The next increment of European defence output may depend on a specialist process, an approval queue or supplier working capital. Mapping those dependencies across programmes can make factory investment more productive.
Andy Demir · 22 October 2026 · 15-minute read
Executive Summary
Europe’s defence manufacturers have shown they can build quickly. Rheinmetall’s new plant at Unterlüß took 15 months to construct, made its first delivery to Ukraine in July 2026 and is planned to reach up to 350,000 shells a year in 2027. The harder question for the next phase is how much customer-accepted output each new plant can deliver when several programmes rely on the same specialist process, upstream input, test facility or qualified source. Survey work by GLOBSEC and McKinsey published in June 2026 points to single-source dependence and thin advance payments in the lower supplier tiers, and the European Investment Bank was still opening working-capital lines for those tiers on 8 October 2026. This essay proposes a practical complement to existing capacity planning: map the few capabilities that govern portfolio output, then compare every option, from a new line to a qualification project or a change in payment terms, by the accepted deliveries it adds within twelve months. My forward judgement is that, through October 2027, European capacity decisions will increasingly combine supplier commitments, qualification, and working capital into a single investment case, and that the next two quarters are the window during which the long-lead options remain open.
In This Essay
- The factory opening is one milestone
- A shared capability changes the calculation
- Capacity becomes useful when the conditions align
- Growth has a cash requirement
- Europe’s industrial map needs a second layer
- The strongest case for building more factories
- What I would watch through October 2027
- Measuring every option by the deliveries it adds
- Questions for the C-Suite and the Board
- References
The factory opening is one milestone
Rheinmetall’s new ammunition plant at Unterlüß in Lower Saxony shows how quickly European defence capacity can now be built. The company’s release on the opening, dated 5 September 2025, reported construction in 15 months and an investment of almost €500 million, and set out a ramp from 25,000 shells in 2025 to 140,000 in 2026 and up to 350,000 a year at full capacity in 2027 (Rheinmetall, 2025a). In July 2026, the plant made its first delivery to Ukraine, a low five-figure quantity of 155 mm projectiles, with the propellant charges coming from other sites in the group (Rheinmetall, 2026). The building is finished, and the line is shipping, while the rate the plant was built for is still a year away.
The supporting network has moved with it. In December 2025 Rheinmetall agreed to acquire Muni Berka, a specialist in ammunition storage and disassembly, and said the added capacity, enough to store more than a million 155 mm projectiles, was needed in connection with the new Unterlüß plant; the transaction was still subject to regulatory approval when announced (Rheinmetall, 2025b). The group-wide aim of around 1.5 million artillery projectiles a year, which the September 2025 release placed from 2027, carries 2030 as its horizon in the December 2025 and July 2026 releases (Rheinmetall, 2025a, 2025b, 2026). Nothing in these public documents points to any particular internal constraint, and, in my view, recalibrating a group target is normal as a production network grows across several countries. What the sequence does show is that a plant’s output depends on storage, propellant and other capabilities outside its own walls.
That leads to a more useful capacity question for any European defence board: how much additional output, accepted by the customer, can the whole production network support on the required date, after the commitments already made to other customers? The answer can differ widely from the installed capacity of the final assembly site. My argument is that, as European demand grows, the unit worth planning and investing around is the capability that governs delivery across several programmes, more than the individual plant or supplier.
My own operating experience in aerospace, defence and space dates from before 2022, and since then I have worked in other businesses. This essay therefore rests on current public evidence read through that earlier experience, and it does not describe conditions inside today’s factories. An industrial principle of this kind holds over time, but the identity and severity of a particular constraint change, which is why every figure here carries its date.
A shared capability changes the calculation
A supplier is a legal and commercial relationship; a capability is the specific work that makes delivery possible, such as a heat-treatment or surface-finishing process, a test cell or an approved source of a material. One supplier may provide several capabilities, and several apparently independent suppliers may depend on the same upstream material, specialist processor or test facility. Each programme can therefore hold a credible supplier plan while the portfolio as a whole relies on a shared resource whose capacity has been counted more than once.
Take an illustration with invented numbers. Two programmes each need 60 hours per month from a specialist process with 100 hours available. Each requirement fits on its own, yet together they require 120 hours, 20 more than are available, before maintenance, rework, or other customers are counted. A second final assembly line changes neither that arithmetic nor the qualification status of the process. The figures do not name any manufacturer and are there only to show the mechanism.
Survey evidence suggests the pattern is common enough to plan for. In GLOBSEC’s June 2026 study of Europe’s defence industrial scale-up, reported by McKinsey, its knowledge partner, more than a third of the companies surveyed rely on a single supplier for more than a quarter of their critical inputs (McKinsey & Company, 2026). A single-source dependency inside one supplier becomes a portfolio question as soon as the same source sits behind several programmes.
For a programme, the commercially relevant figure is the capacity available to it after other commitments, which can be much smaller than what a supplier produces in total. A reservation strengthens one customer’s delivery position without adding any physical capacity to the industrial system, whereas investment that expands a shared process can improve several programmes at once. Those are different economic outcomes, and a capacity business case should show them as separate lines.
Consultancy analysis already points below the primes. McKinsey’s February 2026 study of consolidation in European defence identifies four fragmented segments in the second and third supplier tiers, among them dual-use mechanical components, which it notes can stall final assembly when they run short, and it suggests tracking qualified throughput alongside on-time delivery and lead times (Lavandier et al., 2026). Industry-level fragmentation tells a board where to look. It does not tell a company which investment will add its next accepted delivery, and that is the gap a portfolio map fills.
Capacity becomes useful when the conditions align
I use the term qualified network capacity to mean the sustainable rate of customer-accepted output that the necessary combination of equipment, people, inputs, approvals, and commercial availability can support. It is deliberately stricter than machine capacity. A new machine may be installed while operators are still in training, tooling is being validated, or the customer is reviewing the changed process, and an approved source may lack the material allocation or the financing to accept a higher rate.
Qualification has an economic value of its own. In defence supply chains it usually means the customer or design authority accepting, on documented evidence, that a source, process or part meets the specification, which is a different step from certifying a product for use. Its length depends on the product, the customer and the size of the change, so there is no defensible single cycle time for European defence. The useful measure is the time until an alternative source supports accepted deliveries for the programme in question. Treating that work as a capacity investment puts its revenue contribution in the same business case as the machine.
A capability map also needs a date. Removing one constraint increases the load on the next process in the chain: an assembly expansion puts more demand on machining, which in turn loads finishing, inspection and testing. That migration is a reason to revisit the map as the ramp proceeds. It does not reduce the value of the first investment; it changes the sequence needed to obtain its full benefit.
Planning tools can improve this visibility where the underlying information is reliable. Shared planning systems can expose overlapping demand and qualification status across programmes, but no digital map can establish spare capacity that the supplier has not confirmed. The technology investment that pays connects evidence, ownership, and regular updates, because a more elaborate dashboard built on unverified capacity assumptions still leaves the investment committee with an uncertain answer.
Growth has a cash requirement
The mechanism is straightforward. Higher production means buying material, recruiting people and building inventory before the resulting deliveries turn into cash, so a profitable order creates a financing need while it is being executed. Its size depends on purchasing terms, production time, payment milestones and what the supplier already has on its balance sheet. A capacity assessment that counts only machines and labour leaves part of the ramp’s economics outside the calculation.
Those terms are not spread evenly across the chain. According to McKinsey’s June 2026 release, fewer than 20 per cent of Tier-2 to Tier-4 suppliers receive advance payments on most of their defence contracts, against 45 per cent of primes and Tier-1 firms, and the lower tiers also report weaker order visibility and more cautious investment plans (McKinsey & Company, 2026). These are survey results from a consultancy and a think tank. The release does not publish the sample or the question wording, so the figures indicate a pattern and do not measure the whole industrial base.
European institutions have treated supplier liquidity as part of the ramp. In June 2025, the European Investment Bank tripled to €3 billion the intermediated financing available to defence-industry suppliers and opened the facility with a €500 million loan to Deutsche Bank, intended to enable €1 billion of financing and working capital for SMEs in the EU security and defence supply chain (European Investment Bank, 2025). In September 2026, a €250 million package with National Bank of Greece followed, with at least half reserved for eligible security and defence investment and working capital among its uses (European Investment Bank, 2026b). On 8 October 2026, the bank signed a guarantee agreement with Santander to mobilise approximately €300 million for SMEs and mid-caps in the supply chain, to be used for working capital arising from increased activity and new contracts (European Investment Bank, 2026a). The announcements describe channels opened and say nothing yet about loans drawn or output achieved, but their direction is consistent: finance is being routed towards the tiers where the survey finds the thinnest advance payments.
Companies have their own instruments as well. Revised milestones can release cash earlier, a bounded advance can support material purchases, tooling support can remove a discrete investment barrier, and a longer commitment can improve a supplier’s case for external finance. Each carries a cost and moves risk from one party to another. The useful comparison is the cost of the support versus the additional accepted deliveries it enables, bearing in mind that money cannot, on its own, remove a technical or approval constraint.
Europe’s industrial map needs a second layer
Some of Europe’s established industrial leaders already think in these terms. In a July 2025 interview, Saab’s chief executive described production growth as depending on an ecosystem in which suppliers and sub-suppliers can obtain the material they need, said the company was considering whether items such as nitrocellulose could be sourced within Europe, and set out a redundancy strategy built on facilities in several countries (McKinsey & Company, 2025). The interview is management’s own account. Nitrocellulose illustrates the second layer well, since it is an upstream input to propellant production that sits behind many programmes, whatever the address of the final assembly plant.
Location matters, but geography alone does not establish independence. Suppliers in two countries can draw on the same upstream input or specialist service, so a regional capability assessment has to examine actual processes and dependencies before treating a second address as a second source. That applies equally to Germany, France, the Nordic countries, the United Kingdom, Southern Europe and Central and Eastern Europe, and public evidence does not support assigning a single constraint profile to any of them.
Policy is moving in the same direction. The Strategy for Industry-NATO Cooperation, endorsed at the Ankara summit and published on 8 July 2026, commits Allies to scalable production facilities, to table-top exercises that stress-test surge production with industry involved in planning them, and to sharing an aggregated demand signal with industry; the Conference of National Armaments Directors is due to produce an implementation plan by October 2026 (NATO, 2026). The European Commission’s Readiness Roadmap 2030 schedules an overview of the industrial ramp-up needed for the agreed capability areas from mid-2026, and, in the second half of 2026, an analysis of strategic dependencies and critical raw-material bottlenecks with an action plan for the defence industry’s international supply chains (European Commission, n.d.). These are commitments and timetables, and whether each exercise and assessment is completed on schedule is itself one of the signals worth watching.
A second layer on Europe’s factory map would show the capabilities those plants need to make their investment. Some of that information could be shared in aggregate form, while sensitive process and customer data would require more restricted handling. The value lies in recognising common dependencies early enough to coordinate an intervention; in that sense, national industrial strength and cross-border cooperation support each other once the dependency is clearly understood.
The strongest case for building more factories
The strongest objection to this argument is practical: Europe still needs physical production capacity, and a more sophisticated map produces nothing by itself. The objection is valid. Where final assembly, machining or energetics production is the binding constraint, new equipment, facilities and people are the right investment, and analysis that delays a justified expansion carries its own delivery cost.
The survey evidence also argues against any single-cause story. In the GLOBSEC work cited by McKinsey, companies ranked the shortage of skilled workers as the most serious obstacle to scaling, ahead of equipment and supplier components (Hagemann et al., 2026). Lower-tier suppliers report weaker order visibility than primes (McKinsey & Company, 2026). If people or demand confidence are what binds, a capability map will mostly confirm what the hiring plan and the order book already say, and the money belongs in training capacity or firmer commitments. The map earns its cost where several programmes converge on the same process, input or approval.
Capability dependence does not automatically justify acquisition or direct intervention either. Specialist suppliers may be better placed to manage their processes, pool demand across customers, and decide on the right expansion, whereas ownership adds capital requirements, integration work, and concentration risk. A stable purchase commitment or a funded qualification project may create more value with less organisational complexity, which makes consolidation one option among several.
There is also the risk of buying redundant capacity that future demand does not sustain, because defence commitments, product choices and programme schedules change. Investment appraisal therefore needs a credible downside case alongside the growth case. Weighing these points, I still lean towards mapping first whenever several programmes are ramping up at the same time, because the exercise costs little compared to a single production line and it changes the order of investment more often than the total.
What I would watch through October 2027
My reading is that, over the twelve months to October 2027, European defence capacity decisions will increasingly bring supplier commitments, qualification investment and working-capital support into the same programme investment case. I regard that as likely, though not certain, and it is an editorial forecast, not a finding that the major manufacturers have already adopted a common model. The window is set by dated events: NATO’s implementation plan, due in October 2026; the Commission’s dependency analysis in the second half of 2026; and the move of new plants such as Unterlüß towards full rate in 2027, which is when shared constraints are most likely to show.
The evidence I would look for is specific: disclosed supplier support tied to additional deliveries, earlier funding of alternative-source qualification, capacity commitments below the first supplier tier, further EIB-intermediated lines used for working capital, and company reporting that separates installed capacity from achieved output. An agreement to reserve capacity would confirm a change in commercial practice without, by itself, confirming additional European production, and keeping those two outcomes apart makes the forecast easier to assess.
If the forecast holds, the gains go to specialist suppliers with qualified processes and the balance sheet to expand, which gain pricing power, and to primes that fund qualification early, which gain delivery confidence. Programmes whose plans count the same shared capacity twice would face schedule pressure as 2027 rates approach.
The alternative is that factory expansion and routine purchasing are sufficient to drive substantial delivery growth. If manufacturers reach their ramp objectives without material changes in lower-tier support or qualification arrangements, the forecast should be revised. A second possibility is that coordination improves while labour, approval, or input constraints continue to govern output, in which case the response would develop faster than its production benefit.
Measuring every option by the deliveries it adds
Were I part of the capacity discussion at a European prime or Tier-1 supplier with several programmes ramping at once, the item I would propose for the minutes is this: before approving the next major capacity investment, the board asks for every option, from another assembly line to specialist tooling, test capacity, qualification of an alternative source or a change to supplier payment terms, to be compared by the accepted deliveries it adds within twelve months, together with its cash cost and margin. The comparison sits inside the existing investment case and changes the order of the queue within it.
In the first ninety days, a small team could take the three or four programmes with the steepest ramps and identify the capabilities whose loss or saturation would stop delivery. Procurement would establish source and commercial availability, engineering and quality the approval status, operations the achievable rates, and finance the cash each option needs, with programme leadership combining the evidence around delivery dates. Within six months, the shared capabilities would sit on a common timeline with allowances for other customers, maintenance and yield, and the first two or three interventions would be funded. Within twelve months, the measure that matters is accepted output through those capabilities against plan, reported next to installed capacity. Ownership sits best with the executive who already owns delivery, with the chief financial officer co-owning the cash view.
I cannot size the gain for any particular company from outside. The illustration above shows the shape: where two programmes need 120 hours in a 100-hour process, a sixth of their combined requirement at that step cannot be met, and relieving it moves revenue, contribution margin, and working capital together. A modest investment in a shared process can therefore outperform a larger one elsewhere, but that is a proposition to test with operating data, using concrete indicators: accepted deliveries, inventory waiting at the constrained step, cash conversion on the programmes concerned and on-time delivery to the customer.
Waiting mostly costs options. Qualification and supplier expansion take time, so the options with the longest lead times narrow first, and a source that only starts qualification in 2027 is unlikely to help the 2027 ramp. The window is the next two quarters, while NATO’s implementation work, the Commission’s dependency analysis, and the newly signed EIB lines set the terms against which suppliers will plan.
The trade-off is management attention, together with the reluctance of suppliers who also serve competitors to share load data, although an aggregate load or an allocated rate is often enough. I would advise differently when one constraint already dominates, such as a skilled-labour shortfall on the final line or an order book too uncertain to justify expansion; in those cases, the map adds little, and the money belongs in recruitment or in securing firmer customer commitments. The decision on whether to expand, reserve, qualify, finance or acquire stays with management.
Europe has already shown at Unterlüß that it can build a major plant in fifteen months. The next phase asks something harder of the same organisations: to follow the product far enough through the network to know what each new factory can reliably deliver, and to fund the shared steps that decide it.
Questions for the C-Suite and the Board
Which shared capability, if relieved, would add the most accepted deliveries across our growth programmes? The chief operating officer or head of programmes can start from dependencies already affecting schedules; the answer shows where one investment reaches several programmes at once.
How much of the capacity in our plan is qualified, available and allocated to us, and how much is only installed? The gap indicates how firmly the CEO can make delivery commitments to customers.
Where would funding qualification of an alternative source now protect the 2027 ramp? For engineering and procurement, the answer decides which qualification projects start in the next two quarters.
Which change to payment milestones or advances would make a key supplier’s ramp financeable? The CFO can weigh its cost against the deliveries it secures and against the bank lines suppliers can now draw on.
How does each capacity option compare in terms of accepted deliveries, contribution margin, and cash within 12 months? A common horizon lets the board rank a new line, tooling, test capacity and supplier support in one view.
What evidence would lead us to change the investment sequence, and when will we review it? A dated review point keeps the map current as constraints move along the chain.
References
European Commission. (n.d.). Readiness Roadmap 2030. Retrieved October 15, 2026, from https://defence-industry-space.ec.europa.eu/eu-defence-industry/readiness-roadmap-2030_en
European Investment Bank. (2025, June 11). EIB triples financing for banks to provide liquidity to SMEs in the supply chain of Europe’s defence industry, signs first deal with Deutsche Bank [Press release]. https://www.eib.org/en/press/all/2025-236-eib-triples-financing-for-banks-to-provide-liquidity-to-smes-in-the-supply-chain-of-europe-s-defence-industry-signs-first-deal-with-deutsche-bank
European Investment Bank. (2026a, October 8). The EIB and Santander will mobilise €300 million to support SMEs and mid-caps in the security and defence sector [Press release]. https://www.eib.org/en/press/all/2026-327-the-eib-and-santander-will-mobilise-eur300-million-to-support-smes-and-mid-caps-in-the-security-and-defence-sector
European Investment Bank. (2026b, September 18). Greece: EIB and National Bank of Greece join forces to boost financing for security and defence businesses [Press release]. https://www.eib.org/en/press/all/2026-297-eib-and-national-bank-of-greece-join-forces-to-boost-financing-for-security-and-defence-businesses
Hagemann, B., Klüser, F., Walter, F., & Gehrke, I. (2026). Vom Budget zur Produktion: Wie die Skalierung von Europas Luft-, Raumfahrt- und Verteidigungsindustrie gelingen kann. McKinsey & Company. https://www.mckinsey.com/de/~/media/mckinsey/locations/europe%20and%20middle%20east/deutschland/publikationen/2026-06-09%20rampup/20260609_rampup.pdf
Lavandier, H., Stöber, J., Ocejo, R., & Wagner, K. (2026, February 12). Opportunities through consolidation in the European defence industry. McKinsey & Company. https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/opportunities-through-consolidation-in-the-european-defense-industry
McKinsey & Company. (2025, July 11). Scaling Europe’s defence industry: An interview with Micael Johansson. https://www.mckinsey.com/industries/aerospace-and-defense/our-insights/scaling-europes-defense-industry-an-interview-with-micael-johansson
McKinsey & Company. (2026, June 9). Auftragsbücher wachsen, Lieferfähigkeit entscheidet: Europa muss Verteidigung und Raumfahrt schneller industrialisieren [Press release]. https://www.mckinsey.com/de/news/presse/2026_06_09_ila
NATO. (2026, July 8). Strategy for Industry-NATO Cooperation. https://www.nato.int/en/about-us/official-texts-and-resources/official-texts/2026/07/08/strategy-for-industry-nato-cooperation
Rheinmetall. (2025a, September 5). Ceremonial opening of new ammunition factory: Turning point at Rheinmetall-speed [Press release]. https://www.rheinmetall.com/en/media/news-watch/news/2025/09/2025-09-05-factory-opening-in-unterluess
Rheinmetall. (2025b, December 10). Strategic expansion of the corporate network: Rheinmetall acquires specialist company for the storage and disassembly of ammunition [Press release]. https://www.rheinmetall.com/en/media/news-watch/news/2025/12/2025-12-10-rheinmetall-acquires-muni-berka
Rheinmetall. (2026, July 14). From Unterlüß to the Ukraine: Rheinmetall delivers artillery ammunition from the “Werk Niedersachsen” for the first time [Press release]. https://www.rheinmetall.com/en/media/news-watch/news/2026/07/2026-07-14-artillery-ammunition-from-unterluess-for-ukraine
About Andy Demir
Andy Demir is the editor of SwissTechnic and writes on strategy, international growth and capital in aerospace, defence, space and advanced technology. Drawing on a career in commercial leadership, the analysis examines how technology, sovereignty and industrial capability shape competitive power and long-term value.
