At the end of last year, Austrian companies operating in the aerospace and defence sectors were full of enthusiasm. Business leaders and the government in Vienna were expecting substantial investment and major industrial projects linked to the defence ministry’s selection of a new aircraft for the country’s air force.
It soon became clear, however, that turning an attractive promise into tangible business would be considerably more difficult than initially expected.
Vienna selects the Italian offer
To understand the current concerns, it is necessary to return to last year, when the Austrian government selected a new combat aircraft for its air force. Several leading manufacturers competed for the contract, but Vienna ultimately chose the M-346FA Fighter Attack aircraft produced by Italian aerospace and defence group Leonardo.
The government-to-government contract, worth approximately €1.5 billion, was signed in late November and covers 12 aircraft together with training and logistics and technical support packages. Deliveries to the Austrian Air Force are expected to begin in 2028.
While assessing the competing offers, the Austrian government made clear that it wanted such an expensive defence procurement programme to deliver benefits for the domestic economy and local industry.
Italy promised €400 million in investment and offset projects
Leonardo appears to have offered Austria a substantial industrial package, which was almost certainly one of the factors behind Vienna’s decision to select the M-346FA. Although the details have not been disclosed, an official press release issued by the Austrian defence ministry when the agreement was signed provided some information about the arrangement:
“Alongside the procurement, an industrial agreement was concluded with Italy. It is expected to generate orders worth around €400 million for Austrian companies. Projects are planned in aviation technology, the supply industry, digitalisation, and research into materials technology, simulation and sensors.
“The agreement was structured to protect Austria’s security interests while remaining compliant with European law. Companies offering the best technical solutions are expected to benefit.
“The federal government’s aim is for as much public money as possible to flow back into the economy in the form of domestic added value. Industrial cooperation is intended to strengthen technological sovereignty, stabilise supply chains and safeguard jobs. The sector was identified as strategically important in the government programme.”
The Austrian defence ministry continued:
“Investment in security-related technologies delivers benefits beyond the military sector. It supports research, development and companies operating within the supply chain, while creating new economic opportunities.
“The agreement’s structure was also based on arrangements used in other European Union countries with similar industrial bases. A clearly defined legal framework is intended to ensure the broadest possible involvement of Austrian companies.
“Economy Minister Hattmannsdorfer stressed that the cooperation would bring investment worth around €400 million back to Austria. This would strengthen industry, enable new research projects and safeguard jobs.”
Mit den neuen M-346 Jets verbessern wir nicht nur den Schutz des Luftraums, wir können auch die Ausbildung der Piloten nach Österreich zurückholen. Für die heimische Wirtschaft werden die vereinbarten Industriekooperationen im Umfang von 400 Mio. Euro wichtige Impulse bringen!… pic.twitter.com/OYAyZjqPwx
— Klaudia Tanner (@tannerklaudia) November 29, 2025
Offset investment in Austria so far: zero euros
Defence Industry Europe has established that not a single offset agreement has yet been signed, prompting serious concern within Austrian industrial circles. Discussions between Austrian companies and Leonardo are continuing, but they have proved difficult and their results have so far been unsatisfactory for the Austrian side.
The Austrian government is responsible for the offset negotiations, although the Austrian Federal Economic Chamber, or WKÖ, has supported it by facilitating meetings between Austrian companies and Leonardo. Christopher Pfeiffer of WKÖ told Defence Industry Europe by email that the chamber sees considerable potential for Austrian businesses to participate in export projects.
“Austria has a diverse ecosystem of highly qualified, technology-driven companies and research institutions active in the fields of security, defence, aerospace, space, cyber security, advanced manufacturing, sensors, and communications – among many others. Our companies operate at the highest international standards and have extensive experience in European and global cooperation programmes,” Pfeiffer wrote in an email to Defence Industry Europe.
“The negotiations are led by the Austrian government. However, with a duration of 15 years, the agreement offers a long-term framework that allows both sides to identify opportunities, build partnerships and successfully develop joint projects over time”, he added.
Austrian companies do have considerable potential to participate in offset projects. Their technological capabilities could also be significantly strengthened through cooperation with major international defence groups.
According to the defence ministry, Austrian companies operating in the defence sector employ approximately 11,000 people, with a further 20,000 working for businesses throughout the supply chain. The industry generates annual revenue of around €3.3 billion and comprises approximately 150 companies.
Defence ministry remains silent
The absence of any offset agreements has therefore raised legitimate concerns among executives at Austrian companies. One industry manager, who requested anonymity, told Defence Industry Europe that, in his view, Leonardo executives were deliberately seeking to avoid signing offset agreements and that the atmosphere at meetings between the Austrian and Italian sides had become tense.
German defence publication Militär Aktuell reported similar concerns in late June:
“An information session held today in Vienna in collaboration with Leonardo has now brought further disappointment. About 150 representatives from Austrian companies had attended—hoping to finally receive concrete information about projects, needs, and opportunities for cooperation.
“Instead—as several participants reported to Militär Aktuell—the event focused almost exclusively on the supplier registration process—that is, the formal steps companies must first complete in order to be listed as potential suppliers to Leonardo.
“From an organizational standpoint, the meeting did not go entirely smoothly either. The Italian delegation arrived late, and key operational contacts from purchasing and supplier management were only connected remotely. Audio issues and language barriers further complicated the discussion. The impression of many participants was that they wanted to discuss specific topics—but Leonardo focused primarily on processes and was poorly prepared even on those points.”
Austria’s defence industry has previously had a difficult experience with the Eurofighter Jagdflugzeug consortium, which includes Leonardo, in connection with the procurement of Eurofighter Typhoon aircraft for the Austrian Air Force. The procurement process triggered a major scandal in Austria and ultimately resulted in court proceedings. The allegations centred primarily on claims that the consortium had misled the Austrian government about aircraft prices, operating costs, reliability and even equipment. One allegation concerned the purported unjustified increase of the contract price by 10% in connection with the offset agreements. The investigation was closed in April 2020, however, and the court found the allegations to be unfounded.
There is currently no suggestion of a comparable scandal involving the M-346FA programme, but executives at Austrian companies are becoming increasingly concerned. The industry source told Defence Industry Europe that Leonardo has as long as 15 years to fulfil offset commitments worth a combined €400 million.
In practice, the source argued, the lengthy timeframe could allow the Italian company to pursue a series of small projects in Austria that would make little contribution to technological development or help Austrian companies build new competitive advantages.
Defence Industry Europe sent a series of questions about the matter to Austrian defence ministry spokesman Colonel Michael Bauer, but he did not respond to any of them.
“M-346 is living in fantastic moment”
Leonardo’s management, meanwhile, remains highly positive about the M-346’s performance on the international market. During the company’s most recent presentation of its second-quarter 2026 financial results, Leonardo executive Lorenzo Mariani said that “M-346 is living a fantastic moment”.
Recent market outcomes suggest the picture is more complicated. Several years ago, Leonardo lost a potential opportunity in Poland when Warsaw selected South Korean F-50 light combat aircraft instead of the M-346FA, even though the Polish Air Force already operated the M-346 in its training configuration and choosing the combat version might have appeared a natural next step. The Polish Air Force evidently had specific reasons for deciding against acquiring additional Italian aircraft.
Turkish Aerospace Industries’ entry into the Spanish market is also unlikely to have been welcome news for Leonardo, after Spain signed a contract worth more than €3 billion last autumn for Turkish Hürjet aircraft.
Contracts secured in Canada and Indonesia can nevertheless be regarded as significant sales successes for the M-346. Both were signed in 2026 and cover a combined 18 aircraft, with Indonesia acquiring 12 aircraft in the M-346F Block 20 combat configuration.
Leonardo nevertheless hopes to secure further contracts. The M-346 is being offered to Tokyo, which is preparing to select a new training aircraft. The Italian company faces strong competition in Japan, with Turkish and South Korean manufacturers signalling interest in the programme. However, all indications suggest that Tokyo may ultimately opt for Boeing’s T-7A Red Hawk.
Several factors favour the American aircraft, most notably the prospect of greater training interoperability with the United States, Japan’s principal military ally. The Red Hawk has been selected as the U.S. Air Force’s new training aircraft, and the first examples are now being delivered.
The T-7A will also be offered to the Royal Air Force. In July, BAE Systems signed an industrial and commercial agreement with Boeing and Saab concerning the aircraft. The outcome of the British competition may have a decisive influence on Tokyo’s decision because the aircraft selected by London will be used to train pilots for the future combat aircraft being developed under the Global Combat Air Programme, or GCAP. Japan is a partner in the programme and may conclude that following the path chosen by its British partner would be the most sensible option.
Such a decision would not bode well for Leonardo’s offer to Tokyo.
Leonardo is also competing for a major contract in the United States under the U.S. Navy’s Undergraduate Jet Training System programme, which has a budget exceeding $10 billion. During the company’s most recent investor conference, Mariani said: “The U.S. market is a very challenging one. We know these are competitions where every time you learn something very important in terms of process and in terms of product, we want to pursue that very seriously till the end. We think we have possibilities, but the way is still ahead of us.”
