Private investment will play a critical role in financing Europe's expanding defence industry as governments struggle with budget constraints, but regulatory hurdles and financing bottlenecks continue to limit capital flows, senior finance executives said at the Farnborough International Airshow on Monday, according to Reuters.
Executives from banks, private equity firms and investment institutions said 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.
Reuters reported that Cathal Deasy, global co-head of investment banking at Barclays, said governments needed to move faster in creating a supportive framework that would enable private capital to be deployed at scale across the defence sector.
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 in the event 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, Reuters reported.
Reuters also reported that ING has significantly expanded its defence financing operations over the past five years. Amin Mansour, vice chairman at the Dutch bank, said 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. 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.
Industry participants also pointed to persistent challenges in directing capital to smaller suppliers within the defence ecosystem. Complex procurement processes and supply chain financing constraints continue to restrict funding for smaller contractors, even as demand for defence equipment rises.
Reuters reported that Apollo executive Ephraim Rudman said channeling capital into the defence supply chain remains a major challenge and continues to create bottlenecks across the industry.
