EUR: Iranian drone attacks drive Gulf demand for European interceptors

LATEST: Yesterday, Russia launched an unusual morning strike on Kyiv, using multiple types of attack drones. Debris from one of them fell on Maidan Square in the very center of Ukraine’s capital. Read more from our sister publication here.

BLUF: European interceptor drone startups Nordic Air Defence and Tytan Technologies told The Arsenal they’ve been contracted by Persian Gulf governments/contractors seeking cost-efficient defenses against Iranian drone strikes. But scaling up production will be a challenge. 

For British manufacturing startup Isembard, venture-backed SMEs that want to grow are a business opportunity. The Arsenal spoke with CEO Alexander Fitzgerald, who said that many older component manufacturers are dropping out of the defense supply chain, creating a gap for new companies that can not only manufacture components, but also help replace lost designs.

A proposal to cement the European Innovation Council’s long-term role in financing dual-use and defense tech startups could yet be curtailed if it doesn’t prove its value over the forthcoming AGILE defense innovation program, an EU official told The Arsenal.

The Arsenal tried out FN Browning’s counter-drone targeting system for the Winchester SX4 shotgun, which tells the user when to pull the trigger.

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European manufacturers of interceptor drones are getting a flurry of inquiries from Persian Gulf countries as they struggle to fend off Iranian drone attacks.

As Iranian Shahed kamikaze drones keep striking targets from hotels in Dubai to British bases in Cyprus, the main defense has been extremely expensive missiles, such as American Patriots.

Patriots cost roughly $4 million. Shaheds go for around $20,000 to $30,000. That’s why Gulf countries are looking for cheaper alternatives, like interceptor drones—particularly those that have proven effective in Ukraine. 

There’s also the issue of competing with Ukrainian interceptors – which regulatory environment will be more permissive towards exports? Because of scale challenges, the export control structure which permits sales to Middle East countries the fastest will likely be a key determinant of the winners in this space. 

“We have had requests from the Gulf countries, both government departments as well as defense conglomerates in the region that want to partner up,” said Jens Holzapfel, head of business development at Stockholm-based drone startup Nordic Air Defence (NAD), whose interceptors have been tested in Ukraine.

There were requests from the Middle East before the US and Israel kicked off this latest round of conflict, but inquiries have spiked since, Holzapfel told The Arsenal. 

“We definitely saw an increase in demand and inquiries from the broader region,” echoed Leopold Posch, a business development representative at Munich-based interceptor maker Tytan Technologies, which has also tested its drones in Ukraine. 

Posch told The Arsenal that the Middle Eastern buyers have three demands: interceptors that have been combat-tested in Ukraine, are cost-efficient and can be supplied at scale.

Both companies aim to keep their price tags well below that of the enemy Shahed. 

NAD’s Kreuger 100 XR single-propeller, fixed-wing interceptor costs in the low thousands of euros to manufacture, said Holzapfel. 

Posch said Tytan’s twin-propeller fixed-wing interceptor is around one-third of the price of a Shahed—so roughly $10,000. 

Both drones also carry an explosive charge in the nose cone to destroy the incoming drone and—ideally—detonate its munitions in the air and not on the ground.

Shaheds are large, fast-moving drones that require quick, maneuverable interceptors. Cheaper threats—such as smaller, slower FPV strike drones—require cheaper interceptors, Posch told The Arsenal.

“Our aim is always to be cheaper than what we shoot down,” said Posch. “It’s always a question of what you want to achieve with this.” 

The Gulf buyers’ third demand—scale—is harder to meet, said Posch.

“The demand is huge,” he said. “The biggest challenge for not only us, but also other companies working in this field, is the production capacity.”

Tytan recently signed a contract for a new factory near Munich, which could produce thousands of interceptors per month by the end of the year, said Posch.

“But if you look at the sheer numbers of Shaheds being fired or missiles being fired, this is really the biggest challenge.”

The former head of the Security Service of Ukraine, Major General Viktor Yahun, recently told New Voice of Ukraine that Russia can produce 5,000 Shahed-style drones per month.   

While Tytan is “actively in conversation” with Gulf buyers, its “core focus will still remain in Ukraine,” Posch told The Arsenal.

Similarly, NAD’s priority is northern Europe and Ukraine, said Holzapfel. He and his colleagues are “just starting to wrap our heads around” how they can balance that priority with protecting European interests in the Middle East—noting that Iran is a Russian ally. 

“We are not doing business there [in the Middle East] yet. We’re following what’s happening.” 

Gulf states aren’t only shopping for drones. They also want access to the expertise that Ukrainian forces have developed from four years of drone warfare.

Learning to pilot interceptors properly can take months, a Ukrainian air-defense volunteer told The Arsenal earlier this month.

That’s why interceptors are increasingly automated, said David Shapira, chief operating officer at Counter Drone Defense Systems (CDDS), in Switzerland. 

“You don’t need a pilot and a navigator. You just have the operator of the C2 [command & control system], and maybe another person who needs to reload the interceptors,” he told The Arsenal. 

Unlike NAD and Tytan, CDDS is not active in Ukraine due to export control laws designed to protect Swiss neutrality. Supplying non-combatant countries defending themselves from drone strikes presents fewer regulatory problems, he said. 

CDDS, NAD and Tytan produce automated systems that reduce the human role to little more than deciding whether to launch an interceptor at a drone once radar or sensors have detected it.

“They have to press the red or green button,” said Posch—to launch or not, respectively.

Holzapfel said that signal jamming is so widespread on the battlefield that drones must be autonomous, regardless of pilot skill. 

Decisions to intercept are typically made at a few kilometers’ range. As threats get closer, "you will need to include more autonomy, just due to reaction times,” Shapira said. “When you’re within 100 meters or less, then you have no time to decide.”

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The defense industry’s traditional supply chain consists of thousands of small businesses—but they’re disappearing, according to Alexander Fitzgerald, CEO of London-based manufacturing startup Isembard. He wants to fill that gap in the market with software—MasonOS, an AI system that links diverse customer orders to Isembard factories—and a franchise model, where entrepreneurs invest in small factories and machine shops and connect them to Isembard’s network.

The company recently raised $50 million in Series A funding to open new factories and expand to France, Germany and Ukraine. Isembard currently operates six factories in Britain and the US: three that it owns and three franchises. It’s planning to expand to 25 by the end of 2026—six owned, 19 franchised—Fitzgerald told The Arsenal in an interview.

“The problem right now is across the West—in Europe, but also in the US—is that this industrial base is retiring, because the owners and the operators in these shops are close to retirement. And this is happening just as demand is increasing,” Fitzgerald said.

When those factories close, the large primes they served sometimes don’t even have the designs for the components they need to replace. To address that problem, Isembard also provides engineers to conceive and improve designs.

“We really focus on the fastest-growing and most important companies in Europe and the US today. So that’s aerospace, defense, robotics, and then a tiny bit on energy,” he said.

The production challenge that interceptor producers face as demand rises is “our sweet spot,” he added. “It’s relatively easy to build a prototype. The hard thing is actually scaling that to something where quality, cost and speed actually is hit.”

The EU’s scale-up fund for startups, the European Innovation Council (EIC), which recently got legal authorization to support defense applications, may yet see its role in defense tech curtailed if it doesn’t prove its worth by the end of 2027, an EU official told The Arsenal.

The EIC’s role is to help tech startups and academics working on pre-commercial tech to develop and scale up new products. To that end, it provides grants and equity investments. The EIC launched officially in 2021, following a pilot that began in 2018.

The EIC’s recently expanded remit, which The Arsenal covered in detail, allows limited use of grants and equity investments to support startups producing dual-use or military technologies until the end of 2027.

A draft legal proposal, under discussion by EU lawmakers and ministers, would give it greater freedom to support defense under the next EU budget, starting in 2028.

The European Commission’s defense policy department may conclude that other schemes—such as a soon-to-be-unveiled defense tech program called AGILE—are more productive, an EU official close to the EIC’s work said.

The EIC’s remit from 2028 is ultimately in the hands of national ministers and members of the European Parliament, but the Commission can contribute to those discussions. 

The EIC and SME Executive Agency (EISMEA), which handles day-to-day EIC administration, has been struggling to retain staff due to overwork. Its newly enlarged remit has offset some planned cuts, but the agency still has no budget to hire more people, the official told The Arsenal.

At last week’s Brussels European Defense Expo (BEDEX), The Arsenal tried out FN Browning’s new counter-drone targeting system, fitted to the Belgian manufacturer’s Winchester SX4 semi-automatic shotgun.

Like clay pigeon shooting, bringing down a drone means aiming just ahead of its path: not where the drone is now, but where it will be when the shot arrives.

The system uses a barrel-mounted camera to detect the drone and predict its trajectory. A red light indicates that your aim is off. A green light and a beep mean you’re on target. FN markets the SX4 as the world’s fastest-cycling shotgun, so the user can fire several rounds in quick succession to destroy the drone.

The targeting system doesn’t work in the dark yet, an FN representative told The Arsenal.

Due to health and safety rules, a live-fire demonstration was not possible at the crowded venue, so The Arsenal cannot independently assess whether the targeting system works as advertised. It was only possible to point the shotgun at a large-screen video of a moving drone.

The technology is similar to that used with the FN Smart Protector 303T, a riot gun that fires 18mm ‘less-lethal’ projectiles, such as paintballs. Despite the name, an ill-judged shot—particularly to the face—can kill or cause serious injuries. That’s why when this riot gun is aimed at someone’s head, the system locks and the weapon won’t fire. 

There is an override switch for emergencies, such as fending off a violent assault, but a camera records how the weapon is used.

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CORRECTION: The newsletter has been updated to correct the spelling of Robyn Staveley’s surname.

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