Portugal’s defense sector is expanding rapidly as domestic firms seize opportunities created by rising military spending and international demand. Last year the industry generated roughly €2.1 billion in revenue, according to José Neves of AED Cluster Portugal, which represents more than 160 organizations in aeronautics, space and defense. “And the trend is upward,” he says.
Lisbon is also buying equipment abroad to meet NATO-agreed targets, acquiring frigates from Italy and tanks from Germany while deciding how to replace an aging fleet of 28 F-16s, some more than 30 years old. The fighter choice is politically charged: in 2025 Defense Minister Nuno Melo publicly questioned a near-final deal for US-built F-35s from Lockheed Martin, citing doubts about Washington’s commitment to NATO under President Trump and urging consideration of European alternatives.
One such alternative is Sweden’s Saab and its Gripen-E. Saab pitches the Gripen as “a new fighter aircraft system” and emphasizes a European solution that would strengthen Portuguese and continental strategic capabilities through long-term industrial partnerships and technological sovereignty. Unlike some US offers, Saab proposes active involvement of Portuguese industry: aerospace firm OGMA could manufacture parts, building on its role supplying components to companies like Embraer.
Saab’s proposal extends beyond airframes. Portugal already buys military transport aircraft from Embraer, and Saab says it is exploring production and MRO (maintenance, repair and overhaul) partnerships with Portuguese firms. Critical Software, a Portuguese company, is developing a flight simulator for the Gripen-E and is working on an AI co‑pilot to support pilots and enhance the jet’s capabilities.
Critical Software’s trajectory illustrates the sector’s growth. Founded in 1998 with three employees, the company now has about 5,000 staff and develops software for navy frigates, satellites, drones and missile systems. It collaborates with international players such as BMW, Airbus (military and civilian divisions), and German defense firms including Diehl and Rheinmetall. CEO João Carreira says the Saab project fits neatly with the firm’s expertise.
AED Cluster Portugal reports roughly 20,000 jobs in the defense sector today, with Portuguese companies moving from niche suppliers to makers of finished products and trusted international partners. Firms such as drone-maker Tekever and Critical Software already supply systems used abroad; Portuguese drones and communications gear are reportedly being used in Ukraine, Neves says.
Advocates of a European path highlight industrial participation and reduced reliance on non-European suppliers. Saab’s pitch — parts production, simulator development and MRO services — appeals to those who value technological sovereignty and deeper industrial ties.
But constraints persist. Bruno Oliveira Martins of the Peace Research Institute Oslo argues Portugal’s long-standing strategic ties to the United States, including access to the Azores airbase, limit how far Lisbon can diverge from Washington. In practice, procurement choices often reflect geopolitical realities as much as technical considerations. Oliveira Martins suggests a pragmatic route to building a European defense industry: buying equipment that is “good enough” for many tasks could foster domestic capabilities affordably, even if it is not cutting-edge.
Portugal’s defense industry growth is therefore a mix of market opportunity, rising government spend, international partnerships and geopolitical pressure. Portuguese companies are shifting from specialized suppliers to broader roles in manufacturing, software and systems integration, positioning the country as a more significant player in Europe’s evolving defense landscape.
This article was originally written in German.