Industrial and mobility (5 of 5)

Defence and space

About 8 minutes to read in full, or 1 minute for the short version belowFacts checked 30 September 2026

In one minute

Companies design, build and support military equipment for governments, and launch and run satellites that sell internet, images and navigation.

The big idea: In defence the government is almost the only customer: it sets the budget, the contract terms and who else may buy. Contracts are long, so the future is written in the backlog, and since 2024 the hard part has been producing fast enough, not winning orders. In space, reusable rockets cut the cost of reaching orbit, which turned satellite broadband into a mass-market business.

One unit, in numbers: One armoured vehicle delivered under a fixed-price contract: EUR 5 million comes in, and EUR 550 thousand (11%) is left after its own costs.What is left is the unit's contribution, before the costs of the whole company. See the worked example
Typical margin: About 9 to 15 percent operating margin for large defence contractors; space varies from losses to high marginsRoughly how much of every 100 of sales (or income) is left as profit after the running costs. More on margin
Capital intensity: HighA lot of money must be tied up before the business earns anything, so the return on that money matters as much as the margin. More on capital intensity
The number to watch: BacklogThe value of orders won but not yet delivered; the main guide to future revenue.

Ask this first in a case

Who is the customer, which government, and what budget and approvals does the purchase depend on?

Words used above (2)

Backlog:: Orders won but not yet delivered.
Fixed-price contract:: An agreed price; the company carries the risk of higher costs.

The industry's other words are explained in Words to know (12).

On this page (17 sections)

How money is made

Fixed-price contracts for mature products: the company keeps any saving and carries any overrun.
Cost-plus and incentive contracts for development work: costs are repaid plus a fee.
Framework agreements that set prices and a ceiling, with orders called off over several years.
Sustainment: maintenance, spare parts, training and upgrades over decades of service.
Exports to allied governments, often with local production or offsets.
In space: launch fees per mission or per kilogram, satellite broadband subscriptions, and selling images and data to governments and businesses.

Worked example: one unit

Unit economics means the money in and out for one unit of the business. Start from the revenue, take away the unit's own costs, and what is left is its contribution. More on unit economics

The unit: One armoured vehicle delivered under a fixed-price contract (EUR thousands). Illustrative, rounded figures.
Line	Amountin EUR thousands	ShareShare of revenue
Contract price per vehicle	EUR 5,000	100%
Minus Materials, parts and bought-in systems (engine, weapons, electronics)	EUR 2,600	52%
Minus Labour: engineering, assembly and testing	EUR 1,250	25%
Minus Depreciation of factory and tooling	EUR 250	5%
Minus Programme management, bid and administration costs	EUR 250	5%
Minus Provision for warranty and early support	EUR 100	2%
What is left (contribution)	EUR 550	11%

Check: EUR 5,000 minus EUR 4,450 of costs leaves EUR 550 (in EUR thousands).

So what: The margin of 11 percent is typical of large defence contractors, and bought-in materials of about half the price mirror what Rheinmetall reports. On a fixed price, a 10 percent rise in materials (EUR 260 thousand) would wipe out almost half the profit, so locking in supplier prices matters more than the headline price.

Key measures(9)

Key measures (also called KPIs, key performance indicators) are the numbers people in this industry track. Ask for the first one or two early in a case.

Backlog
The value of orders won but not yet delivered; the main guide to future revenue. Glossary: Backlog
Typical: Rheinmetall about EUR 80.5 billion, BAE Systems about GBP 84 billion, Lockheed Martin about USD 230 billion in mid 2026[6]
Backlog cover
Backlog divided by a year of sales: how many years of work are already booked.
Typical: about 2.9 years at Lockheed Martin and about 5.8 years at Rheinmetall on 2026 figures[7]
Book-to-bill
New orders divided by sales in a period; above 1 means the backlog is growing. Glossary: Book-to-bill
Operating margin
Operating profit as a share of sales; shows how well contracts were priced and delivered.
Typical: about 9 to 15 percent for large contractors[8]
Free cash flow and customer advances
Cash left after investment; governments often pay advances, which can make cash stronger than profit.
Typical: BAE Systems: about GBP 1.8 billion in the first half of 2026, helped by advances[8]
Production rate and on-time delivery
Units made per month and share delivered on schedule; the constraint when orders surge.
Defence spending as a share of GDP
How much of its economy a country spends on defence; the target that drives budgets.
Typical: NATO: 5 percent by 2035, of which at least 3.5 percent core defence[2]
Launch cost per kilogram
What it costs to put one kilogram into orbit; reuse brings it down.
Satellite broadband subscribers
Paying users of satellite internet; drives revenue for LEO constellations.
Typical: Starlink about 10.3 million by March 2026, as reported from SpaceX's IPO filing[12]

First questions to ask

When a case lands in this industry, these questions get you to the numbers that matter.

Who is the customer, which government, and what budget and approvals does the purchase depend on?
What type of contract is it (fixed price, cost-plus, framework), and who carries the cost risk?
How large is the backlog, how firm is it, and how many years of production does it cover?
What is the slowest input to production: materials, parts, skilled people, test capacity or permits?
What export licences or local production rules apply?

Value chain: where the margin sits

The value chain is the steps a product or service passes through, from the first supplier to the customer. Each step below shows how much of the value it keeps. More on value chains

Step 1: Government budget and requirement
Margin varies
Parliaments, defence ministries and procurement agencies; space agencies for civil space
Budgets are approved each year even though programmes last decades.
Step 2: Prime contractor (systems integrator)
Medium margin
Lockheed Martin, BAE Systems, Rheinmetall, Thales, Hindustan Aeronautics, EDGE Group
Designs and delivers the whole platform; margins of roughly 9 to 15 percent.
Step 3: Subsystems (tier 1)
Medium margin
Engine, radar, electronics and missile makers such as Safran, Rolls-Royce, Leonardo, Bharat Electronics
Step 4: Parts and materials (tiers 2 and 3)
Margin varies
Machining shops, steel and explosives makers, chip and magnet suppliers
Often the bottleneck when orders surge.
Step 5: Sustainment: maintenance, spares, upgrades
Fat margin
The prime and its suppliers, sometimes local partners
Equipment stays in service 20 to 40 years.
Step 6: Launch
Margin varies
SpaceX, Rocket Lab, Arianespace, ISRO and NSIL, Chinese state launchers
Commercial launch revenue about USD 12.4 billion in 2025.
Step 7: Satellites and their services
Margin varies
Starlink, Amazon Leo, Eutelsat (OneWeb), SES, Space42, Planet Labs
Broadband, TV, Earth observation and navigation.
Step 8: Ground equipment
Medium margin
Makers of dishes, user terminals, navigation chips and ground stations
The largest part of the space economy by revenue, about USD 165 billion in 2025.

Profit pool: who keeps the money

Where in the value chain the profit ends up, which is often not where most of the sales are. More on profit pools

In defence the profit sits with primes and key subsystem makers that own the design, and above all in sustainment, which runs for decades after the sale. Parts suppliers earn less but gain pricing power when they are the bottleneck. In space, the money sits in services and ground equipment rather than launch, and satellite broadband has become the largest profit engine.

Cost structure(4)

The main costs, each as a share of revenue (the money from sales).

Materials, parts and subcontracted systems: about 50 to 55 percent of sales (Rheinmetall: 49.8 percent in 2024, 54.8 percent in 2023)[5]
Personnel (engineers, production workers, support staff): about 24 to 29 percent of sales (Rheinmetall: 24.3 percent in 2024, 28.5 percent in 2023)[5]
Depreciation and amortisation: about 4 percent of sales (Rheinmetall 2024: about EUR 403 million on EUR 9.75 billion of sales)[5]
Operating profit left over: about 9 to 15 percent (Rheinmetall about 15 percent operating margin in the first half of 2026; BAE Systems about 11 percent)[6]

Benchmarks(6)

Typical figures for the industry, to check a client's numbers against.

World military spending: about USD 2,887 billion in 2025, about 2.5 percent of world GDP[1]
Growth of military spending in Europe: about 14 percent in 2025, to about USD 864 billion[1]
NATO allies meeting the 2 percent target: all allies in 2025, for the first time[3]
Global space economy: about USD 429 billion in 2025, of which the commercial satellite industry about USD 303 billion[11]
Starlink share of SpaceX revenue: about 61 percent of USD 18.7 billion in 2025[12]
Reuse of one Falcon 9 first stage: 37 flights by August 2026[14]

Typical cases(7)

Case prompts you might hear in this industry.

An ammunition maker must triple output in two years. How should it do it?
Should we bid for this fixed-price defence programme?
A Gulf government wants to build a local defence industry. Where should it start?
Should a European supplier build a new factory or partner to meet rising demand?
Should a telecom operator in Southeast Asia partner with a satellite broadband provider?
Is an Earth observation start-up a good investment?
Should a launch company invest in making its rocket reusable?

Common traps(5)

Mistakes candidates make in this industry, and what to do instead.

Treating backlog as cash. It becomes revenue only as work is delivered, and framework ceilings may never be fully ordered.
Assuming a higher budget means orders tomorrow. Procurement takes years; follow the actual contract pipeline.
Forgetting export licences, which can block a sale whatever the price.
Ignoring sustainment, often the most profitable part of a programme.
In space, assuming launch is the main business, when most revenue sits in services and ground equipment.

What changed, 2024 to 2026(6)

Recent changes a case could turn on.

World military spending rose for the 11th year in a row to about USD 2,887 billion in 2025; Europe rose about 14 percent while US spending fell about 7.5 percent as aid to Ukraine dropped.[1]
NATO allies agreed at The Hague in June 2025 to spend 5 percent of GDP a year by 2035: at least 3.5 percent on core defence and up to 1.5 percent on related needs.[2]
The EU adopted SAFE in May 2025, up to EUR 150 billion of loans for joint defence purchases, as the first part of a plan to unlock up to about EUR 800 billion of extra defence spending.[4]
Backlogs hit records, and the challenge moved to production capacity: Rheinmetall's backlog reached about EUR 80.5 billion in June 2026, up from a restated EUR 56 billion a year earlier.[6]
India raised its defence budget to about INR 7.85 lakh crore for 2026 to 27, and defence exports reached a record INR 38,424 crore in 2025 to 26.[10]
Satellite broadband scaled up: Starlink revenue was about USD 11.4 billion in 2025, Amazon renamed its Kuiper network Amazon Leo and began a preview for business customers, and the EU is funding IRIS2 at about EUR 10.6 billion.[12]

Players by region(6)

Well-known companies in each region. You do not need to learn them by heart; they help you picture the market.

Global: Lockheed Martin
RTX
BAE Systems
Airbus
SpaceX
Thales
United States: Northrop Grumman
General Dynamics
Boeing
L3Harris
Anduril and Palantir (software-led defence)
Rocket Lab
Planet Labs
Amazon Leo
Europe: Rheinmetall (Germany)
Leonardo (Italy)
Saab (Sweden)
Safran (France)
KNDS and MBDA
Arianespace
Eutelsat (OneWeb) and SES
Middle East: EDGE Group (UAE)
SAMI (Saudi Arabia)
Elbit Systems, IAI and Rafael (Israel)
Space42 (UAE)
Arabsat (Saudi Arabia)
India: Hindustan Aeronautics (HAL)
Bharat Electronics (BEL)
Bharat Dynamics
Larsen & Toubro
Tata Advanced Systems
ISRO and NSIL
Skyroot and Agnikul (launch start-ups)
Southeast Asia: ST Engineering (Singapore)
PT Pindad and PT PAL (Indonesia)

Words to know(12)

Linked words have a fuller entry in the glossary.

Prime contractor: The company that wins the main contract and integrates the whole system.
Backlog (glossary entry): Orders won but not yet delivered.
Book-to-bill (glossary entry): New orders divided by sales; above 1 means the backlog grows.
Fixed-price contract: An agreed price; the company carries the risk of higher costs.
Cost-plus contract: The government pays the costs plus a fee, so it carries the cost risk.
Framework agreement: Prices and a ceiling agreed up front, with orders called off later.
Sustainment: Maintenance, spares, training and upgrades over the life of the equipment.
Offsets and local content: Rules that part of the work or spending happens in the buying country.
ITAR: US rules controlling exports of defence items, which can follow a US part into a foreign product.
LEO and GEO: Low Earth orbit, a few hundred to about 2,000 km up, and geostationary orbit, about 36,000 km up.
Reusable launch: A rocket stage that lands and flies again, spreading its cost over many launches.
Earth observation: Satellite images and radar data of the ground, sold to governments and businesses.

Business model patterns

The ways of making money this industry follows. Spot the pattern in a new industry and you already know the first questions to ask.

Sources(15)

Facts checked on 30 September 2026. Worked examples are illustrative, shaped by these sources rather than one company's figures.

Go deeper and practise

Go deeper

The full lessons behind this brief, with sources and worked cases.

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Same pattern elsewhere

Industries that make money in a similar way. What you learned here carries over.