Private investment will play a critical role in financing Europe's expanding defence industry as governments struggle with budget constraints, according to senior finance executives at the Farnborough International Airshow. Cathal Deasy, global co-head of investment banking at Barclays, emphasized that governments needed to move faster in creating a supportive framework that would enable private capital to be deployed at scale across the defence sector. Executives from banks, private equity firms and investment institutions stressed that public spending alone would not be sufficient to support the continent's defence ambitions, highlighting the need for policymakers to provide greater clarity and accelerate reforms that encourage private investment.
The annual aerospace gathering has attracted a record number of bankers and investors this year, reflecting growing interest in defence financing as geopolitical tensions continue to drive military spending worldwide. Organisers expect more than 600 finance delegates to attend the event, nearly three times the number seen in 2025. Representatives from major financial institutions, including Goldman Sachs, JPMorgan and Qatar's sovereign wealth fund, are participating as investors seek opportunities arising from the defence spending boom.
Despite the strong long-term outlook, investor enthusiasm has moderated in recent months. Defence company share prices have weakened after a sharp rally, while Franco-German defence group KNDS has postponed its planned stock market listing until market conditions improve. An aerospace and defence index has gained just 1.3% since the beginning of 2026, underperforming the broader STOXX 600 index, which has risen about 8%. A senior executive at one of the largest U.S. private equity firms told Reuters that defence company valuations had undergone a correction over the past year and had since become more attractive for investors.
ING has significantly expanded its defence financing operations over the past five years, with Amin Mansour, vice chairman at the Dutch bank, noting the lender now has around 50 cross-sector bankers focused on defence funding transactions, compared with only a handful previously. The rally in European defence stocks has also lost momentum this year, with the sector underperforming broader market indices despite strong long-term fundamentals.
Industry participants also pointed to persistent challenges in directing capital to smaller suppliers within the defence ecosystem. Apollo executive Ephraim Rudman said channeling capital into the defence supply chain remains a major challenge and continues to create bottlenecks across the industry. Complex procurement processes and supply chain financing constraints continue to restrict funding for smaller contractors, even as demand for defence equipment rises, highlighting the need for more comprehensive reforms to unlock private capital deployment across the entire defence supply chain.
