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
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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.
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