Rising Defense Budgets Put the Global Defense Industrial Base to the Test

Defense spending is accelerating in the United States and allied nations, but long-term military readiness will depend on whether manufacturers can translate larger budgets into production capacity, resilient supply chains, and fielded capabilities.

The 2026 Farnborough International Airshow offered a clear picture of where global aerospace and defense priorities are moving. Although commercial aircraft orders remained an important part of the event, defense technologies, military applications, international partnerships, and production plans increasingly dominated the conversation.

Defense companies represented approximately half of Farnborough’s record 1,600 exhibitors, reflecting the event’s increased emphasis on military technology. Axios also reported that advertisements for drones, satellites, radars, and other defense technologies appeared throughout Farnborough and the surrounding transportation network. Major announcements included autonomous aircraft, missile integrations, laser weapons, advanced propulsion systems, and heavy-lift drones.

The shift reflected more than an airshow marketing trend. It followed a substantial expansion in defense budgets across the United States, Europe, and other allied countries as governments prepare their armed forces for a more complex global security environment.

Defense Spending Is Entering a New Era

Global military expenditure reached approximately $2.89 trillion in 2025, increasing for the 11th consecutive year, according to the Stockholm International Peace Research Institute. Spending was 41% higher than it had been a decade earlier. European military spending increased 14% during 2025, while expenditures across Asia and Oceania rose 8.1%. SIPRI

The United States is also considering significantly higher defense spending. The administration’s fiscal year 2027 budget proposes $1.5 trillion in total defense resources, including $1.15 trillion in discretionary funding and $350 billion in mandatory funding. Congress will ultimately determine the final funding levels, but the proposal demonstrates the scale of the country’s intended long-term national security investment. White House Office of Management and Budget

International commitments are moving in the same direction. NATO members agreed at the 2025 Hague Summit to work toward investing 5% of gross domestic product annually in defense and security by 2035. The commitment includes at least 3.5% for core defense requirements and 1.5% for defense- and security-related investments, including critical infrastructure, resilience, innovation, and defense industrial development. NATO

European Union defense spending reached €418 billion in 2025 and is projected to rise to €454 billion in 2026. Defense investment—including equipment procurement and research and development—is expected to represent 36% of total defense spending in 2026. Research and development spending is projected to increase from €17 billion in 2025 to €20 billion in 2026. European Defence Agency

These investments point toward years of demand for missiles, munitions, aircraft, unmanned systems, sensors, space capabilities, electronic warfare equipment, propulsion systems, and the specialized components and raw materials needed to manufacture them.

Farnborough Showed Where Defense Investment Is Moving

The announcements at Farnborough illustrated how expanding budgets and evolving military operations are reshaping the aerospace and defense industry.

BAE Systems introduced Brontanax, an uncrewed autonomous Collaborative Combat Aircraft expected to begin flight trials in 2027. The aircraft is designed to operate alongside crewed platforms and provide additional electronic warfare and precision-strike capabilities at a lower cost. BAE Systems

General Atomics and MBDA signed an agreement to explore the integration of SPEAR precision-strike weapons with the MQ-9B remotely piloted aircraft and Gambit 6 Collaborative Combat Aircraft. QinetiQ also announced a £20 million investment intended to accelerate the development and production of laser directed-energy weapon technology. General Atomics, QinetiQ

Venus Aerospace and Lockheed Martin announced a joint technology development agreement to evaluate and mature rotating detonation rocket-engine technology for potential long-range precision-fire applications.

Other announcements highlighted the growing importance of autonomous systems and cost effectiveness. BETA Technologies debuted the MV250, an autonomous hybrid-electric vertical-takeoff-and-landing aircraft designed for military logistics. GE Aerospace and BETA jointly developed its turbogenerator, while Sikorsky is integrating its MATRIX autonomy technology. BETA Technologies

Anduril and Archer unveiled Thunder, a jointly developed Group 5 autonomous attack rotorcraft designed to operate alongside current and future crewed military aircraft. Embraer and Anduril also signed an agreement to explore the integration of palletized Barracuda-500M weapons with the C-390 Millennium transport aircraft. The proposed integration remains under development and is not yet an operational capability. Anduril, Embraer

Taken together, these programs reflect several common priorities: greater autonomy, increased range, faster research and development, distributed production, resilient communications, and the ability to field larger numbers of comparatively affordable systems.

Across the defense sector, artificial intelligence and machine learning are increasingly being applied to autonomy, navigation, sensor analysis, predictive maintenance, and decision support. The exact capabilities and level of human control vary by system and mission.

For defense manufacturers, technological differentiation can create a competitive advantage. But winning a program and successfully delivering it at scale are two different challenges.

Budget Authority Is Not Production Capacity

Appropriating money does not automatically produce missiles, engines, drones, aircraft, or ships. Defense capability emerges only after funding moves through contracting, engineering, sourcing, manufacturing, testing, delivery, training, and sustainment.

Every stage depends on a defense industrial base already managing workforce shortages, aging equipment, inconsistent supplier performance, limited production capacity, and supply chain disruptions. Castings, forgings, energetics, microelectronics, propulsion components, bearings, critical minerals, and other specialized raw materials can all become production bottlenecks.

This creates the risk that demand from the Department of Defense and allied armed forces will move faster than the supply chain can respond. Prime contractors may receive larger awards only to discover that Tier 2 and Tier 3 suppliers cannot obtain equipment, hire qualified workers, finance working capital, or increase output quickly enough.

Risk mitigation must therefore begin below the prime-contractor level. Companies need greater visibility into their extended supply chains, including the financial health, capacity, lead times, geographic concentration, and performance of critical suppliers. Diversifying suppliers may reduce dependence on a single company or region, but adding sources requires time for qualification, testing, contracting, and production approval.

Manufacturers also need contingency plans for disruptions involving critical minerals, microelectronics, transportation, energy, cyberattacks, and geopolitical instability. Building inventory may be appropriate for certain long-lead materials, but it cannot replace accurate forecasting, disciplined supplier management, and a clear understanding of production constraints.

Defense Spending Requires an Industrial Strategy

Governments and industry must approach increased defense spending as a long-term industrial strategy, not simply a series of individual procurement transactions.

That means providing clearer demand forecasts, using multi-year procurement agreements where appropriate, and directing capital toward the equipment, facilities, workforce, and processes constraining production. It also means improving advanced manufacturing, quality management, supplier development, cybersecurity, and collaboration among traditional defense contractors, commercial manufacturers, and newer defense technology companies.

Cost effectiveness will remain important even as budgets increase. Armed forces need systems that are technologically capable, affordable to produce, and sustainable during extended military operations. A platform that performs well but cannot be produced in sufficient quantities—or depends on a fragile supply chain—may provide limited operational value.

Companies should examine cost and capacity across the entire product line rather than focusing only on final assembly. This includes evaluating supplier performance, production yields, cycle times, labor availability, equipment utilization, quality escapes, and the availability of raw materials. Digital manufacturing tools, artificial intelligence, and machine learning can help identify emerging problems, improve scheduling, strengthen predictive maintenance, and provide better visibility into factory and supplier operations.

From Higher Spending to Greater Readiness

The defense sector is entering a period of substantial opportunity, but funding alone will not determine which programs succeed. Execution will.

Companies across the defense industrial base should evaluate whether their factories, suppliers, workforce, technology systems, and capital plans can support the production rates customers will require. Leadership teams should identify long-lead constraints before they affect deliveries, develop contingency plans, strengthen risk mitigation, and create executable roadmaps for scaling production without sacrificing quality or cost effectiveness.

Organizations that prepare now will be better positioned to compete for new programs, improve supplier performance, and support the Department of Defense and allied armed forces. More importantly, they will help convert rising defense budgets into sustainable production capacity, supply chain resilience, and the fielded capabilities required for future military operations.