Capstone believes that the European drone and counter-drone space is poised to expand significantly, given EU Member States’ collective interest in developing sovereign European industrial capabilities. Battlefield activity in Ukraine and drone overflights of European airspace have prompted new investments from both civil and military users, and EU initiatives aim to accelerate and coordinate national drone capability development.

• Europe’s policy and investment infrastructure are increasingly focused on unmanned air systems (UAS) and counter-UAS (C-UAS) capabilities as priority investment areas. Battlefield impacts of UAS in Ukraine and a growing domestic drone threat have prompted the EU to begin coordinating continental efforts.
• The European Drone Defence Initiative (EDDI), Action Plan on Drone and Counter Drone Security, and the broader EU Defence Readiness Roadmap 2030, signal sustained UAS and C-UAS interest, and are backstopped with EU-level funding and wide national interest.
• Tier 1 component suppliers across the UAS/C-UAS supply chain, including sensor manufacturers such as Nordic Radar Solutions ApS and battery makers such as Aerotate GmbH, offer investors the greatest potential upsides. The companies are positioned to sell across Europe’s nationally fragmented component landscape.

Capstone believes that rising European interest in drone (UAS) and counter-drone (C-UAS) capabilities from national militaries and civilian security agencies alike offers clear opportunities for investors. The European policy landscape, bolstered by EU plans to establish supporting frameworks, is primed for a rapid, regional UAS and C-UAS market expansion. EU policy plans to marshal Member State and EU-level funding will multiply opportunities in this space that could not have been provided by individual Member States without coordination.

On February 11, 2026, the European Parliament and Council published an Action Plan on Drone and Counter Drone Security that outlines a series of planned steps to better integrate Member States’ procurement, establish testing and capability standards, and create industrial incentives to boost production capacity. Although individual components of the plan have seen varying degrees of progress, they are a strong directional indicator for the UAS and C-UAS industry and suggest sustained political interest. The plan is not wholly dedicated to UAS and C-UAS technologies, but these platforms have seen the greatest procurement interest.

Manufacturers of components such as sensors, motors, and radio frequency (RF) detection and communication equipment will offer investors the greatest opportunities as the UAS and C-UAS market expands in Europe (see Exhibit 1). Original equipment manufacturers (OEM) operating at scale, such as Kongsberg Gruppen ASA, Thales SA, and Leonardo SpA, must navigate internal European political dynamics to make sales, regardless of EU-level support. In other words, companies must maneuver through Member State biases toward procuring from domestic companies to sustain national capabilities. However, Tier 1 and lower suppliers are still better positioned to capitalize on macro market dynamics and sell across borders with lower overhead.

Exhibit 1: Examples of Tier 1 Suppliers in the UAS and C-UAS Sector

Technology/Component Type	Use	Description	Examples of Companies
Lithium-Ion batteries	UAS	Onboard power sources for UAS systems	E-magy BV; Aerotate GmbH
Electric and gas motors	UAS	Propulsion for UAS systems	Sky Power GmbH; EUMotors sp. z o.o.
Radio communications and control	UAS	Operator-UAS communications	Simpulse SAS
Jammers	C-UAS	Disruption of hostile UAS communications	Sensofusion Oy; DefSecIntel Solutions OÜ
Radio-frequency detectors	C-UAS	Radio frequency-based UAS detection	Sensofusion Oy; DefSecIntel Solutions OÜ
Radar	C-UAS	Radar-based UAS detection	Nordic Radar Solutions ApS

Growing Drone Threats Pose Immediate Security Challenges

European interest in drone and counter-drone capabilities has dramatically increased due to the ongoing Russian invasion of Ukraine and repeated drone incursions into the airspace of multiple European countries. Additionally, the war in the Middle East, which saw Iran effectively use drones to attack critical infrastructure and military targets in Gulf countries, solidifies the security risks. Finnish President Alexander Stubb said that drone operations had during recent Ukrainian operations. Larger UAS, such as Iranian Shahed-pattern systems, now also contribute substantially to both Russian and Ukrainian long-range strike capabilities. These emerging threats demonstrated on Europe’s doorstep have, in part, prompted a major modernization and recapitalization cycle for militaries across the continent.

UAS are not limited to military activity. These systems are proliferating and have become increasingly accessible to the public, as well as government and malign actors, including foreign intelligence agencies and organized crime groups. This dynamic is forcing European law enforcement and homeland defense bodies to procure and field new capabilities to track UAS activity and, when necessary, shoot them down.

UAS incursions into European airspace have caused serious disruptions. During the fall of 2025, UAS, suspected to be operated by Russian intelligence services, flew over sensitive military sites and critical infrastructure throughout the EU. The Danish defense minister referred to a series of incidents in which UAS disrupted air travel at Oslo and Copenhagen airports as a “hybrid attack.” As recently as May 15^th, Finland halted traffic at Helsinki Airport after UAS were detected over the city. Russian and Ukrainian military UAS have also overflown several EU Member States, including Romania, Poland, and the Baltic states, both intentionally and due to technical failures.

EU-level Initiatives Strongly Position the European UAS and C-UAS Sector for Investments

Given the new threat profile and rising Member State interest in drone and counter-drone capabilities, the EU has begun a series of initiatives over the past year to coordinate European resources, including:

• October 2025: The European Commission adopted the Readiness Roadmap 2030, intended to close defense capability gaps over the next five years and boost joint procurement toward a target of 35%. The roadmap launched several flagship readiness programs, including the EDDI, formerly known as the “Drone Wall,” to integrate European drone and counter-drone military capabilities, and the Eastern Flank Watch, a comprehensive effort to build defenses across the border with Russia.
• February 2026: The Action Plan on Drone and Counter Drone Security, released four months later, builds on the above initiatives by outlining a series of concrete steps to ease procurement and increase production, as well as develop internal security capabilities.
• May 2026: The EU announced an EU-Ukraine Drone Alliance on May 5^th to support technology development and strengthen the industrial ecosystem.

Although these measures do not include funding, they are meaningful indicators of how the EU and Member States will allocate their funding. The EU’s primary tools for multinational defense investment include:

• the Security Action for Europe’s €150 billion loan facility;
• the European Defence Industry Programme, providing €1.5 billion in grants between 2025 and 2027; and
• the European Defence Fund, a research and development vehicle with a €7.3 billion budget for 2021 through 2027, facilitating €1.07 billion in funding for projects selected in the fund’s latest 2025 round.

The net impact of these initiatives is an increasingly positive outlook for drone and counter-drone technology companies in the European common market. Local production and development requirements baked into funding streams protect them from US competitors, while EU-level leadership ensures government interest in their long-term success. European militaries and civil defense agencies are reinforcing these effects through their own procurement budgets. The most critical aspect of these new initiatives is that the European Commission has expressed a strong desire to dramatically expand the continental drone and counter-drone industrial base.

An underappreciated factor is the EU’s drive to increase standardization and testing commonality. As laid out in the Action Plan, the EU plans to establish and improve joint testing centers, introduce voluntary intra-Union performance requirements, and share safety and certification systems. The EU expects to make significant progress on these initiatives over the next 18 months. Integrating these functions across the EU will reduce the overhead that manufacturers need to manage when serving individual Member States.

EU manufacturers, particularly of C-UAS, also benefit from national and EU-led pathways to export their systems to Ukraine, which are not available to suppliers based outside the continent, like those in the US. The Ukrainian drone and counter-drone market, although separate from the EU, is the largest on the continent as the country enters its fifth year of high-intensity war. European manufacturers, including emerging defense companies such as SKD SE (known as STARK) and Helsing SE benefit from Ukrainian military demand, as well as opportunities to test their systems in real-world battlefield conditions. Although Ukraine’s domestic defense industry is also rapidly innovating and expanding, internal export controls and battlefield needs limit its ability to offer scaled capabilities in the international market. EU interests in building and maintaining sovereign industrial capability will ensure this dynamic remains intact and survives any special common market access allowances for Ukraine.

UAS Supply Chain Security Measures Create Opportunities for Local Manufacturers

Europe’s general drone policy direction, including growing military demand and emerging constraints on civilian models, is highly positive, with macro factors for the continental drone and drone components favoring the manufacturing industry. Capstone assesses that drone component manufacturers will benefit especially, as European military requirements for local manufacturing will drive demand, which is far from being matched by continental manufacturers at present. Drone OEMs rely heavily on importing parts, particularly from China. Companies such as Sky Power in Germany and EUMotors in Poland that make UAS motors, E-magy in the Netherlands and Aerotate in Germany that make batteries, and SimPulse in France, which makes radio transmitters, are well-positioned for future growth.

Several discrete supply chain measures further support these opportunities:

Cyber Resilience: Beyond general efforts to increase continental UAS and, more broadly, drone production, the EU is taking steps to secure European drones across government and commercial use cases from foreign cyber risks. These include establishing an EU Trusted Drone label certification regime that signifies “third-party verification” of drone safety, including cyber resilience. Once the Cyber Resilience Act is implemented in December 2027, almost all drones in the EU market will also be required to meet new cybersecurity standards and generally use trusted hardware. Firms that locally produce trusted, verifiable hardware in key categories such as radio transmitters—e.g., SimPulse—will be well-positioned for future growth on the continent.

Removal of Manufacturers from Adversarial Countries: Capstone believes that the EU and member governments will likely increase drone security controls as local industrial capacity increases, effectively favoring domestic manufacturers over their foreign counterparts on cybersecurity grounds, with real industrial implications. For example, Member States Lithuania and the Netherlands have already banned the procurement of Chinese drones by their militaries, as well as by all public-sector agencies in Lithuania’s case. This is similar to regulatory barriers in the US that Capstone has covered extensively, which focus on removing Chinese drones from the US market and supporting the growth of a domestic industry. As European manufacturers have particularly relied on Chinese UAS motor suppliers, restrictions on procurement from foreign companies would be a distinct boon for local motor makers Sky Power and EUMotors that can take up the slack in the supply chain.

Broader EU Industrial Policy: On March 4^th, the European Commission formally proposed the Industrial Accelerator Act (IAA), which would create minimum “made in EU” requirements for public procurement and support the manufacturing of net-zero technologies such as solar panels. The commission notes that it is determining whether the IAA could be used to advance drone and counter-drone manufacturing in the Action Plan. For batteries, in particular, IAA requirements would substantially increase the need for locally manufactured UAS energy sources, such as E-magy’s and Aerotate’s products.

C-UAS Providers See Civilian Market Expansion; Rising Military Interest Keeps up Momentum

Continuous drone threats from Russia and other actors are forcing the EU and its members to also develop substantial nonmilitary C-UAS response capabilities, providing a growth driver on top of the military segment. The EU has begun efforts to integrate C-UAS into controlled, general airspace via a European Organisation for Civil Aviation Equipment working group. Although military and civilian C-UAS users generally prefer different systems, we believe investors should seek opportunities in general-purpose components such as radio-frequency and radar-based sensors, as well as portable jamming equipment that can meet both military and civilian needs. Examples of providers include Finland’s Sensofusion, Denmark’s Nordic Radar Solutions, and DefSecIntel Solutions in Estonia.

Rising Military Demand: Between the EDDI and national investments, military interest in C-UAS capabilities is at a record high, and procurement spending continues to grow. Capstone estimates that European military spending on C-UAS still lags that of the US but has increased substantially each year. We estimate that European C-UAS spending between FY23 and FY26 increased by approximately 700%, or more than €2 billion.

New Civil Customers: Capstone expects civilian law enforcement and other nonmilitary homeland defense agencies across the EU, which are generally charged with defending national airspace from malign drone activity, such as airport overflights, to become considerable buyers of C-UAS capabilities over the next five years. The Action Plan on Drone and Counter Drone Security contains several provisions to enable civil C-UAS activity. These include new drone identification requirements for law enforcement situational awareness in a planned Drone Security Package, new training standards for law enforcement C-UAS operators, and a feasibility study for EU-level C-UAS policy that sets a “minimum baseline for Member State authorities.”

What’s Next

Capstone will continue to track the spectrum of European policy, regulations, and funding that shapes the outlook for continental UAS and C-UAS manufacturers. The speed at which the EU implements key components of the Action Plan will have positive impacts on this sector in the next two years, while positive macro factors will sustain growth for the foreseeable future. We are monitoring for additional clarity on how legislation such as the IAA will interact with European defense industrial priorities.

Read more from Capstone’s National Security Team:
What to Expect from the US-South Korea Investment Deal
The Growing Munitions Supply Chains Bottleneck
Regulatory Changes to Foster US Drone Supply Chains