European Defense Revitalization and Transatlantic Defense Trade

In response to threats from Russia, the need to defend Ukraine, and changes in U.S. policy towards Europe, the European Union is looking to dramatically increase defense spending and directing much of that funding towards revitalizing European defense industries. The ReARM Europe plan proposed by the EU Commission is intended to facilitate increases to member nations’ military budgets, supplemented by private capital, with the aim of mobilizing about 800 billion euros for defense over the next four years. Meanwhile, the vast majority of EU members are also members of NATO, and the United States will remain a critical defense partner for Europe.

To explore what Europe’s defense revitalization goals mean for transatlantic trade, BENS spoke with Raanan Horowitz, former President and CEO of Elbit Systems of America, and Glenn Hickok, President of Noblis MSD. 

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As Europe takes steps to facilitate the revitalization of its defense industry, how would you characterize the current state of transatlantic defense cooperation?

Raanan Horowitz: I would look at that from two perspectives. From a military collaboration perspective, I think the collaboration and cooperation is very, very good, with joint exercises, joint visits, and deep information sharing. On the industrial side it is not as good, and several things are impacting on that.

First, regulatory barriers on both sides are causing issues. The U.S. has regulatory barriers in the form of the International Trafficking in Arms Regulations (ITAR), which, over the last decade, pushed a lot of European customers to require what they call non-ITAR procurements. Another barrier, especially on the European side, is a requirement for End User Certificates, which places very strict limitations on who’s the actual user of the item. In the last few years, this has become a big obstacle for purchases from EU suppliers as it applies to the simplest piece parts and can take months or even years to get the right paperwork approved.

I’ve participated in numerous discussions between the Aerospace Industry Association, the National Defense Industry Association, and U.S. DoD regarding DoD’s application of cumbersome regulations to international programs. Other foreign companies can provide financing and flexibility in ways that our Foreign Military Sales (FMS) is unable to do, with capacity, speed, and availability. We need to think about how to solve the trust issue around ITAR, though there’s been progress made. I believe we need to create more opportunities for allies to collaborate and reduce some of the regulatory burden. Dealing with Europe is a challenge as well, as the European Union is very bureaucratic. For example, when Elbit America signed a deal to acquire the Night Vision business from Harris Corporation before their final merger with L3, we received the U.S. approvals to make the acquisition months before we heard back from the EU. I couldn’t understand what they were worried about, but there seems to be significant process issues on their side such as stringent labor related constraints, environmental regulations and other that need to be simplified as well. If these issues are resolved, we can better integrate European suppliers into our global supply chain and leverage greater capacity and capabilities. Creating a framework for this would be beneficial for both the U.S. and Europe.

Another challenge, especially on the U.S. side, is the perception that collaborating across borders will slow down acquisition efforts. International partners or customers may have unique requirements or other considerations, and some on the U.S. side view having to consider this and share in decision making an unnecessary burden. For example, you can say that the F-35 can be considered a success story of cross-nation collaboration, but some in the U.S. view it as a hindrance due to many partners’ involvement and the need for consensus decisions. The same thing happens in Europe as well. Earlier this month there was a public conflict between the leadership of Dassault Aviation and Airbus regarding the development of the Future Combat Air System (FCAS). Part of the issue is that each European country has its own independent interests and they are not speaking with one voice, so it’s very complicated.

So, there are the regulatory barriers that take up time, as well as the perceived disincentives those barriers create, both of which have led to ongoing challenges on the industrial side of cooperation.

Glenn Hickok: There’s a deep relationship between the United States and the European nations on defense matters. I believe this administration is pushing Europe to contribute more financially, which is the right step from my perspective. It will invigorate their defense industrial base and provide opportunities for the United States. New entrants such as Anduril, Shield AI, Palantir, are venturing to European markets signaling market opportunity. Additionally, we’ll likely see new entrants from Europe as a result of that demand signal. Companies on either side of the Atlantic are looking to learn from the dynamic innovation happening in Ukraine.

There are defense representatives on the ground in Ukraine engaging with local developers to understand how these innovations can be integrated. As technology evolves, smaller, more agile companies are often best positioned to respond quickly. And the larger defense companies will seek to leverage those innovations, looking to grow both organically and through acquisition. The venture-backed community is especially compelling: its speed, urgency, and ability to deliver real capabilities in short timeframes have already been demonstrated on the battlefield. And, as the U.S. shifts focus toward INDOPACOM, that kind of responsiveness will be increasingly vital. Transatlantic defense cooperation is not just about European security, the U.S. can use it to build capability and resilience, that can be deployed in other regions.

This environment is unprecedented. We’re managing economic uncertainty, particularly with tariffs and the current state of international cooperation in the global defense industrial base. This creates some uncertainty in the short term, but fundamentally, the core value systems of the U.S. and European nations align well. There’s consensus on global priorities and economic prosperity. So, while we need to navigate these evolving financial markets and tariff challenges in the short term, I believe we’ll continue to see strong partnerships between these nations in the long term.

The ReARM Europe plan is largely focused on the funding sources for increased defense spending, both by facilitating member state defense budget increases, and mobilizing capital from private sources and the European Investment Bank. Part of the intention of these announcements is to create a demand signal for the defense industry. How do you view the strength of the demand signal Europe is sending right now? Is there anything you think can and should be done to strengthen it?

Raanan Horowitz: Currently, there is definitely a very strong demand signal, as evident by significant revenue growth of companies such as Elbit and Rheinmetall who are expanding and seeing significant customer demand increases across the board. History tells us that, in times of crisis, everyone gets their sleeves rolled up and goes to work, but this could change when the Russia-Ukraine war ends. It may go back to the situation we had prior to the conflict. Politicians in Europe and their constituents may not be willing to sustain these expenses, which is one concern.

The other concern pertains to how the Europeans will be able to recruit and train the personnel needed to actually use the weapons systems and equipment they are purchasing. We talk a lot about producing systems and equipment, but you need soldiers to use them. It takes a lot of time to recruit, train, and retain people in the military, and I am concerned this is not getting the visibility and attention needed in Europe. One thing I think we could learn from Europe is their ability to commit to multi-year budgets and programs. Companies like Elbit have taken advantage of the ability to commit to multi-year budgets. As an example, Elbit is building flight schools for training pilots in places such as Greece and the U.K., leveraging customer ability to make 10- or 20-year commitments.

I haven’t really seen that deep sense of purpose come across in Europe yet. Without that, it’s tough, because if investment in defense is only about the economy, then it’s fungible. If something else comes along that drives the economy, or if the economy no longer needs that investment, the focus shifts. But I do think there’s been some change in recent years. One area where I see a kind of resurgence in national pride is the space industry. Europe seems motivated to build, innovate, and have some level of independence. I was just at the Space Symposium in Colorado Springs, and you could really feel it; space has become this global competition: who gets to the dark side of the moon, to Mars, and beyond.

That sense of driven pride is there in space, but I haven’t seen it yet on the defense side. And I think the real question is whether that kind of pride will emerge. Without it, I worry about the long-term sustainability of Europe’s defense efforts.

Glenn Hickok: I firmly believe a rising tide will lift all ships. We’ve already seen an uptick in the proportion of European GDP going toward defense, and I expect this trend to continue. At the same time, I don’t anticipate decreases in the U.S. defense budget; in fact, this administration discussed a trillion-dollar DoD budget. So as both the U.S. and Europe increase spending, which will contribute to an overall rise in global defense spending, there will be an increasing amount of capital flowing into the global defense market, creating significant opportunity. Competition will push companies to innovate, and there will still be strong cooperation and technology transfer between partner nations. Leading U.S. defense firms will play a key role, likely resulting in opportunities to acquire emerging technologies from European defense companies to enhance U.S. warfighting effectiveness.

Given the shift in the U.S. defense industrial base, with new market entrants positioned around speed to market and real-time capabilities boasting significant revenue projections, it’ll be interesting to see how these new entrants in the U.S. defense base fare in Europe and whether similar European-based, defense-centric, VC-backed entrants will emerge. Given investor impatience over time, follow-through on these funding levels will be critical to continue attracting private capital.

One of the EU’s stated aims is to reconstitute Europe’s defense industry and reduce its reliance on the United States. A reduction in reliance, however, is not an end to defense cooperation, and Europe will remain a significant defense partner for the United States. What opportunities do you see for improvements in transatlantic defense cooperation in this changing relationship between the United States and Europe? What are your concerns?

Raanan Horowitz: I think the number one issue when it comes to improving U.S.-E.U. relations is rebuilding trust. Right now, the relationship often feels like one of codependence—Europe still relies heavily on U.S. support, particularly in areas like fifth-generation fighter capabilities and broader military capacity.

We should also bear in mind there are several instances of where we, as a country, rely heavily on the capabilities of other countries. One example is the microelectronic industry reliance on the Dutch company ASML, which provides the advanced lithography equipment that is so critical for producing advanced chips. The West is in direct competition with China, and doing everything by us is not cost effective and will take a lot of time.

Rather than aiming for complete independence on either side, I believe we should strive for interdependence. That means each side brings its own strengths, whether that’s innovation, supply chain capacity, or raw materials, and we integrate those in a way that neither feels held hostage by the other.

To do that, we need to reduce regulatory barriers, especially when it comes to emerging technologies like AI. Right now, regulations both in the U.S. and EU can stifle collaboration. We also need to think beyond election cycles. From a European perspective, a new U.S. administration every four years can create uncertainty. The same goes in reverse. So, I think we should work toward more stable, long-term commitments that transcend political changes.

Ultimately, I believe Europe still needs a strong U.S. partnership, and the U.S. benefits greatly from maintaining a close transatlantic alliance. An entirely independent Europe may sound appealing to some, but it would be difficult and risky to achieve. We should aim to structure the relationship in a way that preserves sovereignty on both sides while also creating real win-win outcomes.

Glenn Hickok: I suspect nations and regions will naturally want to manage their own security needs and resist being overly dependent on others. That said, I expect the European market will continue to acquire capabilities from the U.S. defense industrial base. These are truly multinational corporations, whether you’re talking about traditional system integrators like Raytheon or Lockheed, or newer entrants like Anduril and Shield AI, which are already establishing beachheads in the UK and elsewhere in Europe. I expect we’ll continue to see strong cooperation on the business front, and that will benefit both the U.S. and Europe. Countries like Norway or Germany will still look to source domestically where they can and continue to partner with U.S. firms when it best serves their security interests. And overall, we’ll see a broader array of players contributing to the growing defense demand.

As Europe rebuilds its defense industry, U.S. companies will be an important source of experience. For example, the core competency of large U.S. system integrators lies in their end-to-end, intricate systems engineering and integration expertise. That’s a differentiator and not something you can build overnight; other nations will continue to rely upon it, especially as we move toward more comprehensive, multi-domain capabilities. Whether it’s something like CJADC2 or a framework modeled on the Iron Dome or integrated anti-ballistic missile defense systems, that experience will be essential.

At the same time, we’re seeing a rapidly evolving landscape, especially with the advent of newer battlefield technologies driven by AI, machine learning, and autonomy. From my perspective, some of the traditional, platform-centric concepts like air superiority may be increasingly deemphasized in favor of capabilities that rely on space and emerging technologies to achieve desired effects—especially when you consider the enormous resources that still go into platform-centric systems. But when we look at integrated air and missile defense, for example, those systems will require global interoperability across domains. I believe we’ll continue to see partnerships in those areas and demand those capabilities, though perhaps not at the scale we’ve seen in the past. Those larger, platform-centric systems are going to be harder to sustain, especially in the U.S. defense industrial base. We’ll need to adapt to changing market and capability conditions.

There is also the need for resiliency, especially in areas like space. Every country and region will want to have its own source of capability, but there will also be significant overlap. Space is an area where partnerships and alliances are essential; it’s an all-encompassing effort that spans both commercial and geographic landscapes. So, while there will be a reliance on others, the ability to operate independently is going to be crucial. That combination of cooperation and operational independence in space and other defense domains can provide resilience that will be helpful across U.S. alliances.

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The views expressed by the interviewees are their own and may not represent those of BENS or their employers. Comments have been edited for length and clarity.