Munich emerges as powerhouse of German defence industry

The German defence industry is concentrating rapidly around Munich, the capital of Bavaria, generating jobs and revenue whilst increasing its visibility.

The city is home to Helsing, currently among Europe’s most valuable private technology companies.

Advertisements for the €16 billion defence artificial intelligence firm are now visible across the city, displaying images of unmanned aerial vehicles and loitering munitions alongside the message to local residents: “We’ll handle it.”

Germany’s defence industry has expanded significantly in recent years, with Bavaria emerging as one of the primary beneficiaries.

Defence and aerospace start-ups in the state benefit from a combination of factors, meaning Helsing is merely one prominent example.

The region already hosts major corporations such as Airbus Defence & Space and KNDS, the manufacturer of the Leopard tank.

New defence start-ups proliferate in Bavaria

Yet this is only the beginning: new enterprises are emerging rapidly to supply weapons systems and space technology to the German Armed Forces (Bundeswehr) and international clients.

Another rising player in the sector is Starflight Dynamics, a space and defence company developing orbital propulsion systems and other dual-use defence space technologies.

Founder Philipp Bauer was educated in Munich and worked for several years in the region’s established aerospace industry before launching his own venture in 2023.

Bauer told Euractiv:

“Munich in general was certainly no silver bullet, but the city’s strong set-up bringing together industry, research institutions, events, partners, and investors created a clear location advantage and played an important role in our development.”

The start-up aligns closely with the region’s ambition to establish itself as a space power, having secured both its first investor and its first customer in Munich.

It is currently preparing for the first in-orbit demonstration of its propulsion system.

ARX Robotics, a key player in military ground robotics used for logistics, battlefield evacuations, or machine-gun platforms, represents another example.

Founded by former German army officers, the defence technology company chose Bavaria due to its access to the Bundeswehr, the ability to scale up easily when required, and the opportunity to tap into scientific talent.

The company is now one of Europe’s leading manufacturers of autonomous unmanned ground systems and plans to expand into the United Kingdom.

ARX is currently working to retrofit legacy defence vehicles with autonomous driving capabilities.

Bavaria claims lion’s share of arms growth

Beyond Munich, the defence sector is expanding rapidly across Germany.

The national defence industry association, BDSV, has grown from 111 registered members at the end of 2021 to 602. Approximately one-third of these (201) are registered in Bavaria.

Johannes Binder, a defence economics expert at the Kiel Institute for the World Economy in Germany, argues that four factors benefit the sector: an established defence industry, academics with an entrepreneurial culture, the presence of the armed forces, and a favourable political environment.

“What makes Munich and its surrounding area special is precisely that many of these advantages come together,” Binder said.

Starflight Chief Executive Bauer stressed that relationships between defence companies are vital.

Noting that firms must be able to trust and rely on one another, Bauer pointed out that geographic proximity helps in this regard.

Munich academic ecosystem contributes to growth

A major contributor to the defence start-up sector is the academic environment in and around Munich.

Bertram Brossardt, head of the Bavarian Industry Association, explained that universities in the region do not have “civil clauses”.

Such clauses are voluntary provisions committing institutions to focus exclusively on civilian research and exclude defence-related projects.

In 2024, Bavaria enacted the Law on the Promotion of the Bundeswehr, which banned such civil clauses in universities.

However, a court ruling in March clarified that there is no mandatory obligation to cooperate with the military.

Universities nevertheless foster an entrepreneurial spirit, and many actors in the burgeoning new defence sector originated there.

“This creates an extremely innovative environment,” said Binder of the Kiel Institute. “As a start-up, you want to be where there is a lot of dynamism, and Munich is precisely such a place that can already offer a great deal to the defence industry.”

For ARX Robotics, the region’s strong position in robotics, artificial intelligence, autonomy, and sensor technology was essential.

The company’s head of government relations added: “Munich was a logical choice. Nowhere else in Germany is there an ecosystem with such deep technological expertise.”

TYTAN Technologies is another Bavarian success story. An innovator in counter-drone defence, the company was commissioned by the Bundeswehr to develop a concept for protecting military installations and now collaborates with larger players such as Helsing and KNDS.

Having transitioned from a start-up to a scale-up, the company was founded at the Technical University of Munich and plans to expand by establishing a facility near Munich to produce up to 3,000 affordable, autonomous interceptors per month to meet orders from Ukraine and other regions.

A spokesperson noted that operating in the region “brings us close to talent, partners, investors, and end-users.”

Bundeswehr presence in Bavaria

Beyond innovation and access to academic resources, proximity to customers aids product sales.

The Bundeswehr maintains a substantial presence in Bavaria with approximately 60 bases and its own university in Munich, which forms part of NATO’s DIANA innovation accelerator programme.

In February, the Bundeswehr opened an innovation hub at a former air base in Erding, near Munich, designed to connect the military more effectively with innovative start-ups and academics.

Modelled on the US Defence Advanced Research Projects Agency (DARPA), German Defence Minister Boris Pistorius said of the centre: “Erding is set to become the centre of innovation within the Bundeswehr.”

Close ties with the Bundeswehr offer an additional location advantage. The national defence budget is projected to reach approximately €140 billion in 2027, an increase of about one-quarter over this year’s budget.

Bavarian state government backs arms industry

Industry in Bavaria also attributes part of its defence success to the region’s political environment.

Industry representative Brossardt recalled that the Bavarian government has always provided a supportive framework.

This dynamic became even more pronounced following the outbreak of the war in Ukraine in 2022.

Through the Bundeswehr Act passed in 2024, Bavaria lifted restrictions to accelerate military construction projects.

Earlier this year, similar bureaucratic hurdles for the defence industry were removed under the Law on the Promotion of the Defence Industry.

Led by the conservative Christian Social Union (CSU), the sister party to the ruling Christian Democratic Union (CDU), Bavaria can also leverage its political weight in Berlin.

“The CSU currently controls the Space Ministry and therefore wields certain influence in Berlin, enabling it to channel projects to its own state,” Binder explained.

However, Bernhard Poeltl, managing director of defence consultancy T60, argues that the sector’s strong presence is not necessarily due to favourable policies, but rather indirect effects:

“What I think is really moving fast right now and receiving political backing is planning permissions for new construction and expansion work. The days when things took an eternity and any environmentalist could veto them are long gone.”

According to Binder, the combination of these factors leads to “the emergence of specific clusters where many start-ups can thrive, ideas can spread, new companies can be established, and supply chains can be built up at a relatively local level.”