The Ukraine war has created an urgent need for European defense contractors to adapt to modern warfare, especially the widespread use of drones. Traditional arms producers, accustomed to low-volume production over the past 30 years, are now pressured to rapidly increase output while incorporating new technologies like AI-enabled drones. This shift has disrupted the sector, pushing established players to seek advice on strategy, manufacturing efficiency, and inorganic growth.
Defense consultants are capitalizing on this demand, with firms like McKinsey, AlixPartners, BCG, and others expanding their defense practices. They are advising companies on scaling production, reorganizing for efficiency, and navigating mergers and acquisitions. For example, AlixPartners notes a surge in conversations about defense deals, driven by the need for quick responses to current demands. Source Global Research forecasts UK defense consulting revenues to grow 8% in 2026 to $1.6 billion, following a 6% rise last year.
The industry has seen significant deal-making and strategic shifts. Smaller, agile startups that deployed AI-enabled drones in Ukraine have challenged traditional contractors, leading to acquisitions like Blue Bear Systems Research by Saab. Major players like BAE Systems are also establishing their own technology research centers, such as FalconWorks. Venture capital and private equity have poured approximately $4.3 billion into aerospace and defense technology globally between January and March last 2023, nearly matching the total for all of 2024, signaling a strong investment interest in this evolving sector.
