Spain gambles on the relevance of its defense industry

In a context of accelerated military spending in Europe, pressure from allies, and the technological revolution, Spain’s defense industry has taken a central position in the political debate. New industrial plans from the Ministry of Defense and the struggle for leadership among large Spanish corporations are among the sector’s current challenges. Decisions in the short term will determine whether this opportunity constitutes a real turning point for the industry, or whether business as usual will prevail, albeit with bigger budgets.

At the same time, given certain lessons drawn from current conflicts —with Ukraine serving as a testing ground for ongoing military changes— decisions, aimed at configuring a competitive industrial fabric and at positioning Spain within the European framework, can result in real capabilities that contribute to national security. Such will be necessary to avoid a gap between investment, industry, and said capacities. This represents the main challenge for public policy: a triple alignment between defense policy, industrial policy, and the technological base.

In this framework, it may be worthwhile to advance a few ideas.

 

• i) Spain has a window of opportunity for repositioning itself in the European defense industry, conditioned by the need to effectively coordinate its defense policy, industrial policy, and business ecosystems.

 

• ii) The sector’s structure has been marked by business fragmentation and the coexistence of large driving companies with an extensive network of SMEs, posing a dilemma between concentration and specialization. At this point, the territorial dimension and the distribution of industrial capacities have become relevant policy variables, compounded by the dilemma of efficiency versus competitiveness.

 

• iii) Technological change is transforming armed conflict toward data-driven models, artificial intelligence, and distributed architectures, with unmanned platforms operating in a coordinated way across multiple domains and a proliferation of precision long-range munitions, to mention just a few salient features.

 

• iv) Europe’s dependence on the U.S. for critical capabilities and military production limits the scope of strategic autonomy and forces nuance into political approaches that would advocate rapid decoupling from the transatlantic relationship.

Can Spain turn European rearmament into real capabilities?

This moment demands the incorporation of lessons from ongoing conflicts and an adaptation of industrial models toward rapid innovation and procurement procedures. The situation also opens the door to new industrial players and shifts part of the dynamism of the military-industrial complex into the civilian sphere, giving greater prominence to non-traditional tech companies and (potentially) reducing the barriers to entry for certain segments of the sector.

Increases in the budgetary efforts of the EU Member States —where Spain remains below average, and below its economic weight— and the mobilization of Community financial instruments have altered the role that this sector plays in national economies. Europe (the EU plus the United Kingdom, Norway, and above all Ukraine) represents a growing proportion of global arms imports, while promoting investment programs aimed at strengthening the industrial base. This process responds not only to the war in Ukraine but to an ongoing trend of deep reconfiguration of the European strategic environment.

At the same time, the technological revolution is redefining the sector’s perimeter, with unmanned systems, cybersecurity, AI, and space having come to occupy a structural position in military planning and in the definition of future capabilities. These technologies do not operate merely as enablers but as elements that reconfigure how the use of force is conceived. Finally, increases in spending are now accompanied by the explicit political will to review the fundamentals of defense policy.

"One emerging problem is the acceleration of old dynamics that might fail to incorporate the new diagnosis, leading to a trap of inertia"

The current moment differs from previous cycles thanks to a convergence of factors that simultaneously affect demand, technology, and industrial organization. As a result, one emerging problem is the acceleration of old dynamics that might fail to incorporate the new diagnosis, leading to a trap of inertia. Spain is facing this cycle due to an industrial structure conditioned by persistent features, including a pyramidal organization where a small number of companies account for the main capabilities (Navantia, Santa Bárbara Sistemas, Airbus, and —especially since the government designated it as a potential national champion— Indra). Meanwhile, a broad network of small and medium-sized companies sustains the supply chain or specializes in niches (Oesía, GMV, ITP Aero).

These driving companies play a role that transcends their productive dimension, as they permit Spanish participation in major international programs and facilitate access to foreign markets. Their role is especially relevant in a sector where scale and the capacity for integration condition access to contracts and to participation in European consortia and programs, which serve as strategic, financial, and industrial levers.

Indra, SMEs, and location: the industrial dilemma of Spanish defense

This configuration has resulted in a complicated balance in industrial policy. The strategy oscillates between the consolidation of an actor with leadership capacity and the preservation of a diversified (and fragmented) ecosystem. The commitment to Indra as a possible national champion —reinforced through corporate operations, recently featured in the press, and with a role in strategic programs— would respond to the strategic priority of having a capable Spanish competitor in the European arena. However, Indra itself holds a position of technological specialization that renders debatable the notion of giving such weight to land platforms via the (currently frustrated) purchase of the EM&E Group. All amid the rush to create a giant, while at the same time overlooking other companies with a traditional presence in the field.

From the business side, the inclination is toward the second strategy, as shown by the results of the REPENFAS R+D project. Various players consider it more viable to position themselves as technology providers in specific segments of the value chain, as opposed to competing as large integrators of an overall system. That logic translates into a preference for operating as tier 2 companies —providing subsystems or specialized components— instead of tier 1 companies —which integrate platforms and manage large programs—. A tier 2 position doesn’t reduce their relevance but redefines them, situating them as critical providers of technological capabilities. Moreover, a reliance on large programs can introduce rigidities into industrial planning, limiting the ability to adapt to rapid technological changes.

The balance is even more complicated considering that: first, the weight of foreign capital in Spanish industry is high and could be intensified in the current context of European concentration, where large groups are seeking to expand their presence; second, investment in R+D continues to be limited in comparative terms, which conditions the ability to generate one’s own technologies; and third, the social and political perception of defense is divided and increasingly polarized, influencing the debate around increased spending.

"The location of industrial capacities and technological projects has relevant economic, social, and political implications"

On top of this complexity is the territorial dimension. The location of industrial capacities and technological projects has relevant economic, social, and political implications, insofar as this affects employment, regional specialization, and the distribution of public resources. Some analyses interpret the recent changes in Indra’s management as an attempt to build a connection between Catalunya and Madrid that complements or surpasses the current industrial corridors.

Indeed, public policy has incorporated the territorial dimension through the promotion of industrial corridors and the geographical distribution of defense projects, which can create tension between productive efficiency and territorial cohesion. For example, at the end of March, the Ministries of Defense and Industry as well as Science, Innovation, and Universities formalized an agreement —aligned in principle with the Industrial and Technological Plan for Security and Defense— aimed at strengthening the training ecosystem in order to boost the growth of the sector, its capacity to generate employment, and its positioning in the European sphere, while seeking to create opportunities in all the autonomous communities, to paraphrase various government statements. Those statements again underline how job creation and territorial cohesion are themselves relevant objectives within defense policy and therefore must be incorporated into the calculations of industry.

In parallel, the recently presented Defense Technology and Innovation Strategy (ETID 2026) would seek to direct investment toward procurement technologies and processes with an impact on military operations and innovation. If implemented, these measures would aim to increase business participation and strengthen synergies between the defense sector and the civilian tech ecosystem. Support for the various phases of these processes is expressly assured, from initial investigation to operational integration. This would therefore be reflected in the expansion of the value chain.

"These strategic-operational changes shift the focus from the individual technological superiority of large platforms to the ability to generate volume, sustain the pace of use, and assume replacement costs"

This evolution is intended to go hand-in-hand with far-reaching changes in the ways that war is being waged. Areas such as sensor technology, communications, and data analysis have acquired critical weight, facilitating the potential entry of companies in the civil sector through dual-use technologies. Cybersecurity, anti-drone systems, and capabilities that allow the integration of information, communications, and command systems are at the heart of the sector’s transformation. In fact, the expansion of the drone means widespread transformation of the battlefield across air, land, and sea, allowing greater volume, persistence, and low relative cost in generating operational effects. The proliferation of drones and missiles also indicates a dynamic typical of the salvo war paradigm, characterized by the simultaneous or sequential launch of precision munitions with the aim of saturating defenses, as my colleague Guillermo Pulido has theorized. These strategic-operational changes shift the focus from the individual technological superiority of large platforms to the ability to generate volume, sustain the pace of use, and assume replacement costs, thus altering the traditional relationship between quality, quantity, and military effect. This phenomenon also alters the logic of deterrence and the offensive-defensive calculation.

In this context, a tension emerges between two industrial models. One is based on large platforms and long development cycles. The other is characterized by speed, iteration, and continuous adaptation. In the latter, innovation occurs in short cycles, with rapid testing and validation phases that contrast sharply with traditional timelines for acquisition. That contrast challenges both industry and contracting systems, since procedures designed for long-term projects cannot easily incorporate technologies in constant evolvution; hence the need to make processes more flexible and to reduce development times.

In Europe, all this is taking place under a structural dependence on the U.S. in both critical capabilities and military equipment in general, as Mejino-López and Wolff have demonstrated. Air defense systems, missiles, C4ISR, and their associated components rely heavily on U.S. suppliers; Ukraine has underlined Europe’s weakness in this regard. This dependence conditions any attempt to develop European strategic autonomy, which today should be understood in relatively limited terms: not as full independence, but as decision-making capacity and room for maneuver within structural (inter)dependence.

In this scenario, the defense industry is configured as an instrument of defense policy in inextricable alignment with the armed forces, which impacts a country’s productive structure, innovation, and international positioning. Development of the sector will depend on the ability to translate investment into operational capabilities, integrate new technological actors, and adjust industrial decisions to the demands of the strategic environment. However, the most important question is not the volume of expenditure, but the ability to convert that effort into concrete results. Ultimately, the defense industry will be able to play a relevant role if shaped through a strategic policy that coherently articulates security and defense with technology and strategic thinking.