Recent conflicts have exposed the limitations of legacy defence platforms developed by traditional defence companies (otherwise known as defence primes) such as Lockheed Martin. However, the narrative should be more about adaption rather than obsolescence.
The proliferation of cheap drones, and in particular, their use in Ukraine and Iran have raised questions about traditional, large defence platforms and equipment pieces becoming less relevant for modern militaries.
Some commentators have cited this as driving the recent sell off in defence stocks. For example, Northrop Grumman and Lockheed Martin have both fallen by more than 20% in the last 3 months, despite the war in Iran and rising tensions across the wider region.[1] There is a growing fear among some that the traditional defence prime has been undermined to the point of being irrelevant, however a more nuanced approach reveals that this may not be the case.
Ukraine and Iran have exposed structural deficits within the legacy defence model. When it comes to air defence, the primary concern is cost asymmetry. Advanced Patriot missile interceptors cost approximately $4 million per missile, compared with $35,000 drones that the Patriot is engaging. Using air defence systems often costs between 5 and 100 times more than firing a precise mass weapon like the Shahed-136 drone.[2] Operation Epic Fury cost the U.S. $3.7 billion in the first 100 hours.[3]This cost-exchange ratio is unsustainable at scale and is forcing modern militaries to rethink air defence.
Source: CFR research. Chart as of 09.03.2026. For illustrative purposes only.
While it may seem that major defence primes may be becoming irrelevant in this new era of drones and automation, this is not the case. What is happening is that pre-existing defence platforms are being used for tasks they were not designed to compete with. Systems like HIMARS and Patriot are still capable of dealing with high-end threats, but new solutions are required to deal with new threats, like those posed by drones.
For instance, BAE Systems have developed a low-cost anti drone weapon (The Advanced Precision Kill Weapon System or APKWS) that uses a laser targeting system to turn unguided – and cheaper – missiles into low-cost precision weapons able to counter enemy drones and other threats.[4] Rheinmetall’s Skyranger short range air defence system – that has cost of $4k per engagement – has been utilised by Ukraine,[5] EU members and the UAE for similar purposes. Indeed, nearly every major defence prime is developing new systems to allow militaries to better deal with the drone threat.[6]
This is also showing up in the financial reporting of major defence companies. Rheinmetall’s Air Defence sales rose 43% year-on-year in Q1 2026, from €135m to €192m, driven mainly by additional European customer projects for its Skynex and Skyranger air-defence systems. These systems sit directly in the area where drones are creating demand for short-range air defence and counter-UAS capabilities.[7] Kongsberg also shows how material the counter-drone theme has become. In Q1 2026, the company reported around $2.9bn of order intake, up from around $1.4bn a year earlier. A single Polish counter-UAS contract accounted for almost 60% of quarterly order intake.[8]
This development indicates that traditional defence primes are not becoming irrelevant or obsolete. Defence industrial companies are being forced to create new solutions for new threats, and with that new product lines. Those companies that are able to adapt to a changing battlefield are potentially positioned to benefit meaningfully from the advent of the drone era.
Those companies that can adapt to these changes are potentially positioned to benefit meaningfully. There is space within the defence investment space for deep collaboration between defence primes and new entrants. This collaboration can occur without diluting the status of defence primes that can supply innovative and effective defence platforms at a scale that smaller competitors cannot.
This material does not constitute a marketing document. It is not an invitation to invest but to be read for educational purposes only. Past performance and forecasts are not reliable indicators of future results.
[1] https://www.fool.com/investing/2026/05/15/defense-stock-face-off-northrop-grumman-vs-lockhee/
[2] https://www.cfr.org/articles/the-new-era-of-drone-warfare-takes-root-in-iran
[3] https://www.csis.org/analysis/37-billion-estimated-cost-epic-furys-first-100-hours
[4] https://www.raf.mod.uk/news/articles/raf-enhances-combat-capability-with-new-low-cost-anti-drone-system/
[5] https://newsukraine.rbc.ua/news/ukraine-receives-additional-skynex-system-1704397022.html
[6] HANetf analysis of largest defence companies public statements
[7] https://www.rheinmetall.com/en/media/news-watch/news/2026/05/2026-05-07-rheinmetall-news-quarterly-statement-q1
[8] https://www.kongsberg.com/news/news-archive/2026/q1-2026-kongsberg-reports-strong-order-intake-and-revenue-growth
IMPORTANT INFORMATION This document is approved for professional use only.
Communications issued in the UK
The content in this document is issued by HANetf Limited (“HANetf”) and approved by Privium Fund Management (UK) Limited (“Privium”). HANetf is an appointed representative of Privium, which is authorised and regulated by the Financial Conduct Authority. The registered office of Privium is The Shard, 24th Floor, 32 London Bridge Street, London, SE1 9SG
This communication has been prepared for professional investors, but the exchange traded product (“ETCs”) and exchange traded fund (“ETFs”) set out in this communication (“Products”) may be available in some jurisdictions to any investors. Please check with your broker or intermediary that the relevant Product is available in your jurisdiction and suitable for your investment profile.
Disclaimers
Past performance is not a reliable indicator of future performance. The price of the Products may vary and they do not offer a fixed income. This document may contain forward looking statements including statements regarding our belief or current expectations with regards to the performance of certain assets classes. Forward looking statements are subject to certain risks, uncertainties and assumptions. There can be no assurance that such statements will be accurate and actual results could differ materially from those anticipated in such statements. Therefore, readers are cautioned not to place undue reliance on these forward-looking statements. The content of this document is for information purposes and for your internal use only, and does not constitute an investment advice, recommendation, investment research or an offer for sale nor a solicitation of an offer to buy any Product or make any investment.
An investment in an exchange traded product is dependent on the performance of the underlying asset class, less costs, but it is not expected to track that performance exactly. The Products involve numerous risks including among others, general market risks relating to underlying adverse price movements in an Index (for ETFs) or underlying asset class and currency, liquidity, operational, legal and regulatory risks. In addition, in relation to Cryptocurrency ETCs, these are highly volatile digital assets and performance is unpredictable.
Cheap drones are challenging parts of the traditional defence model, but they are not making defence primes obsolete. The article argues that the issue is more about adaptation: large defence platforms still have a role against high-end threats, while new systems are needed to counter lower-cost drone warfare.
Drones create a cost-exchange problem. Expensive air defence systems may be used to intercept much cheaper drones, making this approach difficult to sustain at scale. This is forcing militaries to rethink how they defend against drone swarms and low-cost precision weapons.
Major defence companies are developing more specialised counter-drone and short-range air defence systems. The article highlights examples such as BAE Systems’ APKWS and Rheinmetall’s Skyranger, which are designed to offer more cost-effective responses to drone threats.
Drone warfare may create new opportunities for defence primes that can adapt. Rather than replacing traditional defence companies, the rise of drones is pushing them to develop new product lines in areas such as counter-UAS, short-range air defence and lower-cost precision weapons.
Adapting precision warfare: How US defence spending priorities are changing
October 2026
Why the Nuclear Sector May Have Room to Grow
Why do currency swings matter for Bitcoin investors outside the US?
September 2026
Option Income Overlays Strategy Explainer Series: Part 1
Infrastructure Capital expands European ETF range with launch of S&P 500 option income ETF
Four key drivers behind copper’s growth opportunity
Three things investors should consider before investing in uranium ETFs
The Merits of Bottom-Up Investing
El Niño’s ripple effects: How a strengthening pacific pattern is moving different asset classes
August 2026
The forces shaping crypto’s next move
Buried Treasure: How Geopolitical Relief Could Unearth Mining Gains
Canada beyond the headlines: the case for energy, financials, and real estate
Beyond a Chatbot: How can emerging-market platforms monetise AI?
July 2026
Lloyd Capital Outlook
Mag 7 to Lag 7: What a tech stumble says about the potential risks of investing in major indices
Natural Gas – growing source of global energy and uncertainty
What is the cost of rebuilding Ukraine?
June 2026
Why are central banks buying what they once sold?
What investors should consider before investing in Defence ETFs in 2026
Defence 2.0: How Drones and Cyber are reshaping investments
Copper’s role in the world has shifted
2026 Atlantic hurricane season outlook
The quest for the perfect business
How memory is the AI bottleneck
What does AI mean for cyber defence?
Computing’s next big disruption is already here
May 2026
Why can’t silver supply keep up with demand?
How much will the US military spend on drones?
What does the Iran war mean for travel and North American energy?
April 2026
Navigating geopolitics, energy security and structural demand
Global Instability and the Future of European Energy Security
Canada has what the world needs
March 2026
Ukraine could become the West’s solution for rearmament
Iran crisis – four sectors to keep on your radar
From tanks to code: why the next defence boom will be digital
February 2026
Why cybersecurity and defence may be complementary themes?
Next stop for global travel
Preferred shares and outlook for months ahead
The new nuclear age – why physical uranium matters now
Critical Commodities for 2026
Reconciling responsibility with rearmament
January 2026
The New Age of Tech | Tech Megatrend Outlook 2026
The Future of Emerging Markets: 2026 Market Outlook
Shape of the Markets by PT Asset Management
October 2025
Midstream Energy Dividend ETF Report | September 2025
September 2025
Nuclear Energy – why uranium is back in favour
Copper’s less known demand driver: defence
Indo-Pacific Rearmament: How much will defence budgets grow by 2030?
How gold is custodied and why it should matter to investors
Travel in 2025 – strong data drives growth
August 2025
Different approaches to covered call ETFs
Understanding covered call ETFs
Heightened demand for defence in the pacific region
The opportunity presented by volatility
Three drivers of the health care sector in 2025
Equal weighted tech – an interview with Anthony Ginsberg
July 2025
Indo-Pacific Defence: What, Why and How?
Magnificent 8 of India – High-growth tech stocks in India to watch
The nuclear revival – a new dawn for uranium investment
June 2025
ETFs are getting active – is your portfolio ready?
May 2025
Three themes shaping the future of energy and ETFs to access them
Sharpening the Blade: How traders use leveraged and short crypto ETPs
European active ETFs – semi-transparency opens door to asset managers globally
April 2025
ETFs Are Gaining Ground Over Mutual Funds
February 2025
Copper 2025: The Red Metal’s Next Chapter After a Year in the Black
December 2024
Uranium 2025: Opportunities in a Structurally Undersupplied Market
Europe rearms for a world of greater geopolitical risk
November 2024
Do the Mag 7 have too much influence over the S&P 500?
October 2024
Currency Hedged Physical Gold ETCs FAQs
ESG and defence investing: a balancing act
May 2024
US ETFs are not the only ETF wrapper with a tax advantage; Irish domiciled ETFs have one too!
March 2023
Solar Energy 101 | Understanding the Solar Energy UCITS ETF
June 2021
The Royal Mint Physical Gold ETC (RMAU) Frequently Asked Questions
April 2020
The Importance of the Physical Gold ETC Custodian | RMAU
March 2020
Select Your Country
Select Your Investor Type
Choose a brokerage
Choose a product
You are now leaving HANetf's website and accessing a third-party website. HANetf may provide access to information, products, or services offered on websites that are owned or operated by other companies ("third-party websites"). We provide this access through the use of hyperlinks that automatically move you from a HANetf website to the third-party site.
While we do our best to provide you with helpful, trustworthy resources, HANetf cannot endorse, approve, or guarantee information, products, services, or recommendations provided at a third-party website. Since we may not always know when information on a linked site changes, HANetf is not responsible for the content or accuracy of any third-party website. HANetf shall not be responsible for any loss or damage of any sort resulting from the use of a link on its websites nor will it be liable for any failure of products or services advertised or provided on these linked sites.
HANetf offers you links on an "as is" basis. When you visit a third-party website by using a link on a HANetf site, you will no longer be protected by the HANetf privacy policy or security practices. The data collection, use, and protection practices of the linked site may differ from the practices of HANetf sites. You should familiarize yourself with the privacy policy and security practices of the linked website. Those are the policies and practices that will apply to your use of the linked website, not the HANetf policies and practices.
Here are some tips to help you tell if you have left a HANetf website:
Important Notice: HANetf is a provider of Exchange Traded Funds (ETFs) and Exchange Traded Commodities (ETCs). We do not sell investment products directly to individual investors. Our funds are available through regulated investment platforms and brokers. Our only official website is www.hanetf.com. Any other domain is not affiliated with or authorised by HANetf in any way. If you suspect fraudulent activity, please contact your local financial regulator and/or the police and report the website or individual involved.