In tiny Estonia, drones lead booming defense expansion

TALLINN — When Estonian drone-maker Threod Systems announced a new $6.6 million contract on Tuesday with the United Kingdom for drone launchers, it may have seemed small by international arms deal standards.

But the price tag belies a more striking trend: It’s the latest deal for an Estonian defense industry that’s seen a dramatic boom in the last few years, growing nearly 350 percent since 2021.

That’s according to a new forecast by the Estonian Defense and Aerospace Industry Association, shared exclusively with Breaking Defense, that says Estonia’s 138 defense companies could see $842 in sales revenue and an export turnover of $518 million for 2025.

Compared to just last year, those figures would mean a 45 percent increase in sales and 43 percent increase in export turnover.

The growth is inextricably linked to Russia’s invasion of Ukraine, turning Kyiv into one valued customer, and persistent concerns Moscow could try something similar along NATO’s eastern frontier. It’s also prompted Estonian firms to move more quickly to address changing threats on the battlefield.

“Estonia may adapt its own capabilities to this new warfare quicker than other EU member states because of its geographical closeness to Russia,” Stockholm International Peace Research Institute researcher Jade Guiberteau Ricard told Breaking Defense.

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The Estonian military is, of course, a primary customer for local firms. Notably, Tallinn already far exceeds NATO’s 3.5 percent target for core defense spending. Since January this year, 5 percent of the country’s GDP goes to “core military capabilities,” the permanent secretary of Estonia’s Ministry of Defense, Kaimo Kuusk, told reporters at a briefing here.

“That’s not the place you can economize or optimize your spendings,” he said. 

With military expenditure surging across Europe, Estonia’s defense budget reached around $1.5 billion in 2024. It’s a 107 percent increase over the decade and a 12.7 percent rise from 2023, according to SIPRI.

Additionally, Estonia actively supports several key EU initiatives aimed at bolstering eastern defenses, including the Baltic Defense Line (a joint fortified border project with Latvia and Lithuania featuring anti-tank ditches, bunkers, and obstacles), the  European Drone Wall (also known as the European Drone Defense Initiative, focused on multilayered counter-drone systems along the EU’s eastern borders), and the Eastern Flank Watch (an EU flagship program integrating air defense, surveillance, electronic warfare, and rapid response capabilities against hybrid and conventional threats), according to SIPRI.

In Ukraine, Drones And EW Rule

The ongoing drone warfare in Ukraine has established a clear trend of escalating demand for unmanned vehicles, and electronic warfare. Estonia’s defense industry has built significant expertise and specialization in this area.

In addition to Threod, companies such as Frankenburg Technologies (mass-manufacturable anti-drone missiles), DefSec Intel Solutions (AI-powered surveillance and counter-drone systems), Marduk Technologies (passive optical detection and targeting systems) and Rantelon (electronic warfare equipment) are actively innovating in drones, counter-drone systems, and related unmanned platforms, to mention just a few. 

The UK contract Threod announced Tuesday revolves around its Cata launchers that are designed to jolt drones and loitering munitions in the air. The contract follows earlier trials under the British Army’s ASGARD program, a digital targeting web system tested on NATO’s eastern flank meant to allow soldiers to quickly detect and strike enemy targets, according to Threod.

Threod, founded in 2012, has grown from a 50-person company to nearly 200 employees, achieving what CEO Arno Vaik said was a “1,100 percent increase in sales over five years.”

Vaik said the company has customers in 27 countries, but perhaps its most consequential customer is Ukraine, to which it has supplied 100 to 200 drones. Threod’s Eos C (3rd gen) UAS has been used there for reconnaissance and guiding artillery fire. Threod also trains the operators.

“We started in Estonia, but now we have training and service center in Ukraine. We do it locally there,” Vaik said.

Now the company is in the final stages of preparation for serial production of the 4th gen UAS (Eos D), which integrates laser target designation and is said to enhance precision strike capabilities.

As for the Cata launcher, its B variant can launch drones weighing 110 to 881lbs., according to the company. The setup time is three to four minutes, pack-up takes another four minutes, and it can be towed by vehicle.

“If you have seen in the news that Ukrainians have bombed targets in Russia, then there is a really high chance that this drone has been launched from here,” the firm’s business development manager for launcher systems, Anneli Meier, said and showed a launcher in a company facility.

Another Estonian firm that’s seen its wares on the battlefield of Ukraine, albeit on the ground, is Milrem Robotics. Milrem, for which a majority stake is owned by Emirati defense conglomerate EDGE Group, develops autonomous unmanned ground vehicles (UGVs).

The company in October secured an order to deliver over 150 THeMIS UGVs to Ukraine – in addition to the 15 already operational there since 2022 – as part of a Netherlands-led defense initiative.

“[We] needed, in a way, something as tragic as the conflict that has happened there (Ukraine) to show the diversity in the use of unmanned ground vehicles in combat,” the company’s director of industrial partnership, retired UK armed forces colonel Paul Clayton told Breaking Defense. Clayton previously commanded UK forces in the Baltics and Poland under the NATO enhanced Forward Presence and served in the British Army for 30 years.

In the Ukraine war, unmanned vehicles – both aerial drones and ground robots – have become dominant for frontline logistics due to extreme risks to human life from enemy threats, making manned transport too dangerous, Clayton told.

“Because a lot of people could see potentially some use cases, but they didn’t really have the faith that they [unmanned vehicles] were going to be so dominant”. 

What began with supply deliveries and casualty evacuation is rapidly expanding to weaponized systems for direct fire, counter-drone operations, and electronic warfare like jamming and radio rebroadcasting.

Spider’s Web

The value of unmanned systems was never more apparent, according to Kuusk, than during Operation Spider’s Web in which Ukraine’s intelligence services launched several waves of drones from commercial trucks deep inside Russia to take out Russian military aircraft.

“That was the brightest moment for me. It shows how capable Ukrainian intel services are,” said Kuusk, who served in Estonia’s intelligence service, rising to its deputy director general. “Not very many countries are able to repeat something like that, in the world. It’s a heavy operation to prepare and commit, and there [were] no leakages.”

When asked by Breaking Defense whether Estonia had played any role in that Ukrainian strike, Kuusk neither confirmed nor denied.

“The old rule: You’re not commenting anything, actually. But I really appreciate how Ukrainians are using out‑of‑the‑box possibilities, how they are able to keep [operational security] doing that, and that’s what we have to learn from them,” he said. “We are, in our souls, always with them in Ukraine.”