Roadmap for EU Defence consolidation: Guidance on M&A and State aid in the EU Commission’s Defence Readiness Omnibus

The European Commission (EC) recently unveiled its Defence Readiness Omnibus (the Omnibus), an initiative designed to reduce regulatory burdens and cut administrative red-tape for the EU’s defence sector.  This is a key component of the EC’s broader strategy to re-establish European defence readiness and deterrence by 2030, while addressing capability gaps within the European Defence Technological Industrial Base.

The Omnibus comes on the back of the EC’s ReArm Europe / Readiness 2030 strategy and its Joint White Paper on the Future of European Defence (see our previous post here), which were both announced in March 2025.  Together, these initiatives demonstrate ambitious, tangible steps the EU is taking to significantly increase defence spending, address capability gaps and ultimately ensure its own defence.  Together with the SAFE financing instrument, adopted in May 2025, this is seen as the EU’s first steps towards a Defence Union.

As part of this broader initiative, the EC has identified in the Omnibus areas where antitrust enforcement could better serve the defence sector.  While it stops short of making structural legal reforms, the Omnibus signals a more flexible posture by the EC — particularly when it comes to joint production, scaling capability and ensuring supply chain resilience. That said, unanswered questions remain, and — even in this favourable regulatory environment for the defence sector — some regulatory ambiguity persists, especially in the absence of practical enforcement guidance.

In this blog, we provide a short overview of the ways the Omnibus is set to impact the EC’s antitrust enforcement regime, covering M&A activities, antitrust and State aid, including considerations regarding Article 346 TFEU. 

Antitrust considerations

The defence sector raises unique antitrust challenges.  Defence is a national prerogative closely guarded by Member States.  While the EU has been successful in establishing a single market in most sectors, defence markets remain stubbornly national.  Member States buy defence goods from their national (or US) suppliers, but not from other Member States.  Defence consolidation also takes place with little EU involvement.  For example, two recent European initiatives to create sixth-generation fighter aircraft — Global Combat Air Programme (GCAP) and Système de combat aérien du futur (SCAF) — are based on intergovernmental agreements with no EU institutions involved.

These obstacles must be overcome if the EU is to meet its defence readiness objectives.  These objectives require greater defence consolidation and cooperation and the creation of a single European defence market.  The EU’s existing antitrust framework does not address the defence sector’s needs.  In merger control, it is not clear how defence considerations should be weighed against effects on competition.  In antitrust, there is no guidance on how defence cooperation should be assessed. And in state aid, while EU Courts have considered the application of the ‘defence exemption’ under Article 346 TFEU, little guidance exists outside of this.  These issues, coupled with Member States’ predominant promotion of national champions in the defence sector, requires large-scale reforms at EU level and a willingness at national level to think and act European.

While the Omnibus lacks practical detail, it can still be considered a first step towards a more harmonised, cooperative approach to defence-related cases.  In particular, the EC commits, as part of its antitrust enforcement, to take account of the “specificities of the defence industry,” as well as the EU’s defence ambitions and the changed security order.

M&A

The Omnibus highlights the EC’s ongoing review of its Merger Guidelines.  As part of this review, the EC is committed to giving “adequate weight to the changed security and defence environment,” as well as “the overall benefits from enhanced defence and security within the [EU] leading to efficiencies.” Separate to the Omnibus, the EC has indicated that this review could lead to specific guidance on defence-related mergers — an area not currently addressed in the Horizontal and Non-Horizontal Merger Guidelines. 

While it remains to be seen if and how the Omnibus’ commitments will be reflected in the updated Merger Guidelines, they signal a positive shift for companies considering defence-related transactions.  This is particularly true of efficiency claims, which the EC traditionally has treated with scepticism.  The Omnibus states that the EC will “assess the overall benefits from enhanced defence and security”, but it is not clear how — whether by treating efficiency claims more favourably or taking a broader view of consumer welfare that includes defence considerations.  A broader view of efficiencies could lead the EC to approve the creation of “European champions” in defence, which in other, less sensitive sectors it has opposed.  In any event, companies are well advised to spend more time developing efficiency arguments from the outset when facing complex M&A transactions in the defence sector.

These regulatory trends are also evidenced in the EC’s review of recent transactions in the defence sector.  Notable examples include the EC’s clearance of a joint venture between BAE Systems, Japan Aircraft Industrial Enhancement Co and Leonardo, which will serve as the prime contractor and lead systems integrator for GCAP, a project to develop a sixth-generation combat aircraft.  Another is the EC’s unconditional clearance of SES’ acquisition of Intelsat — both global satellite network operators that own and operate geostationary Earth orbit (GEO) satellites.

Antitrust

The Omnibus notes that the EC “stands ready” to provide antitrust guidance on cooperation projects of companies in the defence sector, especially “where such collaboration is necessary to scale up production or where individual companies would otherwise be unable to develop or manufacture a product on their own.”  In assessing such agreements, the EC will consider “the efficiencies generated”, including the positive effects the cooperation will have on European defence readiness and the resilience of defence supply chains.

This follows the Draghi Report which recommends a ‘buy European’ approach to defence procurement, and highlights the need for EU antitrust policy to enable European defence consolidation to reach scale where necessary (Draghi Report, p. 170).  A key component of this, particularly in the short term, will be cooperation and partnerships amongst defence companies to achieve European scale.  At the same time, the EC’s 2023 fine imposed on Diehl for participation in a grenade cartel shows that the EC will remain vigilant to ensure that legitimate cooperation does not stray into collusion.

Taken together, while the Omnibus does not dispense with the existing parameters for antitrust enforcement, it does signal a more receptive stance by the EC toward defence-sector cooperation — particularly where such collaboration supports the EU’s defence readiness goals.  This creates greater legal and policy space for companies to pursue joint projects, especially those aimed at scaling up production and enhancing supply chain resilience.

State aid

State aid is set to play a central role in the EU’s push to increase defence production capacity and address capability gaps.  In support of this objective, the Omnibus states that the EC will “prioritise the treatment of [State aid] cases with the objective of defence readiness.”  It also outlines how the EC plans to reduce the regulatory burden on Member States deploying such aid measures, which fall into two broad categories.

First, the Omnibus highlights that aid aimed at expanding defence production capacity can, in principle, be exempted from standard State aid rules under Article 346 TFEU, as it concerns a Member State’s “essential security interests.”  In practice, however, this exemption requires careful navigation.  EU courts have held that it must apply specifically to arms, munitions and war material listed on an EU Council-approved list, the aid be proportionate and necessary for the State’s essential security interests, and it must not distort competition in markets for non-military products.  Applying the ‘defence exemption’ therefore require case-by-case assessment — particularly in cases involving dual-use goods.

Second, where aid does not fall under the Article 346 TFEU exemption, it will be assessed under the existing State aid frameworks.  While the Omnibus does not amend these frameworks, it signals that the EC may take a more favourable stance toward certain defence-related aid measures.  Specifically, under an Article 107(3)(c) TFEU assessment — examining whether aid distorts trade in a manner contrary to the common interest — the EC indicates it will view more favourably defence-related aid that: (i) is granted in the context of an EU programme; (ii) supports cross-border cooperation; (iii) promotes interoperability and security of supply of defence products; and (iv) addresses critical defence capability gaps. 

Conclusion

The Omnibus represents an important step in adapting the EU’s antitrust rules to its ambitious defence readiness strategy and changed security environment.  Yet, for all its signals of intent, the Omnibus leaves key questions unanswered — offering more direction of travel than practical guidance.  Whether the forthcoming revisions to the Merger Guidelines and potential enforcement changes will meaningfully address these gaps remains to be seen.  In the meantime, however, the regulatory landscape appears favourable to defence-related M&A and collaboration, with greater scope emerging to argue efficiencies not only in merger control, but across the antitrust landscape more broadly.