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Russia’s war on Ukraine has thrown up a particular challenge for the defence industry: why use highly expensive missiles to take down cheap drones, especially when there might be hundreds of them?
Military chiefs and politicians across Europe have acknowledged the new nature of warfare coming out of Ukraine. “The war in Ukraine is a strange combination of old-fashioned World War 1-World War 2 trench tactics, and a new kind of warfare using drones,” says Anders Fogh Rasmussen, the former head of Nato.
That in turn requires both new technology and much greater scale in armed capability. The latter is mostly about the sheer number of soldiers that might be needed, especially given the cavalier disregard for casualties shown by Russia, the main likely adversary for most European countries. But it is also about the required weaponry. Ukraine has shown the power of drone warfare, most recently and audaciously with its blowing up of multiple Russian aircraft deep inside enemy territory.
Myriad start-ups are popping up to address this issue across Europe as both entrepreneurial spirit and venture capital pour into the defence sector. Many of these new businesses say it is not just drones that are needed but also good anti-drone air defence that does not cost huge amounts of money.
“The cost-to-kill ratio is terrible. Current anti-drone, short-range air defence kit can cost €500,000 versus €20,000 drones,” says Kusti Salm, chief executive of Estonian start-up Frankenburg Technologies.
Europe’s defence industry is highly fragmented with many countries having one or multiple national champions. These may be good at producing complicated and costly large systems such as fighter jets, submarines and some missile defence.
However, Europe desperately needs these new start-ups and their potentially cheaper and quicker-to-produce weapons if the continent wants to be able to deter Russia given that various ministers across the continent are warning that Moscow could turn its attention to Nato countries within anything from three to 10 years. While Ukraine has become highly proficient at drone warfare, so too has Russia. Europe outside Ukraine lags a long way behind.
Another start-up in this space is Nordic Air Defence, a Swedish company that aims to produce an inexpensive drone interceptor for both military and civil use. Karl Rosander, NAD’s chief executive, says that one artillery grenade currently costs more than 80 times its pre-Ukraine war price while getting hold of large amounts of air defence missiles quickly is all but impossible.
“What happens if we get into a war and we need to scale production dramatically? We can’t right now. We need to have defence systems more at the same cost level as drones,” he says, adding that NAD’s solution — due to go into production next year — should be a tenth of the current cost.
That’s a similar level to what Frankenburg is aiming at. “The big problem with the defence industrial space in Europe, as well as the US, is simple: the weapons currently produced are outrageously expensive, and available at very low number. We need 10-100 times more, and 10 times cheaper,” Salm says, adding that his company is targeting a price of much less than €50,000 for its short-range rockets.
Rasmussen, also a former Danish prime minister, believes nation states need to step up defence spending dramatically to something like 5 per cent of GDP, investing in a “mass of fighter jets, tanks and heavy equipment”. But also needed is private investment that backs start-ups in new technologies such as drones.
In the past, environmental, social and governance concerns have stopped many fund managers from backing defence groups. But signs are emerging of more investment happening, with start-ups reporting strong demand from VCs, angel investors and family offices chasing the high growth that defence companies look to offer in the coming decade.
One question is whether over time that will affect the established defence industry. Salm argues that it “needs to be disrupted in every respect”, saying existing big firms would offer a new product that is only a few per cent better than the old one, but for a much higher price. “The bigger challenge is a product that is 10 per cent inferior, but 50 per cent cheaper, and can be manufactured by factors of hundreds,” he says.
The task is particularly urgent for Europe. Russia and China have both made drone technology a priority. Europe needs to unleash its start-ups to do likewise.