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The Financial Situation of the Defence Technological and Industrial Base Since the Onset of the War in Ukraine

2026-03-20T00:00:00+01:00

Rising defence spending, increasing at a faster pace since 2022, could trigger an increase in business activity. The rapid development of Defence Technological and Industrial Base (DTIB) businesses and the related benefits are however hampered by lingering supply and hiring difficulties.

According to a study published in March 2025 carried out by France’s Economic Observatory for Defence and the French Treasury, the economic and financial situation of the DTIB was precarious prior to the Russian invasion of Ukraine. This paper supplements the study by analysing the situation up to 2024 and shows that since 2022 the sector’s economic and financial health has been steadily improving. However, long payment lead times and a high working capital requirement point to the need for significant cash flow.

Since 2021, intermediate-sized enterprises (ISEs) and small and medium-sized enterprises (SMEs) in the DTIB have seen a sharp increase in their value added, profit margins and investment rates, which are more robust than for comparable non-DTIB companies.

The equity of DTIB companies has risen, driven primarily by the increase in earnings. However, their equity levels are still proportionally lower than in the rest of the industrial sector, and the borrowing levels of DTIB companies continue to be more significant.

This trend may continue with rising defence spending in France and Europe and an expansion of financing opportunities. The ongoing consultation between the defence industry and the financial sector, set up by the Defence Procurement and Technology Agency (DGA) and the French Treasury in 2025, has facilitated bank financing and helped raise equity funding in the DTIB.

How Strong Were the Finances of DTIB Companies Before the War in Ukraine?

2025-03-19T00:00:00+01:00

At a time of increasing international tension, the economic and financial position of companies “that help to design and produce equipment for armed forces” (i.e. the “defence technological and industrial base” or DTIB) is a major concern, particularly as regards small- and medium-sized enterprises.

To analyse the economic and financial position of these companies, France’s Economic Observatory for Defence and the Directorate General of the Treasury carried out a study covering the period from 2016 to 2021, looking at a sample of 2,072 companies (intermediate-sized, medium-sized and small enterprises) operating in sectors most closely associated with the DTIB.

During that period, DTIB companies (excluding large corporations and micro-enterprises) had a weaker financial and economic position than companies in the rest of the economy: they had thinner margins, were less able to create value, had higher debt levels and were potentially undercapitalised.

DTIB companies’ ability to repay debts was lower than that of comparable companies in the rest of the economy, but they had higher debt levels, suggesting that they had sufficient access to bank credit.

They made greater use of external funding in their equity capital formation, partly because they were less able to generate profits capable of strengthening their equity base.

However, since 2021, the increase in European defence budgets in response to the war in Ukraine, along with several public-sector initiatives – such as the creation of the European Defence Fund and the loosening of the European Investment Bank’s funding rules – have improved their growth outlook and therefore their financial health, although increased demand is also leading to increased funding needs.