Western militaries are undermining Ukraine’s defence, experts say

A King’s College London report found that 22% of at least 180 Ukrainian-foreign defense partnerships are stalled, with permitting, intellectual-property rules and export restrictions delaying production, including Rheinmetall’s planned Ukrainian artillery-shell plant. Ukraine increased FPV-drone output from 1 million units in 2024 to more than 3 million in 2025 and is projected to produce 8 million this year, but experts argue Western militaries remain slow to adopt drone-centric tactics after Ukrainian operators defeated simulated US and UK tank brigades in exercises. Funding risk is rising after the US halted support last year, while Ukraine has exhausted resources following counteroffensives that recaptured at least 870 sq km and faces delayed EU funding.

Analysis

The investable implication is not a broad defense-sector de-rating; it is a widening split between primes optimized for long-cycle platforms and suppliers exposed to low-cost, software-defined attritable systems. RHM’s Ukraine manufacturing optionality is strategically valuable but unlikely to enter estimates until permitting, site control, export rights and IP allocation are contractually resolved. A further delay would be immaterial to near-term group earnings, but it weakens the premium investors assign to Rheinmetall’s capacity-expansion narrative versus execution-ready peers.

BAB faces a more nuanced risk: the market has rewarded large European primes for rising defense budgets, yet procurement adaptation could redirect incremental spending from conventional land platforms toward counter-UAS, electronic warfare, resilient navigation, munitions and drone command-and-control. That is a 6-18 month budget-mix issue rather than a quarterly earnings shock. Primes that can package integration, training, secure communications and sovereign production may retain wallet share, while those dependent on legacy platform replenishment risk multiple compression if procurement agencies shorten buying cycles.

The contrarian read is that institutional friction may ultimately increase—not reduce—European defense spend: battlefield evidence of armor vulnerability raises the required outlay because armies must fund both legacy deterrence and a new drone/EW layer. The near-term bottleneck is conversion of stated budgets into contracted revenue. Watch EU and national procurement reforms, export-control clarification, and evidence that Ukrainian-production partnerships are moving from memoranda to funded, permitted facilities; absent these, the sector’s order-book narrative remains stronger than its revenue timing.

NYT has no direct operating linkage to this development; it should not be used as a defense exposure proxy. The relevant market signal is whether European defense appropriations shift toward expendable systems and electronics rather than whether individual battlefield claims are validated in isolation.

Key Decisions for Investors

• Maintain a neutral-to-underweight tactical stance on RHM for the next 1-3 months versus a diversified European defense basket: do not capitalize Ukraine-site capacity until construction begins and export/IP terms are disclosed. Cover the relative short if RHM announces a funded final investment decision, a revised operating start date, or incremental government-backed orders sufficient to offset the execution uncertainty.
• Prefer BAB over RHM on a 6-18 month horizon only as a selective quality holding, not a blanket drone-war beneficiary: BAE’s systems-integration, electronic-warfare and sovereign customer relationships provide better protection if procurement shifts from platforms to counter-UAS. Thesis is falsified by order intake or margin guidance showing land-systems mix deterioration without offsetting electronics and services awards.
• Create an alert rather than initiate a pure-play drone trade: monitor listed proxies AVAV, KTOS and DPRO for European contract awards, but require disclosed order value, production capacity and unit economics before buying. The article identifies a demand need, not a verified revenue beneficiary, and small-drone hardware faces rapid commoditization and adverse-selection risk.
• For portfolios long European defense, hedge a portion of 6-12 month budget-timing risk through a RHM/BAB relative-value framework rather than reducing all exposure: the key risk/reward asymmetry is that delayed procurement can hurt high-expectation capacity-expansion names before it affects diversified incumbents’ earnings. Reassess after the next EU funding and national-budget cycle.