systems, based in the United Kingdom, Leonardo, based in Italy, and Rheinmetall, with its headquarters in Germany. The trio are good for a turnover in 2024 of 28 billion for BAe Systems, 21 billion for Leonardo and 10 billion for Rheinmetall respectively. These three champions are dominant in Europe in almost all areas of the defense and security domain: they manufacture fighter aircraft, tanks and artillery, armored vehicles, space equipment, ammunition, etc. They are at home in all markets and are of vital importance to almost every EU and/or NATO member state as a supplier to the armed forces.

But how European are these companies actually? Rheinmetall, once (until the Second World War) owned by the well known German arms manufacturer Krupp, had a very international shareholder structure at the end of 2024, with around 28% of American institutional investors on board, including Blackrock, Morgan Stanley, Bank of America and Goldman Sachs (each with around 5% shares and voting rights). Incidentally, that 28% is lower than the total share of American institutional investors in 2022, which was then 40%, a percentage that has been significantly diluted and decreased in two years in favor of an international group of smaller private shareholders.

Leonardo, of which the Italian state still owns around 30%, is in a similar situation. Of the 50% of shares managed by institutional investors in the consortium, the American funds account for no less than 57%, good for a total share in the Italian company of 28.5%. Here too we find Blackrock, alongside other American funds such as Capital Research & Management and the Vanguard Group. Incidentally, institutional investors from Europe and the United Kingdom manage only around 12% of the total number of shares in Leonardo.

The situation at BAe Systems is also comparable. American institutional interests control almost 44% of the British company here, with Blackrock, the Vanguard Group, Capital Research & Management, alongside Fidelity, Invesco and others. Because some American funds are partly based in London and their share is therefore considered British, the actual interest of the American investors is almost certainly even greater.

But let us also take a look at the sales markets of the three. Which geographical markets are they dependent on? Leonardo earned 26% of its revenue in the US in 2024, compared to 56% in Europe and the UK combined. BAe Systems relied on sales of its products in the US for a whopping 44% last year, compared to 40% in Europe and the UK combined. Rheinmetall hopes to quadruple its currently relatively modest sales to the US (estimated at 5%) to around two billion in the coming years, partly through a recent acquisition in the country and because the German company has entered into a number of partnership programs with American companies such as Lockheed Martin, Northrop Grumman, Honeywell and recently with Anduril (a new drone manufacturer).

It is also worth noting that these three companies also work together where it pays off. For example, Rheinmetall and Leonardo will jointly produce more than 1,200 tanks and other armored vehicles in Italy, and Rheinmetall and BAE Systems are working together to produce guns and tank armaments in the United Kingdom. All three also have a large number of holdings in other defense companies in almost all European NATO member states or EU countries.

Of the three, Rheinmetall is the smallest, but it is strongly committed to growth in the US. The German and Italian companies are possibly the most European, while BAe Systems is closest to American interests. It is clear that all three defense champions have major commercial interests in the US, while American institutional investors have built up large holdings in each of the three companies. The American and European defense industries are therefore closely intertwined in this case.

It is also clear that these three companies have created the space (of course also due to geopolitical circumstances) to spread out and expand their interests on both sides of the ocean. The EU must therefore proceed cautiously. It is also in Europe’s interest to maintain that room for maneuvre for the defense sector, because a European defense industry that would lose its market in the US due to, for example, an overly radical stance by the EU or after the failure of trade negotiations, would be a great loss for everyone.

The European defense industry is highly dependent on the American market and on American investors. All in all, the sector therefore currently seems to be one of the pillars of transatlantic relations. As long as threats of war continue to increase and the call for more armaments continues to sound, the three champions will be become richer. Because in the end: it’s just business, man….