Not All Contracts Survive the Peace

A subscriber asked what happens to European defence when the war ends. The right question is not whether the spending contracts, but rather which part of it does so.

One Number

The US Army replaced a Patriot missile — at over $3 million per shot — with a Merops drone interceptor at $15,000 a unit; Army Secretary Daniel Driscoll told Congress his service bought 13,000 of them in approximately eight days and would "make that trade all day long."  ·  Defense News/ Congressional testimony, April 2026

The Pentagon did not switch because the Patriot failed — it switched because spending $3 million to destroy a $50,000 drone is a cost equation that is not sustainable. The world's largest defence buyer has now confirmed that on the record.

One Argument

The rise in European defence stocks has been a story about platforms; it has not yet been a story about drones — and when it is, the two will not look the same.

The European defence rally is real and visible in public markets, but the stocks driving it — Rheinmetall, BAE Systems, Leonardo — are overwhelmingly durable platform manufacturers. This means that the listed market has priced one half of the rearmament story and not yet seen the other.

The European defence procurement has been built for durable platforms with 20-30 year service lives. The Leopard-2 tank, which is still in frontline use across 20 countries, entered the service in 1979, according to Jane’s Defence. The US Government Accountability Office calculates that the total acquisition cost for the F-35 program was USD 400 billion over a projected 60-year programme-life. Lockheed Martin, the world’s largest defence contractor, derives approximately 93% of its revenue from government contracts, according to TenderAlpha. That makes defence contractors closer to infrastructure than manufacturing.

The Russia-Ukraine war has established a second category of weapon. It is consumable, bought in millions, deployed in days, and obsolete within months of leaving the factory. European governments are now buying these weapons in volume alongside the platforms. Ukraine has demonstrated its manufacturing capability at an industrial scale. It deployed approximately 9,000 drones daily in active combat in 2025, according to Reuters, with about 80-85% of frontline targets engaged by UAVs, as estimated by KSE Institute. Ukraine produced 4.5 million drones in 2025 and is targeting above 7 million in 2026, which, according to Bloomberg, is more than all NATO allies combined.

The European procurement system has been structured for durables and does not fit consumable products at all. Design modification cycles in recent UK combat air programmes, according to RUSI, would run into months. Meanwhile, drone technology evolves every three to six months, according to Boston Consulting Group. This is a structural problem.

Ukraine’s cost advantage over Western consumable producers will not disappear when the war ends. According to the Drone Office (a UK consultancy) data, Ukrainian skilled labour costs are $8-20 an hour, compared with $50-120 in US aerospace manufacturing. Building on direct battlefield feedback, the Ukrainian UAV Bulava was developed in approximately 18 months using commercial components. According to Defense News, NATO countries have begun purchasing Ukrainian interceptors which cost $1,000-3,000 a unit. Five NATO countries are already developing affordable interceptors based on Ukrainian designs under the LEAP programme, according to AP.

End of hostilities will not change the political mandate for defence spending. For the first time in recorded history every NATO country now spends 2% of GDP or more on defence. According to the agreement reached at NATO Hague Summit in 2025 this number will increase to 5% by 2035. The US arms exports to Europe have already more than tripled, according to SIPRI data. The EU ReArm Europe plan targets EUR 800 billion in total defence mobilisation, and European Investment Bank has removed its internal policy restriction on defence investment. Funding is not going to be a constraint.

One Position

If you hold European defence exposure today, you almost certainly hold it through platform manufacturers by default — Rheinmetall, BAE Systems, Leonardo. This means that you own the durable half of the rearmament story. The listing of the first significant European pure-play drone manufacturer or other consumable-cycle defence company is just a matter of time. This will be the moment the market has to price the durable-consumable distinction. And do it explicitly.

This position changes if European governments commit to multi-year consumable stockpiling contracts at scale — that would convert drone suppliers' cyclical revenue into something closer to contracted.

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