Blain’s Morning Porridge 20th, May 2026 – Defence Investment is evolving fast, and the winners are in Ukraine.

“The war for which Generals prepare is always the last one – especially if they won it.”

Investing in defence was a sadly neglected skillset for many years following the end of the Cold War. Defence primes became utility like seeking to preserve margins as real budgets declined on the peace-dividend. The War in Ukraine has highlighted many things, but critically that what the Primes are selling isn’t what’s going to win the next War. To invest in defence – you need insights into the future of the battlespace.

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Time to talk my own book again – about Defence and how to invest in it. And, yes, I will mention Spitfire Strategic Capital, where I am senior advisor to the managing partners. (This morning’s photo is Spitfire’s being built in Southampton in 1940 – just a couple of miles from where I live!)

Most investors have now woken up to the reality it’s time to forget everything they thought was obvious about investing in Defence. If only it was as simple as buying swords because the trumpets are sounding. It’s not. The stock price gains European Defence Primes experienced after the Ukraine invasion went into reverse last year. That’s not because the threat is receding, but because of the old truism Generals (actually procurement departments) will always plan to fight the last war, and not the one that is coming! Last year’s stock market darling, Rheinmetall is down 40% from its top last October as that realisation has sunk in. Modern war and the weapons to fight it have fundamentally changed – we will not see the behemothic armoured clashes on the North German plains that NATO planned to fight during the Cold War.

To invest in defence today you need to understand how the battlespace has evolved and expanded. That covers what happened following the fall of the Berlin Wall and, even more importantly, how warfighting has evolved over the last 4 years in Ukraine.

In the 1990s, the peace dividend and the collapse of the Soviet Union meant defence spending was left on the back burner. The few analysts who stuck to following defence stocks were focused on the profit margins from the big-ticket programmes (tanks, ships and planes), and the dangers the procurement process where inevitable cost overruns and delays might trigger penalty clauses. Western government sstarted scaling back armies, navies and air forces.

During the Cold War, defence became the realm of the monopolistic Primes – the Military Industrial Complex that General Eisenhower once warned about. They supplied Nato with the weaponry to engage in an attritional battle to hold back the Red Army and keep the Atlantic sea lanes open. That required tank divisions armed to the teeth to pick off Russian tank armies and fleets of submarine killers. The Primes became big, big firms who knew exactly how their ecosystem worked, and how to arbitrage it by extracting maximum value from taxpayers while becoming slow-moving un-adaptive dinosauric bureaucracies. (Funnily enough in 1984 I wrote my master’s dissertation on Military Procurement Failure and Overruns.)

When defence spending started to fall in the 1990s, the Primes effectively jacked up their prices to preserve margins, meaning European armed forces capabilities contracted, but costs stayed stubbornly high. The UK remains one of the highest spending nations on defence, but the capabilities of the Royal Navy, The Royal Air Force and The British Army are shadows of what they once were, blighted by multiple procurement fiascos where the primes have largely deflected blame – pinning it on the procurement bureaucracy and the military.

In the last decade, defence investment became even more difficult. The wokery of ESG (Environment, Social and Governance) determined what was investible and what was not – and defence was seen as a very bad thing. Despite the rising tide of global instability today, many asset managers still won’t invest in weaponry, or anything with a whiff of the military about it. As a result, becoming a defence analyst became a significantly career limiting choice. The military might have understood the battle space – but, aside from supporting Veteran Charities, few asset management or investment firms had much interest in Military matters.

It all came to a sudden head following the invasion of Ukraine in February 2022. The expectation the Russian stop-line might be on the River Oder (the German border), meant defence stocks were suddenly back in vogue as analysts, strategists and chartists from across the investment world were asked for their views.

They expected the general threat to Europe would mean spending on rearmament would rocket as militaries acquired new kit. The Primes saw a sudden investment boost and stock price upside – yet they had little incentive to increase gold-plated contracts if it meant damaging their margins by investing in new plant and hiring programmes.

Non-military analysts parachuted into the sector fundamentally misunderstood how the monopoly buyers of kit, the National Procurement Agencies, decide how to spend the money allocated to them by hard-up governments. That means bureaucracy, delay, frustration and by-the-book rules, adding to the enormous lead times on new equipment. We need submarines to fight tomorrow – not in 10-years’ time. And they also discovered much of the defence workforce was aging and plants had been underinvested in.

There was surprise at how tenaciously Ukraine turned back the Russian hordes. While Defence experts argued about the requirement to rearm, Procurement Bureaucrats held back spending, assuming a ceasefire would be reached, and that the Americans would keep the Ruskies in check. Today, we are waiting for a new UK Defence Investment Plan – it’s been delayed for months as the government has dithered between hopes of a ceasefire and where to find the money.

Trump kicked the cosy myth that Europe could rely on the USA into the long grass. To be brutally frank, he may prove to be the best thing to happen to Ukraine. We’ve gone from watching President Zelensky’s shock and horror as he was pummelled in the White House by Trump and Hegseth, to Ukraine emerging as a powerful military producer in its own right. Shattering Nato will force it to recoalesce as a European entity. It will learn and buy from Ukraine. As a result, European defence will end up significantly stronger and battlespace ready – faster than expected (as long as the bureaucrats don’t take over.)

Ukraine has learnt how to fight a modern war – which is anything except the one the procurement chiefs expected. It’s not about billion-dollar stealth bombers, new-tanks, Ajax reccy vehicles delivered decades late and woefully noisy, or skilful tactical manoeuvres. The new front line is a brutal modern Somme, where $1000 drones, missiles, smart munitions and middle age Ukraine warriors hold the line and direct the slaughter of wave upon wave of Russians. My colleague, David Murrin, who is just back from Ukraine, says it’s made the Ukrainians hard and brutal – but winners. Now every soldier can wield a drone – and a rifle.

Ukraine has proved itself adaptive and, as a result, they’ve upended the traditional defence procurement process. As I’ve written before – the Ukrainian armed forces understand the importance of good enough, delivery now, that quantity has a quality all of its own, and critically, the ability to keep adapting. They have learnt to innovate at speed and deliver weapons that are leaving other nations standing.

Western Primes are still thinking their $1 mm heavy lift drone or a $2mm substitute for a Tomahawk cruise missile is what the battlespace needs. Nope. There is a home-grown Ukrainian drone, missile and satellite firm, Fire Point, that is producing 200 of its pink Flamingo missiles every month with decent range and as accurate with fitted Starlink for $40k. It’s built a distributed production operation across 70 sites employing 6000 people in just 4 years. This morning there is a profile of another Ukraine firm, Destinus, in the FT, looking at how its partnering European firms to create new armoury chains across Europe.

Fire Point, and a host of other Ukraine firms like Destinus, have learnt and innovated from the war. They could potentially supply the whole of Europe with practical, pragmatic, cheap and cheerful, good enough, missiles to counter the delivery delays the USA is imposing as it tries to rebuild its own war-stocks after using them to pound Tehran rubble into smaller lumps of rubble.

Recently the Estonians – who are beefing up their forces – noted that inflation on defence goods has rocketed the price of everything, and therefore cost is a critical component of what they buy to secure their freedom. Again, that means good enough, cheap but effective.

Meanwhile Ukraine has short-circuited the procurement bureaucracy that delays delivery and escalates prices. It’s created the Brave1 marketplace allowing defence firms to turn their ideas into weapons that Ukrainian forces can immediately order and use – they pick the weapons they want based on price, capability and delivery.  There is no dicking around procurement rules – if it works, it gets used and the firm profits. If it doesn’t, the rest of Ukraine’s combat brigades immediately know. Its defence capitalism. So successful has it been, the American are doing the same thing to roll out drones to war fighters, and there are American firms prowling Ukraine looking for companies to buy to supply the US with the capabilities the Ukrainians have mastered.

The future of defence investment won’t just be in the primes – who have a clear role to play, but in the rise of new Super-Adaptive primes like Spitfire, recognising the need for effective and cost-conscious defence based on what works, what is good enough, what is deployable, alongside maintaining the professionalism of European Nato forces. And that’s where knowing what works is critical.

Recently the Ukraine high command announced the creation of the Military Expert Council ARES (Allied Reform and Expert Support). Insights on how the battle space is evolving is critical. 4 members of Spitfire’s advisory board are on ARES, while members of our weapons and warfare board are on the ground in Ukraine.

If you want to hear more about Spitfire or simply use us as sounding board for investment planning, please give me a shout. (Professional institutional investors and family offices only at this point.)

Out of time, and back to the day job…

Bill Blain

Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital

Meanwhile, don’t forget about my new book:

The Battle For Hamble is a proper grown-up examination of how bureaucracy has failed: a tale of Greedy Corporates, Bad Planning and Economic Illiteracy. It explains how a wholly unnecessary Gravel Quarry will be dug in middle of a prosperous village – putting 6000 jobs at risk. The truth is no one wants gravel, and the quarry company understands it’s not what you dig out, but what you stuff back into a hole in the ground that matters. Gravel sells for £30 a tonne – Landfill earns £150 a tonne to bury. Go figure.