What Should Hungary Do with Its Defence Industry after 2026?

A new PROSUM Foundation policy paper argues that Hungary’s emerging defence industrial base should not be dismantled, but strategically consolidated, depoliticised and integrated into NATO and EU defence planning.

Based on: PROSUM Foundation Policy Paper, The Future of Hungary’s Defence Industry after 2026

Author: Szilárd Szélpál

Hungary’s defence industry after 2026 should not be treated either as a political trophy or as a burden inherited from the previous government. The real question is whether the country can transform the capacities built in recent years into accountable national capabilities that serve the Hungarian Defence Forces, NATO’s deterrence and defence posture, and the European Union’s emerging defence industrial framework.

Russia’s war against Ukraine has changed the way Europe thinks about defence. For decades, defence industry was often treated as a technical, budgetary or procurement issue. Today, it has become a question of strategic survival. Ammunition stocks, repair capacity, logistics, digital resilience, cybersecurity, military mobility and secure supply chains are no longer secondary matters. They are now central to Europe’s ability to deter aggression, sustain military readiness and reduce strategic dependencies. This is the wider context in which Hungary’s defence industry must be assessed after 2026.

Over the past years, Hungary has seen the emergence of a new defence industrial ecosystem. It includes the Lynx infantry fighting vehicle programme in Zalaegerszeg, ammunition and explosives production in Várpalota, the Gidrán programme, Colt CZ Hungary, Airbus Helicopters Hungary in Gyula, and the technology and defence industrial structures organised around 4iG and N7. These developments have created capacities that did not previously exist in Hungary at this scale. They also raise difficult questions about ownership, state control, national security, political dependency, critical infrastructure and Hungary’s place within NATO and the European Union’s new defence industrial architecture.

A new PROSUM Foundation policy paper, The Future of Hungary’s Defence Industry after 2026, addresses precisely this challenge. Its central argument is clear: Hungary’s interest does not lie in dismantling the defence industrial capacities built during the previous governmental cycle. Instead, the country needs strategic consolidation. That means preserving what has real military, industrial and technological value, while depoliticising ownership structures, increasing transparency, strengthening democratic and national security oversight, and placing critical capabilities under a clear framework of strategic state control.

The paper starts from a sober premise. The defence industrial capacities built in Hungary over the past decade are not without value simply because they were developed under a particular political cycle. In many cases, they represent genuine national capabilities. The Lynx programme gives Hungary a role in the production and sustainment of modern armoured fighting vehicles. The Várpalota ammunition investment connects Hungary to one of the most urgent capability gaps exposed by the war in Ukraine: Europe’s insufficient ammunition production capacity. Airbus Helicopters Hungary creates aerospace-related industrial capabilities, while Colt CZ Hungary and the Gidrán/Rába/Nurol line add further elements to the country’s emerging defence industrial base.

The strategic question is therefore not whether these capacities should exist. The real question is under what ownership, institutional, national security and alliance frameworks they should operate after 2026. This distinction is important. A new government could be tempted to treat the defence industrial ecosystem as a political inheritance to be reversed. The PROSUM paper argues against that approach. It suggests that the more serious task is to separate politically exposed ownership structures from genuine national capabilities. In other words, the question should not be who built these structures, but which of them serve Hungary’s defence, which can be made accountable, which require state control, and which should be allowed to operate under regulated market conditions.

One of the strongest points of the study is that it treats defence industry not as a normal economic sector, but as part of national capability development. This matters because the defence industry sits at the intersection of several sensitive areas: military readiness, state sovereignty, export control, classified information, critical infrastructure, cybersecurity, foreign investment screening and alliance obligations. A company producing military components is not simply another industrial actor. A telecommunications or satellite-related company involved in defence technologies is not merely a market player. A maintenance or logistics provider may become strategically relevant in a crisis. A digital infrastructure company may affect secure communications, data flows and the state’s ability to act under pressure.

For this reason, the ownership question cannot be reduced to a simple state-versus-private debate. The paper proposes what could be called a functional ownership test. Full or majority state ownership should be reserved for capacities that directly affect wartime supply, critical military infrastructure, classified data flows or sovereign decision-making in a crisis. Strategic minority ownership, golden shares, veto rights and emergency access rights may be appropriate where private or foreign ownership is compatible with national security, but where the state must retain ultimate control over key decisions. At the same time, regulated private ownership should not be rejected. In areas where competition, innovation, export orientation and international technology partnerships generate higher value without undermining military readiness or security of supply, private and foreign participation may be not only acceptable, but necessary.

This is a more mature approach than simple nationalisation or simple liberalisation. It recognises that modern defence industries are hybrid systems. They require state direction, but also market discipline. They require national control, but also international partnerships. They require security safeguards, but also innovation and export potential. The real strategic challenge is to decide which function requires which ownership and control model.

The paper places particular emphasis on critical infrastructure. This is one of the most important issues in the Hungarian case. Modern defence industry can no longer be separated from telecommunications, data centres, satellite services, cybersecurity, digital logistics, systems integration and secure communications. If these capabilities become concentrated in politically embedded private hands without sufficient state access, audit rights, veto mechanisms or emergency powers, the state’s room for manoeuvre in a crisis may be constrained. The question is therefore not whether everything should be nationalised. That would be too simplistic. The question is whether the Hungarian state has the necessary legal and operational tools to act if a crisis emerges.

Can the state audit critical systems? Can it prevent hostile or risky ownership changes? Can it secure access to digital and telecommunications infrastructure? Can it prioritise military supply? Can it redirect logistics capacities? Can it coordinate with NATO and EU partners under pressure? If the answer is unclear, then valuable industrial assets may fail to become usable military capabilities. This is why the paper argues for a clear defence-industrial decision architecture. In peacetime, defence industrial policy may appear to be divided among industrial policy, state asset management, procurement, national security screening and foreign trade. In a crisis, however, these functions converge. A serious post-2026 strategy must therefore clarify who decides, who validates military requirements, who screens security risks, who manages ownership questions and who coordinates EU and NATO alignment.

Another major strength of the paper is that it places the Hungarian Defence Forces at the centre of the defence industrial question. A defence industry is not successful simply because factories exist, investments have been announced or ownership structures have been created. Its real value depends on whether it contributes to military readiness, sustainment, lifecycle support, spare-parts supply, interoperability and long-term force development. The study therefore argues that the Hungarian Defence Staff should have a mandatory military-requirements validation role. This does not mean that the military should make industrial policy decisions. Rather, it means that major defence industrial programmes should not be treated as national capabilities unless they are validated against actual military needs.

The relevant questions are practical. Do these capacities support the force structure of the Hungarian Defence Forces? Do they improve readiness? Do they support NATO capability targets? Do they contribute to interoperability? Can they be scaled in wartime? Can they provide sustainment and lifecycle support over the long term? These are the questions that matter from a military perspective. This is also where the link to NATO becomes essential. Hungary’s defence industry cannot be assessed only as a domestic economic development project. It must be evaluated according to whether it contributes to NATO’s deterrence and defence posture, regional defence planning, allied reinforcement and security of supply.

The paper also avoids one of the common mistakes in small-state defence industrial thinking: the illusion of full-spectrum self-sufficiency. Hungary is not in a position to develop every major weapons system independently. Nor should that be the goal. For a country of Hungary’s size, the more realistic path is specialisation in areas where it can generate value for its own armed forces and for allied supply chains. The paper identifies several such areas: ammunition and explosives production, military mobility, Host Nation Support, lifecycle support, maintenance, repair and overhaul, spare-parts supply, secure communications, digital logistics, cybersecurity, supplier certification and dual-use technologies.

The study proposes a hierarchy of priorities. The first tier should include ammunition and explosives production, military mobility, Host Nation Support, lifecycle support, MRO and spare-parts supply. These directly affect wartime readiness and the ability to support allied reinforcement. The second tier should include secure communications, cyber resilience, digital logistics, supplier certification and NATO-compatible quality assurance. The third tier should include longer-term innovation, dual-use technologies, aerospace niches and space-related services. This prioritisation is important because not every defence industrial investment has the same military urgency. Some capacities are essential for immediate readiness. Others are industrial enablers. Others represent longer-term technological opportunities. A serious strategy must be able to distinguish between them.

Hungary’s geography also gives it a potential role in NATO’s eastern reinforcement routes. But geography alone is not a capability. The paper therefore gives particular attention to military mobility. It proposes the development of a Hungarian Military Mobility Centre and a stronger focus on Host Nation Support and Reception, Staging and Onward Movement requirements. In practical terms, this means assessing railway corridors, road capacity, bridge classifications, axle-load limits, border-crossing procedures, fuel and ammunition storage, protected logistics nodes, emergency repair capacity and digital movement-control systems. The goal would be to ensure that Hungary is not only located on important routes, but is technically and institutionally capable of supporting large-scale allied movement in a crisis.

This is a crucial point. Military mobility is not simply infrastructure policy. It is part of deterrence. If allied forces cannot move quickly, securely and predictably across Europe, NATO’s defence posture is weakened. If Hungary can contribute to this area, it can increase its strategic relevance within the Alliance.

The European Union’s new defence industrial agenda also matters. EDIS, EDIP, ASAP, the European Defence Fund and military mobility instruments all point in the same direction: Europe wants to strengthen its defence industrial base, reduce external dependencies, increase joint procurement and improve security of supply. For Hungary, this creates opportunities, but only under certain conditions. Hungarian defence industrial capacities will need to demonstrate European added value, transparency, interoperability, export potential and compliance with EU and NATO requirements. Politically exposed, opaque or purely domestically dependent structures will be less credible in this environment.

The paper therefore argues that Hungary should not think in separate EU and NATO logics. The optimal strategy is to develop defence industrial capacities that fit both frameworks: contributing to the Hungarian Defence Forces, strengthening NATO capability generation and connecting to EU defence industrial instruments. This is especially relevant for ammunition production, military mobility, MRO, cybersecurity, logistics, supplier development and dual-use technologies.

Export strategy is another key issue. A small country’s defence industry cannot rely exclusively on domestic orders. If Hungarian defence companies remain dependent only on Hungarian state procurement, the sector risks becoming a budgetary dependency system rather than a competitive industrial base. Exports are therefore necessary. But defence exports are never purely commercial. They raise legal, political and reputational risks. End-user control, re-export restrictions, sanctions compliance, human rights risks and alliance interests all matter. For this reason, the paper proposes a more professional defence export and compliance framework.

Potential exports should be divided into categories. A red category would include destinations, end-users or transaction structures incompatible with EU sanctions, the Arms Trade Treaty, Council Common Position 2008/944/CFSP, alliance interests or Hungary’s reputational security. A conditional category would include markets where exports may be authorised only under enhanced monitoring and political risk assessment. A preferred category would include EU and NATO member states, closely aligned partners and projects that strengthen allied security of supply and interoperability. This approach would allow Hungary to build an export-capable defence industry without undermining its legal obligations or alliance credibility.

One of the paper’s most concrete recommendations is the launch of a National Defence Industrial Audit Programme. This audit should not be designed as a political weapon. It should be a structured, evidence-based review of ownership, finance, technology transfer, contractual obligations, military relevance, national security exposure and export potential. The paper proposes a two-stage approach. Within the first ninety days, a new government and its military leadership should receive a restricted strategic triage. This would identify which capacities must be preserved without interruption, which require immediate national security safeguards, which ownership structures should be reviewed and which projects can continue under market-based conditions. A fuller public audit could follow later. But the initial assessment would need to be restricted, because it would concern vulnerabilities, dependencies, contractual exposure and continuity risks that should not be disclosed in detail.

This recommendation is particularly important for a post-2026 transition. A new government cannot wait years to understand the strategic value and risks of the defence industrial structures it inherits. It needs a rapid, disciplined and security-conscious assessment.

The broader conclusion of the PROSUM Foundation paper is that Hungary’s defence industry should not remain a politically exposed network of favoured companies. But it should also not be dismantled simply because many of its current structures were built under a previous government. The challenge is more complex. Hungary must identify what has real value, what requires state control, what should be restructured, what can operate under regulated private ownership and what should be connected to European and NATO supply chains.

If this is done well, the defence industry could become more than a disputed political legacy. It could become a strategic national asset. That requires transparency, legal clarity, democratic oversight, military validation and alliance compatibility. It also requires a new political discipline: the ability to preserve national capabilities even when they were created by political opponents, while reforming the structures that make them opaque, dependent or vulnerable.

In this sense, the future of Hungary’s defence industry after 2026 is not only an industrial question. It is a test of strategic state capacity. Can Hungary turn inherited economic-military structures into accountable national capabilities? Can it protect critical infrastructure without suffocating innovation? Can it combine state control with private and foreign partnerships? Can it link domestic defence industrial development to NATO readiness and EU defence industrial cooperation?

These are the questions that will define the next phase of Hungarian defence policy.

The PROSUM Foundation policy paper The Future of Hungary’s Defence Industry after 2026 is available in both English and Hungarian in the following link:

https://prosum-foundation.com/index.php/policy-papers/

Cover photo: Prosum Foundation

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