Spain's defense industry is experiencing a resurgence, driven by increased geopolitical tensions and Europe's strategic pivot towards enhanced military capabilities.

Following the onset of the Ukraine conflict and Donald Trump's return to the U.S. presidency, Spain finds itself at a critical juncture in its defense spending strategy.

The nation, currently ranked as the eighth-largest arms exporter globally, is under pressure to bolster its military expenditure in concert with EU objectives and Next Generation EU funding aimed at economic recovery post-COVID-19.

The European Union has identified defense as a top priority, establishing an ambitious target of mobilizing €800 billion for military spending by 2030. This funding is expected to activate various fiscal and institutional resources across member states.

Spain's current defense spending is approximately 1.3% of its GDP, amounting to €20.5 billion, with calls for a dramatic increase to nearly 3%—an escalation exceeding €47 billion.

This will necessitate an annual increase of €5 billion in defense allocations.

There are many details still to be finalized, including the definitive budget and the specific allocations for domestic production versus investment.

Discussions continue regarding the potential reallocation of these funds from social programs and infrastructure spending towards military enhancement, which marks a notable shift in the political landscape.

Language that once avoided military terminology has now integrated discussions of drones, cyber security, and armored vehicles, reflecting a shift in governmental rhetoric.

Currently, Spain's rising defense exports include artillery shells and mortars aimed at supporting Ukraine.

Amid this context, Spanish defense companies are reassessing their manufacturing capabilities to meet the increased demand.

However, the industry faces challenges related to inadequate infrastructure, including factories and trained personnel, which have not seen significant investment in recent years, as highlighted by Ángel Escribano, president of Indra.

Contrastingly, German defense firm Rheinmetall, which has a substantial industrial footprint in Spain, has invested nearly €8 billion over the last three years to expand its manufacturing capabilities.

Recent reports indicate that the company has secured more contracts this year than in the previous fifteen years of its history.

Spanish defense industry leaders are initiating plans to expand facilities, optimize processes, and adopt new technologies.

César Ramos, CEO of Tedae, the Spanish aerospace and defense industry association, pointed out that sustained commitment to long-term investment and projects is crucial for solidifying these growth plans.

While confidence may arise from Brussels’ urgent appeals for increased defense spending, skepticism persists among some members of the Spanish Cabinet regarding the government’s ultimate investment commitments, which remain to be assessed beyond public declarations.

Concurrently, private companies are searching for suitable production sites in Spain that could be repurposed for defense manufacturing.

Some industries traditionally linked to civil applications are being evaluated for their potential in the defense sector.

Prominent companies like Navantia and Airbus are positioned to lead this transition, supported by a robust network of suppliers.

Indra, for example, is actively increasing its production capacity with initiatives related to the 8x8 armored vehicle program and the acquisition of a heavy boiler factory in Gijón for armored vehicle manufacturing.

This facility, recognized as El Taller, will exemplify the transformation of civil infrastructure into military production.

Indra’s CEO, José Vicente de los Mozos, who has extensive experience in the automotive sector, is aiming for standardization of projects and the establishment of true factories that could yield economies of scale in production.

The recruitment dynamics may also shift, as various industry sectors experience movement towards defense, including aerospace and automotive.

There is a growing demand for skilled positions such as plant directors, technical specialists, and personnel with governmental relations experience.

This shift underscores the importance of expertise in managing long-term defense projects, which entails significant knowledge and established networks within the industry.

Indra is currently in the process of renewing its board, actively seeking new directors and advisors with relevant defense experience to navigate evolving market conditions.

Meanwhile, Nazca Capital is preparing to launch a major defense investment fund in Spain, totaling €400 million, aimed at acquiring and enhancing smaller defense firms.

This fragmented defense sector has also created an opportunity for investment, with many small to medium enterprises now on private investment firms' radars.

These firms are seeking to consolidate resources and capabilities to maximize competitive advantages in securing large defense contracts.

The situation is further complicated by the lack of extensive European defense programs, resulting in a diverse landscape with regional industry hubs, such as Asturias, which is emerging as a significant center for defense manufacturing.

Projects like the development of an R&D center in Avilés and a testing and development facility in Jaén underscore the strategic focus on bolstering defense capabilities.

Other industrial regions are also adapting, with facilities in Andalucía positioned as key drivers of growth due to the establishment of technological development centers and logistical bases dedicated to defense projects.

In this evolving landscape, major military projects are set to create thousands of jobs and stimulate economic activity, benefiting both large defense contractors and a network of suppliers.