Little Denmark is offering big clues to the European Union’s defense-policy ambitions. Terma A/S, a closely held Danish aerospace company, says business is looking up because of the EU’s fresh focus on security. The maker of radars for airports and electronics for the F-16 fighter jet recently accepted its first loan from the European Investment Bank after the terms for the 28 million-euro ($32 million) deal proved more attractive than anything from private lenders, including the company’s traditional financier, Danske Bank A/S. Terma’s embrace of European bureaucracy underscores the emboldened approach to defense of the 28-nation bloc, which is stepping up security initiatives as it’s forced to contend with the U.K.’s departure and a U.S. president who’s shaken the trans-Atlantic order that’s helped keep the region at peace since the end of World War II. A minnow in an industry dominated by the likes of Lockheed Martin Corp. and BAE Systems Plc, Terma now wants to expand participation in the EU’s research program. “The EIB loan is a significant opportunity for Terma,” Per Thiesen, the company’s chief financial officer, said in an interview at its offices outside Copenhagen. “Instead of having a five-to-seven year innovation cycle, we were able to reduce that to a three-to-five year cycle. That is competitiveness at the end of the day.” EU Security After almost a decade of debt-crisis firefighting, European policymakers are shifting their attention to security and the role it can play in bolstering a sluggish EU economy. The bloc is being driven by everything from Russia’s encroachment in Ukraine and U.S. President Donald Trump’s vocal campaign for allies to ramp up defense spending to a refugee influx and terrorism. The EU’s institutional leaders are tip-toeing into a policy area dominated by national capitals, arguing that Europe-wide security initiatives yield bigger benefits than any individual government can provide. While EU countries have ceded control over trade, antitrust and monetary policies to the bloc, this latest push for centralized power touches the core of national sovereignty and will be marked by political battles in the months to come. The discussion revolves around plans to boost EIB lending to companies with a foot in the defense business, increase spending on military research from the EU budget and streamline arms procurement. The proposals by the European Commission, the EU’s executive arm, mark an appeal to member governments to overcome decades of fragmentation in Europe’s defense market by aligning research efforts to military needs, pooling purchases and giving the industry better access to finance. Terma, whose revenue and profit have increased for the past three years, never imagined that the Luxembourg-based EIB would venture where other lenders balked. The company, which is also involved in the F-35 fighter program, the most-expensive U.S. weapons program, had a profit last year of 12.2 million euros on sales of 231 million euros. “We have a good relationship with Danske Bank and have had that for years,” Thiesen said. “But that does not mean that at the end of the day you get what you want.” Space Technology The seven-year loan for Terma can be extended by three years and is divided into four tranches whose timing the company can choose, according to Thiesen. The company will pay an interest rate of about 1 percent, which is about half of what other lenders would have charged. The funding, which also involves no repayments during the first three years, covers 50 percent of the company’s research and development in the areas of space technologies, radars—including drone detection—and airborne self-protection equipment, he said. “That is the perfect match for us,” Thiesen said. “They were extremely accommodating.” Agreed in October, the loan was the first corporate transaction in Denmark to be guaranteed under the European Fund for Strategic Investments, in which the EIB is a partner of the Brussels-based commission. About 210 billion euros of investments related to EFSI projects have been approved so far. The EIB support has enabled the company to refinance its “quite expensive” credit facility with Danske Bank and gain in standing with industry partners, Thiesen said. A quarter of the loan—the part covering self-protection equipment—was fashioned under rules allowing the EIB to finance the development of technologies that can have both civilian and military applications, so-called dual-use goods. Possible applications here include greater safety for planes delivering humanitarian aid to conflict zones. EU governments, as the EIB’s shareholders, are debating whether to nudge its lending remit further in the direction of defense, particularly for small and medium-sized companies. Terma, which spends about 14 percent of its revenue on R&D, would be keen on broader backing from the EIB should it start lending to defense projects, according to Thiesen, who cited potential benefits for the company in its role as a supplier of parts for Lockheed’s F-35. ‘First Call’ “That would definitely be our first call, to the EIB, if and when that opens up,” he said. Meanwhile, Terma, which has been involved in space and security parts of the EU’s research program, plans its first application to participate in a new defense segment. The commission wants to expand the EU research program’s outlays for defense 20-fold to 500 million euros a year as of 2021. “Then you’re going from petty cash to true research funding,” Thiesen said. “But more than having funds available, I see this as a program that should be an incubator of getting the defense industry in Europe closer together.”