The German-led "Air Defender 23" will include some 250 military aircraft from 25 NATO and partner countries including Japan and Sweden, which is bidding to join the alliance. It will run until June 23.
Up to 10,000 service members are to participate in the drills intended to boost interoperability and preparedness to protect against drones and cruise missiles in the case of an attack within NATO territory.
"The significant message we're sending is that we can defend ourselves," Lieutenant General Ingo Gerhartz of the German Luftwaffe told public television.
"Air Defender" was conceived in 2018 in part as a response to the Russian annexation of Crimea from Ukraine four years before, though Gerhartz insisted it was "not targeted at anyone".
He said the exercise would not "send any flights, for example, in the direction of Kaliningrad," the Russian enclave bordering alliance member states Poland and Lithuania.
"We are a defensive alliance and that is how this exercise is planned," he said.
The first flights began in the late morning at the Wunstorf, Jagel and Lechfeld air bases, a Luftwaffe spokesman confirmed to AFP.
Hundreds of demonstrators had gathered at Wunstorf in northern Germany on Saturday against the drills, under the banner "Practice peace -- not war". Protesters called for a "diplomatic solution" to Russia's invasion of Ukraine and an immediate ceasefire.
US Ambassador to Germany Amy Gutmann said the exercise would show "beyond a shadow of a doubt the agility and the swiftness of our allied force" and was intended to send a message to countries including Russia.
"I would be pretty surprised if any world leader was not taking note of what this shows in terms of the spirit of this alliance, which means the strength of this alliance, and that includes Mr Putin," she told reporters, referring to the Russian president.
"By synchronising together, we multiply our force."
Russia's war on Ukraine has galvanised the Western military alliance set up almost 75 years ago to face off against the Soviet Union.
Finland and Sweden, which long kept an official veneer of neutrality to avoid conflict with Moscow, both sought membership in NATO after Russia's February 2022 invasion.
Under NATO's Article Five, an attack on one member is considered an attack on all.
- 'Great power competition' -
The exercise includes operational and tactical-level training, primarily in Germany, but also in the Czech Republic, Estonia and Latvia, with a total of around 2,000 flights.
German Chancellor Olaf Scholz will visit pilots based at the Jagel airfield in northern Germany on Friday.
General Michael Loh, director of the US Air National Guard, said NATO's duties were at an "inflection point".
"A great deal has changed on the strategic landscape throughout the world, especially here in Europe," he said.
The exercise will focus on "supplementing the permanent United States presence in Europe" as well as providing training "on a larger scale than what was usually accomplished on the continent", Loh added.
He said many of the alliance pilots were working together for the first time.
"It's about fostering the old relationships that we have but also building new ones with this younger generation of airmen," he said.
"And so this is about now establishing what it means to go against a great power in a great power competition."
Gutmann said that while there were no plans to make "Air Defender" a recurring exercise, she added: "We have no desire for this to be the last."
Asked about potential disruption to civilian air transport during the exercise, Gerhartz said the planners would do "everything in our power" to limit flight delays or cancellations.
German authorities and industry groups have warned that flight schedules could be impacted, particularly at major hubs such as Frankfurt and Berlin-Brandenburg due to their proximity to drill zones.
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