Five months into the fiscal year, which began Oct. 1, lawmakers have yet to pass a full FY24 budget. The uncertainty has raised concerns in the Pentagon that Congress may put the department on a one-year continuing resolution with a 1% sequester.

Without an FY24 defense budget, the Pentagon remains unable to implement new modernization programs and cannot take new steps to expand the defense-industrial base amid wars in Europe and the Middle East.

“The lack of full-year funding has put key government programs in purgatory, wasted taxpayer money on outdated budgets and hindered forward progress that will make the country more secure, push us to the next levels of technological advancement and support American competitiveness in key industries like aerospace,” Aerospace Industries Association chief executive Eric Fanning said in a statement.

The House voted 320-99 to pass its fourth temporary spending measure, and the Senate followed suit shortly thereafter in a 77-13 vote. Under the latest stopgap spending bill, funds appropriated for Veterans Affairs and military construction will expire on March 8, two weeks before Defense Department funding runs out.

Congress is expected to vote on the FY24 Veterans Affairs and military construction spending bill next week. But lawmakers have yet to finalize the FY24 Pentagon spending bill.

The right-wing House Freedom Caucus has insisted on several policy riders in the appropriations bill that Democrats have ruled out as poison pills, including bans on the Pentagon’s abortion travel leave policy and medical care for transgender troops.

Last year’s debt ceiling deal caps FY24 defense spending at $886 billion. If Congress does not pass a full FY24 federal budget by April 30, the debt ceiling agreement puts government funding on a one-year continuing resolution that would cut spending at the Pentagon and all other federal agencies by 1%.

Pentagon sounds the alarm

The undersecretaries of the Navy, Army and Air Force told reporters Wednesday a one-year stopgap funding measure at FY23 levels would result in billions of dollars in “misaligned” funds at the Defense Department.

To cope with a one-year stopgap measure, they said the Defense Department would first have to prioritize current operations in places like Europe and the Middle East, followed by personnel, then acquisition and modernization.

Navy Under Secretary Erik Raven noted this would result in the military submitting “unprecedented” reprogramming requests to Congress. The Navy, for instance, would need Congress to approve a $13 billion reprogramming request to address $26 billion in misaligned funds.

It would also result in a $2 billion shortfall for the Virginia-class attack submarine program and another $800 million shortfall for amphibious ship spending. Congress has provided a $2.2 billion carveout for the Navy to continue work on the Columbia-class ballistic submarine program, most at risk of falling behind schedule.

Other services would not be able to begin new initiatives either, including a highly prioritized munitions ramp-up following the influx of arms the U.S. has sent to Ukraine and Israel with more due for Taiwan.

“These are production rate increases, new starts — both in programs for acquisition as well as military construction projects — that we cannot start,” said Army Under Secretary Gabe Camarillo.

Congress has still not funded the multiyear munitions procurement plans it authorized for FY23 and FY24, and Camarillo noted those funds are needed “to give industry the incentive to be able to facilitize, invest in a workforce and be able to do those extra shifts that we know that we need in order to restore our munitions.”

The $95 billion foreign aid bill for Ukraine, Israel and Taiwan also includes considerable funding to ramp up the munitions-industrial base. But House Speaker Mike Johnson, R-La., has so far refused to put it on the floor for a vote after the Senate passed it 70-29 earlier this month.

For its part, the Air Force warned earlier this month a 1% sequester would reduce its buying power by $13 billion and put $2.8 billion in space modernization projects on hold.

The U.K. arms of Belgian-based company Rhea and American firm Lockheed Martin won separate contracts, cumulatively worth £4 million (U.S. $5 million).

The deals were announced Feb. 14, although both contractors have worked on their potential offerings since mid-2023, when they were selected from six firms initially tasked to undertake work on what is known as Project Beroe.

The amount of money involved may be small, but the outcome of the research and development work by the two companies could be key, according to Commodore David Moody, the head of capability at UK Space Command.

“This is a pivotal moment for UK Defence and the UK Space Sector as we develop software and partnerships that will determine the future of how we manage our activities in space,” Moody said in a statement released at the time of the announcement. “This project will enable us to define and understand how we will control and optimise the use of our satellites in a safe and sustainable way and is an important part of UK MOD’s future satellite aspirations.”

The 20-month-long contracts are scheduled to conclude in March 2025. There is no public timeline regarding the possible acquisition or future development phases of the software.

Existing British satellite control is focused around the Skynet 5 communications spacecraft network but Project Beroe is expected to enable satellite taskings from a much wider group of government entities and satellite types, individually or in concert.

Project Beroe is not directly related to Skynet and will support future non-Skynet satellite constellations like the low-Earth orbit ISTARI and Minerva programs.

Together, ISTARI and Minerva are to form the building blocks of a low-Earth orbit ISR capability for the British military.

ISTARI is a 10-year, £968 million program planned to deliver a multi-satellite system supporting surveillance and intelligence gathering for military operations.

Minerva is a £127 million project to develop four concept demonstrator satellites: Titania, Tyche, Oberon and Juno.

Tyche, which is the first of the four to launch, is scheduled to enter orbit this year. The Minerva group is meant to demonstrate the ability to autonomously collect, process and disseminate data from British and allied space assets, and this will inform how the ISTARI project moves forward.

Both programs are part of a planned £6.4 billion fund spread out over 10 years, as announced by the MoD when it rolled out its space defense strategy in 2022.

At a cost of about £5 billion, the lion’s share of that spending will go toward the procurement of a new generation of satellites and ground facilities under the Skynet 6 program.

Airbus is already building the first of those satellites, known as Skynet 6A, and a further competition is underway to provide a new generation of narrowband and wideband satellites under the Skynet 6 banner.

Defense News reported earlier this month that Banco do Brasil declared its intention to stop financing defense companies, citing governance and sustainability policies.

The U-turn follows a meeting held Feb. 26 involving the bank’s president, Tarciana Medeiros; Brazil’s vice president and the minister of development, industry, commerce and services, Geraldo Alckmin; the minister of the civil house, Rui Costa; and the defense minister, José Múcio Monteiro.

“The decision will prevent losses to companies in the sector that were at risk of losing contracts and will contribute to the sustainability and autonomy of the Defense Industrial Base,” the Ministry of Development, Industry, Commerce and Services said in a statement this week.

The ministry noted the latest decision reinforces the importance of structured financial policies that ensure “not only the economic viability of companies but also national security and sovereignty.”

If the bank had gone through with its initial plan, the move would have impacted many Brazilian defense players and the Proex program — a government mechanism, managed by the bank, that provides resources for domestic companies exporting goods and services.

The Brazilian defense contractor Mac Jee has celebrated the decision.

“The Mac Jee Group believes that this measure is a crucial step towards the sustainability and autonomy of our Defense Industrial Base,” the company said in a statement. “The initiative also ensures the preservation of vital contracts for companies in the sector, contributing to the generation of foreign exchange and jobs in the country, in addition to strengthening national security and sovereignty.”

Banco do Brasil declined to comment for this story.

Anduril, serving as the prime contractor, plans to deliver “a modified, autonomy-ready Uncrewed Ground Vehicle (UGV) based on Hanwha’s proven Arion-SMET platform, which has already demonstrated its performance in highly-relevant and varied environments in the Indo-Pacific, including the latest Foreign Comparative Testing with the U.S. Army and Marine Corps in Hawaii,” the companies said in a Feb. 29 statement.

The Army chose General Dynamics Land Systems’ Multi-Utility Tactical Transport, or MUTT, for its SMET unmanned ground system in a first increment of the program. The $162.4 million contract, awarded in October 2019, would wrap up at the end of October 2024. GDLS won another follow-on contract in 2020.

Now the service has opened bids for the second increment of the program intended to carry gear and light payloads to decrease the burden to soldiers in the field. The Army is pursuing two major robotic combat vehicle platforms simultaneously: the Robotic Combat Vehicle meant to fight alongside Stryker and Bradley vehicles, and the SMET, which is likely to accompany lighter formations.

Anduril and the U.S. arm of South Korean defense firm Hanwha will also be working with Forterra, formerly RRAI, to incorporate its AutoDrive vehicle autonomy solution “to enable complex on and off-road maneuvers,” the statement reads.

“By combining Anduril’s electronics and software, Hanwha Defense USA’s proven hardware, and Forterra’s proven off-road vehicle autonomy stack, the partnership will bring speed, flexibility, and advanced capabilities to dismounted infantry,” Zach Mears, head of strategy at Anduril, said in the statement. “With a simplified user interface powered by Lattice, users will be able to quickly and easily command and control the S-MET to support lethal effects at the tactical edge.”

Lattice is Anduril’s software originally designed to counter drones and other threats, but has wider applicability for sharing battlefield information and data at a tactical level. Anduril is also teamed with American Rheinmetall Vehicles in the XM30 Mechanized Infantry Combat Vehicle competition underway to eventually replace the Bradley Infantry Fighting Vehicle, bringing its Lattice capability to that effort as well.

The capability, Anduril states, will allow soldiers to operate the vehicle, manage payloads and communicate simultaneously in “complex environments.”

The team is focused on load-carrying, power generation capacity, reduced sustainment, survivability and a modular architecture for a wide array of payloads, the release details.

The robotic vehicle will have a low acoustic signature, “ensuring that it serves as an asset, not liability on the modern battlefield,” the statement adds.

Other expected competitors are Teledyne FLIR, GDLS, Rheinmetall, with teammate ST Engineering, and HDT.

Teledyne FLIR announced its bid in October at the Association of the U.S. Army’s annual conference.

The Army has tightly held details on the competition such as the timeline for evaluating and choosing winners and what comes after and has not posted any solicitations on the public domain for federal contract opportunities, Sam.gov.

The service is focused on rigorous experimentation with robots and emerging technology to develop integrated fighting formations of both humans and robots. The Army calls it “human-machine integration” and is evaluating exactly how robotic technologies can be coupled with the best of what humans can bring to the table on the battlefield.

The U.S. military may run out of personnel funds before the end of the year, be forced to scale back operations and see ongoing modernization efforts harmed if Congress fails to pass a defense spending bill by the end of next week, service leaders warned Tuesday.

The undersecretaries of the Army, Navy and Air Force said they’d have billions of dollars in “misaligned” funds — money that exists but not in the right budget lines to support their current spending needs — if they’re stuck with a full-year continuing resolution that keeps fiscal 2023 spending levels through the rest of 2024.

They agree that they’d have to prioritize current operations first, then people and then acquisition and modernization in a CR.

“You see sailors and Marines across the globe today, performing important missions: the Red Sea is an excellent example of how current operations take precedence,” Navy Under Secretary Erik Raven told reporters at the Pentagon.

Without sufficient funds, he said, “we have to make tough choices. But between the ability to fight tonight and be ready for all the threats, versus preparing for the future and modernizing our forces — it is a tough decision, but we have to lay our chips somewhere, and that’s on the ability to perform our missions today.”

Raven said the Navy’s ability to make that prioritization, though, would require Congress to grant the services some “unprecedented flexibilities” in the form of massive reprogrammings, or moving money from one line item into another.

The Navy, for example, would have $26 billion in the wrong places, and would need Congress to approve $13 billion in formal reprogrammings — more than twice the money Congress approves for the entire Defense Department in a typical year, he said.

But the reprogramming frenzy would be vital to mitigate the risk the services would take in their modernization efforts and industry would face if contracts are delayed or nixed altogether.

The Army is facing a similar misalignment in funds, to the tune of $6 billion.

“These are production rate increases, new starts — both in programs for acquisition as well as military construction projects that we cannot start,” Army Under Secretary Gabe Camarillo said.

The Air Force’s misalignment in funds equates to over $13 billion and “impacts are particularly challenging in the Space Force, who has seen their budgets rising over the last couple of years,” Air Force Under Secretary Jones said.

‘Burning hotter’

Further complicating funding this fiscal year is the fact that Congress has yet to pass a sweeping supplemental request, which the Pentagon hoped would supply weapons to Ukraine and Israel in support of ongoing wars for both countries and would also fund the Southwest border mission. The lack of supplemental funding compounds the impact of a long-term CR, Camarillo said.

The Army is spending $500 million out of its base budget for operations costs in the European theater, another $100 million in the U.S. Central Command area of operations and another $500 million for the operations along the U.S. Southwest border.

“At one point in time, there was a thought that all of this could be funded through a supplemental, and it is now currently, today, in FY24, being funded 100% out of the Army’s base budget,” Camarillo said.

“We are just burning hotter than we normally would across all of our appropriations accounts,” he said. “[U.S. Army Europe and Africa] in Germany has explained that … they will run out of money this summer in the absence of extraordinary relief, aka a reprogramming.”

This will be a problem across the board, he added, to include running out of funds in the Army’s military personnel account.

Industry impacts

The services planned to ramp up munitions spending in FY24, to bolster their own stockpiles as a hedge against a future fight and to replenish allies’ and partners’ stocks.

A year-long CR puts that industry ramp-up in peril.

Camarillo said he was “particularly concerned” the CR would not allow the services to “send that strong signal to give industry the incentive to be able to facilitize, invest in a workforce and be able to do those extra shifts that we know that we need in order to restore our munitions.”

Camarillo said the Army intended to kick off a multiyear procurement effort for the Patriot Advanced Capability-3 Missile Segment Enhancement (PAC-3 MSE) interceptors in FY24. Under a full-year CR, it would be $1.2 billion short to reach the production rates needed to achieve the economic order quantities and savings associated with the multiyear procurement deal.

Lockheed Martin has invested significantly in the PAC-3 MSE line to grow production from 550 missiles per year to 650. The Army requested in its FY24 budget $775 million to ramp up that production. The company intends to grow production beyond 650 in the following year, as demand increases due to the war in Ukraine and conflict in the Middle East.

Camarillo added the Army could not begin to field its Mid Range Capability missile to the first unit, which is important to its Pacific deterrence, due to new programs not being allowed to start under continuing resolutions. Nor could it increase production levels for the Guided Multiple Launch Rocket System, Javelin missile, and 155mm munitions.

“I will just say that we have always said our goal was to get on 155 artillery 100,000 per month rounds by the end of calendar year ‘25. We cannot get there unless we get both the appropriation and we get the supplemental,” Camarillo said.

“It’s very challenging, because we’re asking industry to lean as far forward as they possibly can and to make investments both in additional personnel, unique tooling and machining that’s required to ramp up production capacity,” Camarillo said.

And the Army planned to buy 225 Coyote counter-unmanned aerial system interceptors – a spending need that hits home, he said, due to the recent deaths of three soldiers in Jordan who were killed by a drone strike from Iran-backed militants — but those, too, could not be purchased in a year-long CR.

For the Navy, Raven said the sea service wanted to double its Standard Missile 6 spending — something particularly timely, as Navy ships are expending the older SM-2 missiles almost daily in the Red Sea, shooting down Houthi missiles and drones — but that cannot happen under the full-year CR.

After the Navy just last week awarded a maintenance contract to HII’s Newport News Shipbuilding to overhaul the attack submarine Boise – which has languished at the pier since 2015 and has been unable to undergo repairs at either a public or private repair yard – Raven said a full-year CR would render the Navy unable to actually fund and execute that contract this year due to a $600 million shortfall in the submarine maintenance funds.

It would also see a $800 million shortfall in amphibious ship spending that could put at risk America-class amphibious assault ship construction, a $2 billion shortfall in submarine construction spending that would threaten the Virginia-class attack sub program, and more.

For the Air Force, Kristyn Jones, who is performing the duties of the under secretary of the Air Force, said the service has five contractors onboard for its collaborative combat aircraft effort, but that wouldn’t be able to move forward.

The full-year CR would also hamper production increases on the Joint Strike Missile and the F-35A Joint Strike Fighter, both of which the Air Force says it needs for a high-end fight, as well as spending on the Joint Air-to-Surface Standoff Missile for facilitization to support future production increases.

“We hear over and over: the industry wants that solid demand signal so they know how to invest, they can support the facilitization — and by having this uncertainty, it really has negative impacts across the defense industrial base,” Jones said.

ST Engineering signed the deals for MRO work during last week’s Singapore Airshow. They cover Airbus’ C-295 medium transport aircraft and Embraer’s C-390 Millennium airlifter.

ST Engineering has experience providing MRO services to the Republic of Singapore Air Force’s legacy aircraft, including A-4SU Super Skyhawk jets, a company representative told Defense News.

The firm has also performed MRO services for Airbus’ commercial line and conducted freighter conversions, but the recent agreement looks to expand work to the C-295, which will include depot-level maintenance.

Airbus executives said they have been looking for MRO partners in Asia, where 28 C-295 are currently in service with armed forces in Vietnam, the Philippines, Indonesia, Brunei and Bangladesh. The agreement with ST Engineering would only cover C-295 aircraft in the Asia-Pacific region, Airbus told with Defense News, and will not include aircraft from Bangladesh.

The C-295 can be used for surveillance and maritime patrol missions. The French firm Airbus anticipates an increase in C-295 orders following a rising demand for surveillance aircraft in the region.

A spokesperson from ST Engineering told Defense News the firm has not yet finalized the specific C-295 variants involved in the MRO collaboration.

Brazilian company Embraer signed a memorandum of understanding on MRO collaboration with ST Engineering for the C-390. An ST Engineering spokesperson told Defense News via email that the agreement covers engineering, support services and maintenance for the aircraft.

Embraer has not yet announced sales in Southeast Asia but anticipates demand for the C-390 airlifter. The two firms will also cooperate on radars and land systems; border security; simulation; advanced production technologies; command-and-control, communications and computer technologies; and intelligence, surveillance, target acquisition and reconnaissance, according to a news release.

Meanwhile, ST Engineering’s defense aviation services division announced a first-time collaboration with American company Honeywell amid ongoing overhaul work for two C-130s in service with the Tunisian Air Force.

The long-time agreement between the two companies will see Honeywell provide hardware and engineering support to ST Engineering for the Tunisian aircraft. This includes the integration of Honeywell’s Cockpit Display System Retrofit, a system composed of up to five large-format LCD color displays that provide flight controls, air data and altitude sensors.

The memorandum of agreement, inked during the Singapore Airshow last week, includes the integration of Honeywell’s TPE331 turboprop engine into the Sikorsky S-70M Black Hawk GFA-type transport helicopters. PTDI will assemble the helicopters at Bandung under a manufacturing license for the Indonesian Defense Ministry.

In August, PTDI and Sikorsky, a subsidiary of Lockheed Martin, entered into an industrial arrangement for the ministry to procure the Black Hawks. PTDI did not disclose the number of helicopters under the deal with Sikorsky in August, but the ministry revealed during the air show that the contract covers 24 helicopters.

The agreement between PTDI and Honeywell also includes the localization of maintenance, repair and overhaul services for Honeywell’s avionics and mechanical systems as well as the manufacturing of a harness assembly.

While the helicopters have yet to be completed, Honeywell is working with PTDI to provide technologies to elevate and sustain the aircraft, according to Sathesh Ramiah, vice president for Honeywell’s defense and space business in the Asia-Pacific region.

PTDI wanted to minimize maintenance periods for the helicopters and ensure they meet the needs of the armed forces, Ramiah told Defense News. “That’s something we signed and continue to work with PTDI in terms of expanding other technologies from the sustainment side.”

The two companies have previously collaborated on the Indonesian Air Force’s CN-235 twin-engine transport aircraft and CN-212 medium cargo aircraft manufactured under license by PTDI.

The military’s growing interest in manned-unmanned teaming comes amid a declining pool of 18-year-old conscripts and as relations with neighboring North Korea worsen.

Korea Aerospace Industries, a producer of various drones and crewed fighters, including the KF-21 Boramae and FA-50, is one of the companies leading the national effort.

In an exclusive briefing with Defense News, a KAI executive outlined the company’s four-phase road map to provide manned-unmanned teaming capabilities to the South Korean military.

“We have a very ambitious plan to create a system of systems for the future, and this is a combination of manned aircraft like the KF-21 and FA-50, together with unmanned combat vehicles as unmanned fighters, and also small-sized UAVs,” the executive said on the condition of anonymity, as the individual was not authorized to speak to the press.

South Korea’s Air Force plans to acquire both single-seat and twin-seat variants of the 4.5-generation KF-21, with first delivery scheduled for June 2026. The twin-seat jet, apart from its training role, is expected to perform manned-unmanned teaming, or MUM-T, in its Block III configuration. This would involve a pilot in the back seat — or perhaps artificial intelligence — controlling drones.

The KF-21 was designed so users could equip it with new technology even after production, and the intention is to eventually develop a fifth- and sixth-generation variant. This aim falls under what KAI calls the next-generation air and space combat system, a sophisticated and linked network of sensors and platforms such as satellites, airborne early warning aircraft, crewed fighter jets and drones.

Four phases

KAI is already implementing the first phase of its MUM-T road map, which began in 2023 and is to conclude next year. It involves the company and the Air Force collaboratively developing technologies to make MUM-T a reality with a helicopter and small, air-launched unmanned aerial vehicles. Once KAI proves the concept and technology for high-capacity communications and artificial intelligence, it will transition to more capable UAVs — which the company calls adaptable aerial platforms — to operate in conjunction with an FA-50 aircraft.

Although larger and possessing a longer endurance than the original air-launched UAVs, the recoverable “adaptable aerial platforms,” or AAPs, will not be excessively high-tech because they need to be affordable, the executive noted.

The second phase, to take place from 2025 to 2028, will culminate in a technology demonstration whereby an FA-50 testbed shows whether it can simultaneously control up to four adaptable aerial platforms. The demonstration is to feature AAPs acting as decoys to spoof the enemy; conducting electronic warfare with an onboard jammer; carrying out intelligence, surveillance and reconnaissance missions with an electro-optical/infrared payload; or performing strike missions with its own warhead.

The third phase, to conclude by 2037, will transition increasingly capable MUM-T technologies from an FA-50 to a twin-seat KF-21. Simultaneously, KAI is expected to reach the engineering and manufacturing design stage for an additional type of combat drone acting as a loyal wingman to the piloted aircraft.

A single KF-21 would control up to four of the combat drones. In turn, each loyal wingman would command four AAPs. This essentially means the combat power of a single KF-21 would expand to 20 unmanned aircraft.

Work is already underway on such combat drones, as the government’s Defense Acquisition Program Administration chose Korean Air Aerospace Division in August 2022 to develop a new loyal wingman. Development of the so-called KUS-LW drone commenced in November 2021.

“The squadron of UAVs will not only support and escort a manned aircraft, but will also be able to perform its own missions including surveillance, electronic interference tactics and precise shooting,” according to Korean Air.

Finally, the fourth phase, from 2038 onward, in which KAI hopes to have sufficiently mastered MUM-T to attain a true system of systems: This is the fruition of the next-generation air and space combat system.

“It’s a kind of compressed development,” the KAI executive said regarding the four-phase process. “We believe we have to move, otherwise we will miss the chance. This time we have to act to get in front, utilizing the technology we have accumulated for the last 30 years.”

Indeed, South Korea’s defense and aerospace industry has the experience and capability to develop MUM-T capabilities, according to Douglas Barrie, a senior fellow for military aerospace at the London-based International Institute for Strategic Studies think tank.

“As with most nations, however, it is at a relatively early stage in exploring, researching and developing such capabilities. Much will also depend on the extent of near-term ambition,” he told Defense News. “Any approach that allows you to bolster your combat mass at reasonable cost, and with systems that might allow the acceptance of higher attrition rates, is going to be attractive.”

Artificial intelligence is a key part of this. Algorithms can outperform their human counterparts in terms of decision-making speed, as crews must await orders from air operations center, plus an AI-enabled network can produce a swift kill chain.

“Within a very short time, they [the AI and aircraft] have to exchange a huge amount of data, so secure communications and software … are necessary for this future battlefield. Eventually, AI command — in other words, AI pilots in the aircraft, maybe in the back seat, we don’t know — will replace some parts of the air combat center,” the KAI executive said. “With these very special capabilities and features of the future system, the AI can make a decision within a very short time frame. This short procedure will give us a huge advantage, considering our enemy is not well prepared for this future battlefield.”

Partnerships

South Korea and KAI are also looking for foreign investors.

South Korean Defense Minister Shin Won-sik visited the Middle East in early February, during which he met his Qatari, Saudi and Emirati counterparts to discuss defense cooperation and unmanned technology.

Meanwhile, KAI is seeking international partners as it develops the MC-X Orca multirole cargo aircraft. The aircraft has a maximum takeoff weight of 92 tons and is about 132 feet long — between the lengths of a C-130J and A400M. Anticipated roles for the MC-X include transportation, aerial refueling, special forces operations, space rocket launches, airborne early warning, medical evacuation and maritime patrol — as well as MUM-T.

If the project proceeds, production of the MC-X wouldn’t take place until as soon as 2035, a company spokesperson said at the Seoul ADEX defense exhibition last year.

“Our government is pretty much interested in having indigenous hardware, but there is a question when and how much they are willing to invest. So we are in discussion with our government, but at the same time we are looking for international partners interested in this idea of a multirole cargo aircraft. There are a couple of countries that would like to be partners in this initiative,” the KAI executive said, declining to name the countries.

The firm has previously tapped foreign sources to close gaps in its technological know-how. For example, in March 2021, the company signed a collaborative agreement with Israel Aerospace Industries for loitering munitions. In computer-generated promotional videos, KAI has shown IAI-style drones launched by Light Armed Helicopters and Surion choppers.

KAI also has export ambitions. The executive said there’s a potential export market for up to 800 KF-21 fighters over the next few decades, specifically citing Saudi Arabia and the United Arab Emirates as candidates.

And by demonstrating it can retrospectively integrate MUM-T capabilities onto FA-50 aircraft, the executive added, the company hopes to entice existing users like Indonesia, Iraq, Malaysia, the Philippines, Poland and Thailand to take advantage of the MUM-T technology.

“For the FA-50 and KF-21, we are not selling the current capability of the aircraft. We are at the same time trying to sell the value of this aircraft to do something else, something greater in the future, by giving them [potential customers] an idea of the MUM-T concept and a fifth-gen combat system — in other words, a system of systems,” the KAI executive said. “There is high value once they purchase the FA-50. With the capability, gradually year by year, they can operate this aircraft to be perfectly prepared for the future battlefield.”

Certainly KAI’s ability to achieve its four-phase MUM-T plan is possible, Barrie noted, but it’s not written in stone.

“In part, this will depend on how far and how quickly South Korea wants to develop the technology, combined with the kinds of roles associated with the uninhabited elements of any teaming architecture,” he said. “While ambition is laudable, it also needs to be realistic.”

Space acquisition chief Frank Calvelli said today that while he stands by the fixed-price construct for much of the Space Force’s portfolio, there are some programs that require a more nuanced approach.

“I haven’t said I’m going to build the next-generation Battlestar Galactica, that’s never been built before, fixed-price,” Calvelli said at a Feb. 23 Center for Strategic and International Studies event. “We look at each acquisition individually and then we try to marry up the best strategy. When we’re doing smaller footprint systems using existing technology, fixed price works fine.”

Under fixed-price contracts, companies are responsible to cover any unexpected costs incurred during a development program. The deals are designed to reduce risk to the government, but can cause problems for industry when challenges arise.

One well-known example of this is Boeing’s development of the KC-46 tanker. The Air Force awarded the company a $4.9 billion fixed-price contract for the effort in 2011, but the company has racked up $7 billion in cost overages due to design and production issues.

In a series of earnings calls in late January, several large defense firms said they were concerned about the Defense Department’s use of fixed-price contracts. Lockheed Martin CEO Jim Taiclet said the deals lead companies to “take tremendous risk on cost and pricing.”

Northrop Grumman’s top executive, Kathy Warden, said the company has passed on high-profile defense programs due to that risk, and Chris Calio — chief operating officer at RTX and the company’s soon-to-be CEO — expressed similar sentiments.

Since Calvelli took the lead of the Space Force acquisition office in 2022, he has issued multiple memos highlighting acquisition practices that can drive speed into development programs. His vision is for the service to buy smaller systems that rely on existing technology under fixed-price contracts that push for a program to be fielded within three years of an initial award.

“When you’re using fixed price, you’re not doing the first-of-its-kind or inventing something new,” he said. “And so, I’m a little bit confused by some of the bigger primes who say they’re against that. They should not be against that.”

Calvelli acknowledged that not all programs fit that mold. He offered as an example the Space Force’s Evolved Strategic Satellite Communications program, which will provide secure, survivable communications capabilities for strategic missions. The satellites carry complex requirements and are designed to withstand a nuclear attack.

Boeing and Northrop Grumman have been developing prototype satellites since 2020 and the service expects to choose a single provider and begin production in 2025. Calvelli said that because the program was conducting early design and prototype work, the service considered a fixed-price contract as part of its acquisition strategy. However, it appears a cost-plus deal, which covers a company’s expenses as well as some profit, may be a better fit.

“Had we built a real payload or actually built the prototype of a satellite, then maybe it’s time to go off and do something fixed price,” he said. “As we revise the [acquisition strategy,] we are looking at going more towards the traditional cost-plus model.”

South Korea’s Defense Acquisition Program Administration selected the C-390 in December under a $544 million Large Transport Tactical Aircraft II program. While the cargo plane had been raking in business from European and Middle Eastern countries in 2023, the order was the company’s first in Asia.

“The Korean decision was very important,” Embraer Chief Commercial Officer for International Business Federico Lemos told reporters during a security and defense briefing at the Singapore Airshow this week. “We are receiving a lot of interest and this is part of a greater opportunity.”

Embraer did not disclose target markets, but officials indicated that new customers may be revealed in the first quarter.

Officials said they plan to take the C-390 plane on display at the Singapore Airshow to other countries in the region before returning to Brazil.

Despite lacking a publicized order in Southeast Asia, the company signed a maintenance, repair and overhaul agreement with ST Engineering this week dedicated solely to the C-390.

Executives also said Embraer intends to leverage an existing partnership with Swedish firm Saab to explore new markets. The companies signed a production line deal for Saab’s Gripen fighters in Embraer’s Gaviao Pexioto plant in Brazil last May and ihave agreed to pitch the C-390 together to the Swedish Air Force.

Apart from the partnership with Saab, Embraer has engaged with domestic firms to offer the C-390.

Earlier this month, the company partnered with India’s Mahindra Defence Systems to offer the C-390 to the Indian Air Force. The IAF sought to replace aging AN32 planes and was reportedly planning to order 40 to 80 medium transport aircraft.

In December, the company signed a memorandum of understanding with state-owned Saudi Arabian Military Industries to pitch the C-390 to the Ministry of Defense and to establish a regional MRO hub and assembly line in the country.

Since then, governments here have rushed to assess how rapidly they can purchase weapons. Most were sobered by the lack of production capacity in an arms industry focused on the promise of expensive, advanced technology rather than mass output.

As Russia’s war in Ukraine enters its third year, there’s a movement afoot to remake the European defense-industrial complex into a muscular deterrent in its own right. The effort is playing out in national capitals as well as at the European Union. Officials in Brussels are expected to unveil a defense industry strategy soon that will test the bloc’s ability to unleash and simultaneously tame a market that went from obscure to omnipresent in two short years.

“Russia’s invasion has been a wake-up call for Europe,” European Commission President Ursula von der Leyen said last month. “We have to rethink our own defense and defense-industrial base.”

The ability to produce more weapons faster has become the singular yardstick for progress. In Germany, politicians have begun debating ways to front money to arms makers for the production of critical equipment, coupled with long-term purchase guarantees. And companies are building new production facilities and introducing new work shifts to keep up with making weapons needed both by Ukraine and national forces.

But amid the frenzy, there has been little discussion about anchoring the business of defense among a set of political rules that reflect an expectation production will only take place on terms acceptable to governments.

In an interview with Defense News during a recent visit to Washington, Lt. Gen. Michael Claesson, the chief of the Swedish defense staff, described a new model for the interplay between governments and the arms industry as “public-private partnership 2.0.″

“I don’t believe in increasing necessarily government ownership” he said. “What I’m asking for is government engagement.”

Private companies can still deliver the best results, he added, “but there needs to be interaction in a different way than before.”

In Germany, politicians have long seen the defense market as one like any other, said Torben Schütz, an analyst at the Berlin-based German Council of Foreign Relations. “That is no longer up to date,” he added, arguing vendor incentives alone “probably won’t get you anywhere” in finding the equilibrium between government control and laissez-faire economics.

Growing prices

Key weapons, needed by European nations and Ukraine alike, have seen major price increases. Citing NATO officials, The Wall Street Journal reported last month the price of a 155mm artillery shell has risen from $2,100 apiece to $8,400 since the war began in February 2022.

In Germany, there is an entire cohort of weapon systems whose cost projections are expected to rise because of contract provisions with vendors that allow prices to remain flexible in line with market conditions. The increases are now showing up on the books because stipulations in the German government’s €100 billion (U.S. $108 billion) military plus-up fund prescribed that all programs financed through it must fully account for any expected cost escalation.

Affected programs include the Eurodrone, for which officials last month reported a 35% jump, or €1.3 billion, since last summer, according to the Defence Ministry’s most recent report on the status of major weapon systems, dated January. The document downplays the increase as academic, noting the terms of the contract had remained the same while future cost hikes during the performance period through 2035 were now baked in.

The types of contractually agreed price adjustments taking effect in the Eurodrone program are “generally” unlimited in both directions — less expensive or pricier over time, a ministry spokesman told Defense News in an email. But it’s possible to restrict the degree of volatility in negotiations with contractors, the spokesman added.

In addition, the cost for a new short-range air defense system to counter drones for the German military has increased from €240 million at the program’s inception in 2018 to almost €1.3 billion now, as first reported by Der Spiegel in December.

According to the defense spokesman, higher demand for counter-drone capabilities on the global arms market has led to manufacturers increasing their prices.

“Demand goes up, supply remains relatively constant,” Schütz said. “We all have enough economics knowledge to know what happens as a result.”

But there are more factors wrapped up in cost increases than simply higher demand. As the war in Ukraine rages, companies have complained about the growing price of everything from labor to raw materials, raising the key question: Are vendors charging more now because they must, or because they can?

Government reach

The question of how to arrange the relationship between the European defense market and governments buying from it has taken on an almost existential dimension. That is because defense analysts believe Russia could one day attack the continent if it succeeds in Ukraine.

Daniel Fiott, the head of a defense and statecraft program at the Brussels School of Governance, said governments generally agree there’s a need for them to interfere in the defense market, but it’s a tricky concept to apply at the EU level.

“Defense markets across the world experience state intervention, and for good reasons,” Fiott told Defense News. “Without control, governments would experience job and skills losses, and even lose manufacturing capacity to rivals.”

“In this sense, price volatility for equipment could pose a national security risk if it means governments become priced out of a market to which they urgently need access,” he said..

While the United States has the Defense Production Act, which allows the government to prioritize the production of goods needed for national security, there is no such tool available to the European Union.

There is also limited understanding in Brussels about the intricacies of the European defense market as a whole, its supply chains and its pricing mechanics. The lack of knowledge became more apparent in past years as EU officials, for example, tried to identify vital suppliers needing protection from potentially nefarious investors outside the bloc.

Still, officials believe they can translate lessons learned from collective COVID-19 vaccine or natural gas purchases into the defense market to refill national armories. For now, equipment levels remain low until manufacturers can catch up following their donations to Ukraine. But there are exceptions, thanks to early government action, according to Minna Ålander, an analyst on Nordic defense matters at the Helsinki-based Finnish Institute of International Affairs.

“The Finnish Defense Forces (FDF) received extra funding for procurement and immediately issued new contracts in the spring of 2022, not long after Russia’s full-scale invasion and before other countries woke up to the issue,” she wrote in an article for the Center for European Policy Analysis earlier this month. “As a result, the country’s stockpiles have been filling to such an extent that more warehouse capacity is needed.”

Meanwhile, in Germany, the lack of experience in using defense-industrial policy as a deliberate planning tool of governing — often decried by industry executives — is now coming back to haunt Berlin, and officials are now forced to wise up in a hurry, according to analysts here.

How Ukraine’s defense companies have adapted to two years or war

German officials never had to think about industrial mobilization because the assumption was the Cold War front-line nation would immediately lose its manufacturing base in a major war anyway, according to Schütz.

“The discussion about the particulars of a war economy are off to a slow start here,” he said. “Hopefully not too late.”

The upcoming EU defense industry strategy won’t solve all of the dilemmas facing the bloc’s defense market, according to Fiott. At the same time, he added, it’s the first of its kind and could provide European industry with greater certainty about demand over the coming years.

“Alongside the strategy should also be the European Defence Investment Programme, which seeks to invest in defense technologies and systems beyond the prototyping phase, where the EU’s European Defence Fund currently ends, to production and commercialization,” Fiott said. “Clearly, then, if the strategy and the EDIP emerge in public together, and if the EDIP comes with a hefty investment tag — some have called for €100 billion over a seven-year period — then the demand signals sought after in the strategy may become a reality.”

Noah Robertson in Washington Rudy Ruitenberg in Paris contributed to this story.

The yard has laid off nearly 100 workers related to the LCU program since January and is considering actions to dispute the Navy’s termination of the contract, hoping to get back into a settlement process.

Louisiana-based small business Swiftships won the LCU competition in March 2018, with the Navy awarding a contract for $18 million for the detail design and the construction of the first craft. The yard also received follow-on contracts, one in 2019 worth $26.7 million for the next two craft, and another in 2020 worth $50.1 million for four more.

These craft haul Marines as well as their ground equipment and weapons from amphibious ships to the shore and back again. They are the slower but heavier-lift connectors, compared to the Ship to Shore Connectors that travel at higher speeds but carry less weight.

Swiftships’ contract called for options to build as many as 32 — the total number of craft needed to replace the Navy’s Vietnam-era LCU inventory.

In September 2023, the Navy awarded another LCU contract to Alabama-based Austal USA. The contract called for building three craft for $91.5 million — a significantly higher per-unit cost than Swiftships’ contract — and options for another nine.

According to interviews with and documentation provided by Swiftships, Naval Sea Systems Command on Nov. 9 raised the possibility of terminating the program.

NAVSEA wrote that the shipyard was not making progress on LCU production and offered to reach a settlement that would include Swiftships turning over parts and material delivered by its vendors. On Jan. 24, NAVSEA issued a stop-work order on the program, according to documentation provided by Swiftships, and on Feb. 20 the command formally notified the yard of its decision to terminate the contract.

In its notification to Swiftships, NAVSEA wrote the first three craft were supposed to be delivered by June, September and December 2023, but are still incomplete. NAVSEA declined to comment to Defense News.

Years of challenges

Swiftships’ chief executive, Shehraze Shah, told Defense News there had long been turbulence in the program. Indeed, he said, the Navy and Swiftships had not agreed on a final design two years into the program, and a third-party design agent was brought in to complete the design but continued to make changes. Shah pointed to these issues as reasons the construction could not move forward on time.

Jeff Leleux, the president of the yard, said the Navy and Swiftships took nearly a year to settle a request for equitable adjustment — needed to realign the cost and schedule associated with the contract due to the delays — during which Swiftships and its vendors went months without payment.

After the new timeline was set, said John Messinger, Swiftships’ director of proposals and contracts, the yard realized one of the design changes made by the third-party design agent would require the company to rip out the engine-cooling system and reinstall some piping on the craft, for example.

The executives said they are behind schedule, but contend the Navy has not negotiated with them in good faith amid design and supply chain challenges.

The issue caught the attention of lawmakers far earlier. In September 2022, Republican Reps. Clay Higgins of Louisiana and Neal Dunn of Florida wrote a letter to the secretaries of the Navy and the Department of Homeland Security to discuss their concerns about work being taken from smaller yards and given to Austal USA.

“In addition to delays caused by the COVID-19 pandemic,” the letter read, “SwiftShips notified Congress regarding unnecessary complications with the Navy’s handling of the LCU-1700 contract. These complications include four program manager transitions since the signing of the contract, needless stop work orders, delayed payments to SwiftShips and material vendors, and serious design delays. SwiftShips has continuously struggled with the acquisition of materials due to the Navy ceding its contractual obligation to pay material vendors.”

The letter stated the Navy notified Congress in April 2022 of its intention to award Austal the LCU work without formally re-competing the program, even though Austal at that time had not yet opened its steel ship production line. The Alabama yard had previously only constructed aluminum ships, but began establishing a steel construction line following a $50 million Defense Production Act grant in 2020.

Stockholm has been touting the possibility of sending the Gripen JAS39 to Ukraine for several months now, but has made any decision on this contingent upon the country’s accession to NATO.

Manufacturer Saab is moving in lockstep with government, executives said here at the Singapore Airshow.

“We are fully aligned with what has been put forward by the Swedish government on this matter – we also continue to work to support and work with our Hungarian partners in the best way we can,” Mikael Franzén, chief marketing officer at Saab told Defense News.

“We expect that if such a decision was granted approval by the Swedish government, it would be a fairly rapid process to send the aircraft to Ukraine. We are moving in the right direction currently,” he added.

What was expected to be a rather quick process of admitting the Nordic state into the military alliance has turned to be an 18-month ordeal, now delayed by Hungary, which has yet to ratify the protocol for its accession.

A senior member of the country’s ruling party told local media this week that the Hungarian parliament could vote as early as Feb. 26 on the issue, and the government has indicated its intention to vote in favor of Sweden’s entry.

Swedish Prime Minister Ulf Kristersson is also scheduled to meet with his Hungarian counterpart on Feb. 23.

“There remains a big push coming from inside and outside of Sweden for us to send the Gripen to Ukraine, and we stand ready to provide these should a decision be reached by the government on this,” Franzén said.

Saab officials confirmed to Defense News that Ukrainian pilots successfully tested the Gripen jets in Sweden last fall, which observers hailed as a sign that negotiations for their transfer were advancing.

According to Jussi Halmetoja, former Gripen pilot and air operations advisor for Saab, teaching a pilot how to fly the aircraft is easy, but it is only one part of the equation, as they must also learn how to effectively use the combat systems.

“On average it takes between 4-6 months to train a pilot to use the Gripen JAS39 fighter in the techniques for a limited mission set such as air-to-air and beyond-visual-range,” he told Defense News at the airshow.

“One of the initial challenges that can easily be overcome is language barriers, but teaching them about maintaining the aircraft and using its weapons as well as tactics, techniques and procedures properly are harder ones,” he added.

Thus far, the only Western fighter jets to have received formal approval to be sent to Ukraine are Denmark and the Netherland’s U.S.-made F-16s, which are to be transferred as soon as pilot training is completed.

The joint venture, of which Edge will own 51% but Fincantieri will manage, is meant to take advantage of the United Arab Emirates’ credit financing options and relations with other states.

The venture “will be awarded prime rights to non-NATO orders, especially leveraging on the attractiveness of UAE [government-to-government] arrangements and export credit financing packages, along with a number of strategic orders placed by select NATO member countries,” the firms said.

State-controlled Fincantieri is Italy’s main naval contractor and is also building FREMM frigates for the U.S. Navy at its American shipyard.

Founded in 2019, Edge is an advanced technology group that comprises more than 25 subsidiaries and employs thousands of people.

In a statement, the firms said they would develop “joint intellectual property” and “significantly” enhance Edge’s ability to “design and build frigates and other large vessels, broadening its range of operations and marking a crucial advancement in the diversification of its maritime solutions portfolio.”

The statement noted the joint venture “will set up a dedicated design authority, opening up opportunities for highly skilled Emiratis, and drawing in international expertise to support this innovative and strategic initiative.”

The firms added they aim to co-develop midsize submarines.

Japanese companies have for decades focused on supplying the Japan Self-Defense Forces, but a shift in the country’s security policy has opened the local defense industry to the global market. Japan has since shipped Patriot missiles developed under a licensing agreement with the U.S., exported radars to the Philippines, and entered into a fighter jet development program with the United Kingdom and Italy.

While Japan’s ruling party has yet to modify rules currently limiting the trilateral fighter jet participation, the government has allocated funds for industry cooperation and supported major defense companies and startups in partnering with foreign counterparts.

As such, Japanese exhibits at the Singapore Airshow showcased a range of systems already in use by its armed forces, including maritime and transport aircraft, helicopters, aerospace parts, semiconductors, radars, and geostationary satellites.

“There is a lot of opportunity for Japanese companies to enter into the global market, but the problem with Japanese companies is they have no experience like foreign companies,” Hideki Fukawa, director for defense equipment cooperation planning with the ministry’s Acquisition, Technology and Logistics Agency, told Defense News. “We want to take this opportunity to showcase Japanese superiority in defense.”

Among the products on display here are a portable radar made by IT and electronics specialist NEC Corp. Japan’s forces use the technology to monitor aircraft incursions in the airspace of Kyushu and Okinawa.

Yoichi Kashima, an engineer and member of the company’s marketing staff, told Defense News the current iteration of the radar system has been monitoring Japanese airspace for the last 17 years, as it had replaced the first-generation radar of the same type, which was in service 30 years ago.

The radars last for 20 years, Kashima said, but the main selling points are its portability and the ease of setup. “It can be set up by six engineers, and it can be used within 30 minutes,” he explained.

Also at the air show is Subaru’s UH-2 multimission helicopter — aircraft the Japan Ground Self-Defense Force currently uses to protect islands, provide humanitarian assistance, and carry out disaster response as well as and search and rescue operations.

In 2022, the force revealed plans to acquire 150 UH-2 helicopters.

Japan has marketed the UH-2 for export, with the Philippines and Indonesia each expressing interest, according to Kousuke Ichinomiya, an engineer with Subaru’s aerospace division.

“The JGSDF has a very tough audit for helicopters, so this is very reliable,” Ichinomiya told Defense News.

The helicopter is powered by a pair of Pratt & Whitney PT6T-9 engines and equipped with Bell BasiX-Pro integrated avionics systems. It has a 4,500-pound cargo capacity and can be prepped for takeoff in 3 minutes even in extremely hot or cold conditions.

According to the Acquisition, Technology and Logistics Agency, other Japanese companies attending the show, and their respective offerings, include:

• Asahi Metal Industry: aircraft composite parts
• EdgeCortix: Edge AI inference processor
• Oki Electric Industry: cockpit display
• Kawasaki Heavy Industries: P-1 maritime patrol aircraft, C-2 transport aircraft and turbofan engines
• Kurimoto: 3D metal modeling engine parts
• Jupiter Corp.: mobile hygiene unit
• SKY Perfect JSAT: satellite communication service
• Takagi Steel: metal materials for aircraft
• Japan Radio Co.: portable LTE base station system
• Mitsufuji: electromagnetic shield and wristband-type wearable device

The California-based company, founded in 2021, develops orbital transport vehicles, which transfer spacecraft into different orbits. In January, SpaceWERX — the Space Force’s innovation arm — chose Impulse to support its tactically responsive space efforts.

“With the two awards from SpaceWERX and the guidance from General Raymond, Impulse can help bring the government closer to its goal of unlocking a more responsive space profile,” chief executive Tom Mueller said in a Feb. 21 statement.

Raymond was the first chief of space operations, overseeing the creation of the Space Force and leading the organization from 2019 to 2022. He oversaw the service’s pursuit of tactically responsive space operations, which emphasizes the need to quickly respond to threats in orbit.

In a statement, Raymond highlighted Impulse’s work in this area.

“This innovative company, led by our nation’s leading propulsion experts, is focused on responsive space mobility,” Raymond said. “I look forward to working closely with the team to advance our nation’s freedom to maneuver in the domain which is so vital to our national security.”

Impulse’s contracts with SpaceWERX center on rapid refueling operations and further development of its Helios engine. The company is also pursuing commercial applications for its technology.

Since retiring from the military, Raymond has joined private equity firm Cerberus Capital Management, serving as senior managing director for supply chain and strategic opportunities. He also is a board member at Axiom Space, a commercial human spaceflight company.

The Taurus is the local technology company’s latest remote-operated product, shown for the first time publicly.

The firm completed development of the four-wheel drive electric vehicle last year, but does not have a launch customer, hence its unveiling at the air show this week, a company representative told Defense News on the condition of anonymity.

ST Engineering says the robot can be used for surveillance, casualty evacuation, logistics transport and material handling. The representative said the surveillance configuration has attracted the most interest. For material handling, the firm would fit the vehicle with a robotic arm.

The version at the show featured the company’s DrN-15 multirotor drone, which can fly beyond the operator’s visual line of sight. The drone received approval for flight by the Civil Aviation Authority of Singapore.

When operating in fully electric mode, it can reach distances of about 19 miles and has a base weight of approximately 3,527 pounds.

The representative said the Taurus is useful for manned-unmanned teaming, such as operating alongside the firm’s own eight-wheel drive Terrex s5 infantry fighting vehicle, also launched at the show.

ST Engineering recently doubled down on efforts to present Singapore-made and -designed autonomous ground vehicles, including the Hunter tracked platform, developed as a private venture by the company.

The drone, dubbed Hermes 650 Spark, is the latest member of Elbit System’s Hermes family of systems that have existed for decades.

“The Hermes 650 sits in between the 450 and 900 variants, it can carry 260 kilograms of useful payload spread across two payload bays, and can fly within a line-of-sight range of 300 kilometers with satellite communication capabilities,” Ziv Avni, vice president of business development at Elbit, told Defense News.

Avni said the new variant is able to fly beyond the operator’s line of sight and has an endurance of up to 24 hours. Although the platform wasn’t made for a specific customer, it integrates three key features that buyers have identified as important to them, he added.

“For our general customer base, we have noticed that keeping the life-cycle maintenance cost low — so overall cost-effectiveness — is important, as well as increasing the operational flexibility of flying at different speeds and taking off or landing on short runways,” Avni noted.

The Hermes 650 is able to take off from runways measuring less than 200 meters (656 feet). The company told Defense News it is already under contract from an unspecified customer to begin serial production next year.

The Republic of Singapore Air Force is one of the oldest operators of the Hermes 450, which was one of two drones it had on static display at the air show. The other was the Heron 1, manufactured by Israel’s Rafael Advanced Defense Systems.

Singapore often looked to Israel as a key drone supplier, but this could change as the island nation aims to further invest in sovereign capabilities.

Avni declined to comment on whether the Singaporean service expressed interest in the newest variant, but did say he expects the Hermes 650 Spark “will eventually replace the Hermes 450 some customers operate.”

In theory, he added, it would only be a matter of a few weeks for operators to transition from flying one model to the other.

“Many of our customers now want a mixed fleet for drone operations. For instance, if a country is very big, it could choose to opt for the Hermes 900, as it has a greater endurance to carry out monitoring, and use the 650 to survey areas closer to shore,” Avni noted.

Elbit has heavily advertised the new drone for maritime security and border patrol missions. The configuration presented at the show was true to size and featured electronic warfare sensors.

Testing of the “combat edge software” involved Link 16 data, the Virginia-based company said in an announcement Feb. 21, and represented another step toward realizing the Pentagon’s Combined Joint All-Domain Command and Control vision.

The CJADC2 campaign aims to connect disparate databases and forces across land, air, sea, space and cyber, enabling the best-positioned and best-armed force to strike first. Future adversaries will attempt to disrupt those links. Northrop’s software accounts for that as well as what troops actually need in the field.

“We’ve come a long way. It is no longer just a question of, ‘Hey, it’s hard to get data somewhere,’” Kevin Berkowitz, Northrop’s vice president of secure processing and networks, told C4ISRNET in an interview. “It’s now about getting the right data somewhere and getting it there quickly, and in a way that’s meaningful for the end user.”

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“The broadscale data that comes from the cloud server, there’s a place for that, if you look at operations centers and others where they have large systems,” he said. “But we also realize that you have to get data to the end user, the soldier on the battlefield, that takes advantage of all that information that’s there, but isn’t always tied to or dependent on it. They don’t need that overarching infrastructure.”

The software is constructed to cooperate with different waveforms and networks — not just the Link 16 that was tinkered with — and plays well with existing equipment, including products Northrop furnishes.

Berkowitz said it has potential applications across the military, but noted the Air Force and Navy are providing “a lot of pull” initially. Both services operate across vast distances, on the move and in remote areas where connectivity is strained.

“By definition, this is really lightweight. You can put it on devices that take very little power from a physical-energy perspective, from a processing-power perspective,” Berkowitz said.

“The concept is not that we are going to go sell you a box to do ‘combat edge,’” he added. “We have customers that have existing needs.”

The U.S. Department of Defense selected Scale AI to help it test and evaluate generative artificial intelligence for military applications.

The California-based company announced the work with the Chief Digital and AI Office on Feb. 20, the same day the CDAO was scheduled to kick off its conference in Washington, D.C., featuring discussions on the topic.

Generative AI is capable of generating text, images or other data outputs using algorithmic models in response to user prompts. Large language models are a type of generative AI that uses statistical relationships among text documents or other inputs, either by itself or through a supervised training process, to pump out essays, computer code, human-like conversation and more. Scale AI will produce benchmarks for such systems under the contract.

The Defense Department has expressed increasing interest in generative AI, but its uses remain debated. While a smart assistant or chatbot could efficiently find files, answer frequently asked questions or dig up contact information, such tools can also fuel disinformation campaigns, spoofing attempts and cyberattacks. The CDAO in August launched Task Force Lima to study and guide generative AI for national security purposes.

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“Testing and evaluating generative AI will help the DOD understand the strengths and limitations of the technology, so it can be deployed responsibly,” Alexandr Wang, the founder and chief executive of Scale, said in a statement. “Scale is honored to partner with the DOD on this framework.”

The Tuesday announcement did not include a dollar value for the work.

Wang in July told Congress outdated data-retention and -management policies were hamstringing the Defense Department. What is needed, he said at the time, is “doubling down on some of these fast procurement methods and ensuring that we continue to innovate.”

“AI systems are only as good as the data that they are trained on,” he added.

Scale in 2022 won a nearly $250 million contract to provide federal agencies access to its technologies. The blanket purchasing agreement was issued by the Joint AI Center, which was subsumed by the CDAO.

The topic was consolidation. The Cold War was over, which meant America would spend less on defense. That also meant less money for the companies in the room. Officials flashed a black-and-white graph onto the wall, showing a plunge in how many contractors the Pentagon could afford. Companies would likely need to merge if they wanted to survive.

Norm Augustine — then-chief executive of Martin Marietta, which itself merged in 1995 to become Lockheed Martin — had been there, sitting beside the defense secretary. A day later, he returned to the Pentagon and grabbed a copy of that chart, expecting it to be a historic document. He still has it today.

Within a decade, the number of large prime contractors plummeted from 51 to five, creating the modern defense industry. Lockheed merged with Martin. Boeing merged with McDonnell Douglas.

“Sitting there at the Last Supper, I felt like I was sitting in a historical pivot point,” Augustine told Defense News. “They did the best [with] a bad hand, and we’re now paying the price for the bad hand.”

That price is a defense sector that can’t move as quickly as the Pentagon wants it to. America is now supplying materiel for the wars in Ukraine and Israel, which started a year and a half apart. The high demand has strained an industry that often struggled to meet needs long before Russia’s full-scale invasion of Ukraine in February 2022.

And these wars aren’t even the Defense Department’s top priority; that’s China, whose massive military buildup over the last 20 years is the pace America’s leaders say they must match. Nowhere is this clearer than in the Pentagon’s new defense-industrial strategy, which says China’s industrial might in many areas “vastly exceeds” that of the U.S. and its allies.

In response, the plan calls for “generational” investment in the industrial base. To do so, the Pentagon is now showing a new set of graphs.

Bill LaPlante, the department’s top weapons buyer, has a wall in his office covered with images plotting how long it would take to build more missiles and other munitions. His deputies are sharing these with company after company, he said — though the Pentagon isn’t making them public.

Call it a tale of two charts: In 30 years, the Pentagon went from a defense industry it considered too large to sustain, to one now too small to surge. To understand that path, Defense News spoke with analysts and industry executives as well as top industrial base policy officials dating back to the Clinton administration. They likened the sector to something of a spring-loaded door — where capacity slammed shut due to smaller budgets, changing preferences and a thinning workforce.

That door is now creaking open again as America retools its defense industry, workforce and suppliers to compete with an advanced adversary.

“It’s dusting off a lot of skills that we’ve had in this country that we haven’t used in a while,” LaPlante told reporters in December at the Reagan National Defense Forum.

Industrial base 101

Experts on America’s defense industry tend to speak about it like an intro economics course. They often note the sector doesn’t move like other markets.

Defense companies build what governments want, but rarely any more or anything different. The Pentagon’s orders, hence, have an unusual amount of sway over the shape of the companies fulfilling them.

“The defense industry is hypersensitive to and responsive to its customers,” said Steve Grundman, a senior fellow at the Atlantic Council think tank.

Grundman worked in the Pentagon in the 1990s, in the wake of the peace dividend. Military spending had surged under the Reagan administration as the U.S. competed with the Soviet Union. But when the USSR dissolved in 1991, ending the Cold War, America had no opponents left to outcompete. Defense spending fell each fiscal year from 1985 to 1998, according to the Center for Strategic and Budgetary Assessments think tank.

Specifically, the Pentagon’s spending on procurement, research, development and construction dropped 44% during that time period, CSBA found.

America needed a defense industry built for peacetime. So arrived the Last Supper, a name Augustine himself gave the 1993 dinner. Even at the time, he said, it appeared to be sound policy. Defense spending was bound to fall, leaving the Pentagon with two choices: a sprawling industry versus a smaller, more efficient one.

Defense officials encouraged the latter. Alongside the plummet of prime contractors, the number of mid-tier and small suppliers also cratered as companies merged in order to lower costs.

Eventually the government said enough was enough. In the late 1990s, it blocked Lockheed Martin’s plan to buy Northrop Grumman. The era of major consolidation was over.

Its effects were twofold: less competition and less ability to surge. The first, in many cases, has meant the Pentagon’s orders take longer, cost more and are vulnerable to brittle supply chains. The second — caused both by consolidation and more efficient manufacturing techniques — makes it harder to respond to sudden conflicts.

Heading into the 2000s, leaders in large part began to favor weapons that were more advanced but would be fewer in number. Defense Secretary Donald Rumsfeld labeled it a “transformation” that would vault the Pentagon’s arsenal a whole generation ahead.

Some of these advanced weapons — such as the Army’s Future Combat System and the Navy’s Littoral Combat Ship — did not work out as intended. And the shift toward fewer, more capable systems further encouraged companies to consolidate.

In 1998, five companies built surface ships and two made tracked combat vehicles. By 2020, those numbers had fallen to two and one respectively.

“As dumb as it sounds, given how much we spend on defense, oftentimes the volume for any single supplier isn’t enough,” said Dave Bassett, a retired Army lieutenant general, who until December ran the Defense Contract Management Agency.

‘A wake-up call’

The peace dividend did not survive America’s wars in Iraq and Afghanistan.

The 9/11 attacks followed by the two conflicts swelled the Defense Department’s budget. When adjusted for inflation and including supplemental funding, Pentagon spending rose an average of 7% from fiscal 1999 to fiscal 2008, according to CSBA.

This spending went toward a new set of threats.

As an example, Bassett and other experts interviewed by Defense News singled out a class of heavily armored vehicles developed for the wars. The mine-resistant, ambush-protected vehicle program was Defense Secretary Bob Gates’ top priority. With heavy investment, the Pentagon fielded more than 13,000 MRAP vehicles in three years.

The program has since become a talisman for some who argue the defense industry can move nimbly if given the proper resources. But it’s also a reminder of where those resources went for more than 15 years. From 2001 onward, the Pentagon needed weapons for counterinsurgencies.

Those are far from what Ukraine needs to defend itself against Russia — an industrial-age war defined by the use of artillery and small drones. Even further are the needs of defending Taiwan, an island nation threatened by a leading manufacturing powerhouse.

“If what you’re facing is an Iraqi threat, you’re probably not going to have the same capacity as when you face a Russian and the Chinese threat,” said Bill Lynn, deputy defense secretary during the Obama administration and now chief executive of Leonardo DRS.

And the change in capacity had become clear to defense officials.

Brett Lambert, who ran industrial base policy for the Pentagon while Lynn was deputy secretary, remembers a tornado in 2011 that struck Joplin, Missouri — nearly hitting a major battery supplier.

“We realized that even though the plant itself was not hit, we didn’t have a backup,” Lambert said. “That was a wake-up call to me.”

Another warning came in the form of a four-year study of major weapons programs Lambert helped lead. He found, in large part, that prime contractors didn’t understand their own supply chains.

But while the alarm went off, no one woke up, said Robert Lusardi, a former Pentagon industry official. The study’s data, he noted, largely faded into the ether.

“Nobody used it,” he said.

‘There’s never just one problem’

Eric Chewning was vacationing with his family at the Outer Banks in summer 2017.

Sitting on the North Carolina beach with his kids, Chewning — then a partner at the consulting firm McKinsey and Co. — scrolled through his phone and saw a news release about an executive order. President Donald Trump was instructing the Pentagon’s first top-down review of its defense-industrial base since the Eisenhower administration.

“I say to myself: ‘Who are they going to get to do that?’ ” Chewning told Defense News in an interview.

Later that day, he was walking back from the beach when he got a call from the Pentagon asking if he would interview for the top industrial base policy role. In October, he took the job, which meant he would be the one running the study.

“The mindset was: How do we holistically now transition ourselves from the post-9/11 wars, where there really wasn’t ever a question around our ability to generate enough material capability, to one focused on competition with an economic peer?” Chewning said.

What he found is that doing so wouldn’t be easy — in large part because of what was happening with the American workforce. By the time the defense industry consolidated in the 1990s, the U.S. was decades into a deep manufacturing slide.

From the late 1970s to 2017, the country lost 7.1 million manufacturing jobs, or 36% of the sector’s workforce, according to the study Chewning led. Such declines serve as a challenge to any attempt to quickly bulk up America’s defense industry. Even with more advanced factories that now heavily rely on robotics, weapons still need people who know how to build them.

This is part of why capacity is so difficult to add once it’s gone, said Bassett, the retired Army general. It takes years to find and train skilled workers, as companies across the country have seen in the recently tight labor market.

While leading the Defense Contract Management Agency, Bassett studied business traits that would help predict manufacturing problems. A significant one he found was the share of blue-collar employees who had been on the job for less than a year; once it reached a certain threshold, he said, quality issues were almost guaranteed.

While the 2018 study led to some reforms, it did not reverse the trend in manufacturing, which only got worse as older workers retired en masse during the COVID-19 pandemic. Like many reports in Washington, it pointed to major issues that existed alongside other difficulties, all competing for time and money.

“There’s never just one problem,” said Chewning, now a vice president at the shipbuilder HII. “The immediate problems get the most attention.”

By 2022, the problem had become immediate. Russia launched a full-scale invasion of Ukraine, and Washington continued sending weapons to aid Kyiv.

The U.S. has given Ukraine a staggering amount of security aid — more than $44 billion since February 2022. Despite that sum, one of the lessons for many in the Pentagon has been that industry was unprepared for a crisis.

Arguably, nowhere is this more obvious than in America’s supply of 155mm artillery shells.

The 155mm round — next to small drones – has defined fighting in Ukraine. For self-defense, Kyiv needs 60,000-80,000 shells per month, Michael Kofman, an analyst at the Carnegie Endowment for International Peace, told Defense News.

That rate well surpasses the pace at which Ukraine’s Western allies could resupply them. Even with an extra $1.5 billion from Congress in 2023 to increase production, America was making 28,000-30,000 shells in December, said LaPlante, who is in charge of acquisition and sustainment at the Pentagon.

The Defense Department’s goal is to reach 100,000 rounds per month by the middle of 2025. But that pace likely won’t be possible without more funding from Congress, which has stalled a security spending bill requested by the White House.

But funding hasn’t slowed down production in recent years; from FY16 to FY23, Congress added 7.3%, or $79.3 billion, to the White House’s requested Pentagon procurement fund, according to CSBA. The problem is inconsistent demand, which LaPlante illustrated with another chart last fall.

Starting with the Gulf War 30 years ago, munition orders have gone up and down in a series of peaks and valleys: A crisis breaks out, the Pentagon surges supply, it reaches the number a couple years later, then the crisis wanes and supply falls.

“That’s one of the challenges that we have now — that inability to make adjustments because of the lack of investment that we’ve made to the industrial base historically,” Justin McFarlin, who leads industrial base development for the Pentagon, told Defense News.

Munitions are often at high risk for such whiplash. Eric Fanning noticed this pattern after years of holding senior positions with the Navy, the Air Force and the Army. Much of each service’s spending power was sewed up in large systems, such as aircraft carriers and fighter jets. More inexpensive items ended up tapered to make the budget fit. And because the Pentagon’s demand affects supply, the companies fulfilling those orders trimmed capacity over time.

Now orders are up again — this time for 155mm shells and a bevy of other munitions. For some, Congress has allowed the Pentagon to issue long-term contracts that keep demand stable for years. But for others, companies are left worrying government demand won’t last, according to Fanning, now head of the Aerospace Industries Association.

“That sense of long-term commitment is still not quite there,” he said.

‘First contact with the enemy’

The Pentagon says it’s signaling future commitments in its new industrial base strategy. The document focuses on four areas: creating resilient supply chains, ensuring workforce readiness, creating business-friendly acquisition policies and bolstering the national security marketplace.

“These are not new ideas,” Halimah Najieb-Locke, acting deputy for industrial base policy, told Defense News. “But they haven’t been said with the [needed] authority.”

In a separate briefing with reporters in January, Najieb-Locke previewed the Pentagon’s goals for its defense-industrial base over the next three to five years. One is to speed up long-lead items, such as ball bearings or solid-rocket motors that slow down the production of important weapons. Others include retooling obsolete parts of the supply chain and using more funding from the Defense Production Act, which allows the Pentagon to issue national security-related grants.

“We no longer can afford to ignore [issues in the industrial base] and hope for better,” Najieb-Locke told Defense News. “We have to take decisive action.”

But there are problems outside of the Pentagon’s control.

The first is politics. As of publication, Congress had yet to pass a full defense spending bill — the latest entry in more than a decade of continuing resolutions. Defense remains a largely bipartisan issue, but there is a widening gap within the Republican Party — one reason Congress hasn’t passed additional aid for Ukraine, Israel and Taiwan.

Today’s security environment “demands a substantial, long-term increase in resources for our national defense,” Sen. Roger Wicker, R-Miss., the ranking member of the Senate Armed Services Committee, told Defense News in a statement.

Some of his colleagues in the House are more skeptical. “The American people work diligently to earn every dollar, but it seems the [Defense Department] has become a master of squandering those funds without batting an eye,” Rep. Glenn Grothman, R-Wis., told Defense News in December.

The second external problem is innovation. In decades past, the Pentagon used to be upstream of new technology — think GPS or the internet. It’s since found itself downstream, said Lynn, the former deputy defense secretary, and much of the current advances in artificial intelligence and drones are coming from the commercial sector.

Learning how to better work with these companies is one of the strategy’s goals. Doing so, said Najieb-Locke, will involve updating the Pentagon’s buying policies to better align with the commercial sector — a market that the Pentagon has less influence over.

“Because of that rapid change [in technology], a lot of our assumptions of what will be there in time of need have [proved] to be in some cases overblown,” said Najieb-Locke.

A third challenge is America’s adversaries. The Russia-Ukraine and Israel-Hamas wars are a reminder that competitors ultimately help decide how fast America’s defense industry must work, and when.

Chris Michienzi learned this lesson from her time working on the Pentagon’s industrial base policy. For about eight years she helped steer the department’s approach to industry and saw challenges evolve. When the war in Ukraine began in 2022, she was one of a few officials working on aid to Kyiv.

Many of the problems of the last 30 years were on display. A worker shortage hampered attempts to surge key munitions, she cited as an example.

“The department gets the industrial base that it pays for,” she said.

Michienzi left her post last summer. In January, when Defense News spoke with McFarlin, who leads industrial base development for the Pentagon, the interview took place in Michienzi’s old office — a small, windowless cube.

No one had filled the space, and it was instead turned into a conference room — helpful for McFarlin as he briefed companies on the government’s new strategy.

“The saying I grew up [with] was: No plan survives first contact with the enemy,” McFarlin said. “We can plan, but we also have to be able to pivot and adjust.”

Italy has signed to buy the tanks to fill a capability gap as the Ukraine conflict raises the profile of land war, and aims to assemble the Leopards at a Leonardo assembly line in La Spezia, Italy.

“Under a Letter of Intent signed in December with KNDS there will be a significant ‘Italianisation’ of the Leopard 2 tank to meet Italy’s requirements and provide an industrial and management role for Italy,” said Leonardo’s co-director general, Lorenzo Mariani.

That means a Leonardo-supplied electro-optical sensor, software-defined radio, the command-and-control system and possibly the gun barrel are under evaluation, he said.

The Letter of Intent is part of the alliance announced in December between Leonardo and KNDS which will oversee Italy’s Leopard order of just over 130 combat version Leopard 2 A8 tanks.

KNDS is a consortium of Germany’s Krauss-Maffei Wegmann and France’s Nexter.

Mariani said he also expected Italy’s Iveco and Germany’s Rheinmetall to be somehow involved in the program.

The deal with KNDS also discusses Italian entry into the European Main Ground Combat System (MGCS) – a future tank plotted by France and Germany – as well as a €5 billion ($5.4 billion) Italian program, formerly known as AICS, and now redubbed A2CS, to build up to 1,000 infantry fighting vehicles.

The Italian army has drawn up its requirements list, and Mariani said he expected Italy’s procurement office to request an offer for a feasibility study very soon.

“We think it would be correct to give the request to CIO,” he said, referring to Leonardo’s land vehicles consortium with Italian firm Iveco, which is a major supplier of Italian military vehicles.

“CIO would then involve KNDS and probably other producers who have platforms now on the market. Having in mind as a priority a ‘from scratch’ solution, the urgency expressed by the Army merits considering modification and update of products already available on the market like the KNDS tracked Boxer or the Rheinmetall Lynx or the CV90,” he said. “We will evaluate both the hypothesis of a new product or something which takes an existing platform as a base. But in any case it has to guarantee significant national content, in the context of European cooperation.”

Mariani added, “We hope to get the request by the end of February and would have a proposal ready within 2-3 months.”

Mariani told Defense News a second letter of intent contained in the agreement with KNDS envisaged the joint evaluation with KNDS to set up of a “structural alliance.”

“In our intent it could be based on Europe’s only real joint venture, MBDA, in which stakeholders have placed their missile assets but have the ability to manage their ‘national eyes-only’ assets independently, when needed.”

Prior to being appointed co-director at Leonardo last year, reporting to CEO Roberto Cingolani, Mariani was head of MBDA’s Italy operation from 2020 to 2023.

MBDA has been held up as perhaps the best functioning European joint venture to date, and Mariani listed three factors which have made it a success.

“The first is that there were already programs shared by partners before it was set up, like Aster and Storm Shadow. The second is the firms involved really wanted the venture. You need political will but the industrial desire was key. Without that you cannot do it. And thirdly, the venture created a dominant champion, and success breeds success.”

Mariani added: “The MBDA model is applicable to tanks and in principle also to satellites and space services. In the space sector we have three nations, Italy, France, Germany and three big players - Thales, Airbus and Leonardo. There are already joint programs and one major client: the European Space Agency.”

SAN DIEGO — Some of the world’s largest defense contractors as well as U.S. Navy and Marine Corps leadership converged on the waterfront convention center here for the West conference Feb. 13-15. Reporters with C4ISRNET, Defense News and Navy Times were there as well, chronicling the events and conversation.

From Navy Secretary Carlos Del Toro issuing a frank warning to industry to lessons learned from Houthi engagements in the Red Sea, here’s what you may have missed:

• Project Overmatch networking capabilities have been upgraded and rolled out to an additional number of Navy ships following testing last year with the Carl Vinson carrier strike group. All the details here.
• Northrop Grumman said it will participate in two events to demonstrate autonomy and electronic warfare payloads the company is developing for unmanned surface vessels under its Project Scion initiative. Click for more info.
• The Navy’s ongoing battles with Iran-backed Houthi rebels in the Red Sea and Gulf of Aden have resulted in destroyers shooting down 14 anti-ship ballistic missiles “for the first time in history.” Interested?
• Six months into its effort to field thousands of attritable, autonomous systems, the Pentagon is planning the second iteration of the Replicator program — and this time, software will be the focus. What that means for the future.
• The U.S. Marine Corps will put a new type of missile-delivery drone to the test in an operational scenario this month, following a year of developmental work. And then what?
• The Navy plans to establish a second unmanned surface drone squadron in May, according to the head of U.S. Pacific Fleet. Keep reading.

The next West conference is scheduled for late January 2025.

But before the U.S. issues that exemption, it wants Australia to adopt export control laws similar to its own. And several Australian defense companies are unhappy about legislation pending in Australia’s parliament that would replicate a U.S.-style export control regime.

They say importing the stringent U.S. export control laws could hinder their ability to effectively collaborate and do business with non-AUKUS countries.

Australia and Britain have long sought a carveout within Washington’s International Traffic in Arms Regulation, or ITAR, export control regime. Defense companies in all three countries have argued ITAR’s rigorous restrictions on sensitive defense exports stymies a key AUKUS goal of jointly developing disruptive technology such as quantum computing, artificial intelligence and hypersonic weapons.

The U.S. Congress passed legislation in December to give Australia and Britain an ITAR exemption for AUKUS, on the condition that both countries implement similarly tough export control laws. Canada is currently the only country to enjoy a special ITAR exemption.

Before Australia and Britain receive their exemptions, Secretary of State Antony Blinken must certify they have each implemented comparable export control regimes.

Michael Biercuk, the chief executive of Q-CTRL, an Australian firm specializing in quantum technology that has offices in Sydney, Los Angeles and London, said the company is “supportive of the idea of making a control-free zone, if you will, between Australia, the U.S. and the U.K. in support of AUKUS.

However, “we don’t think the right way to do it is to bring in the totality of the system that everybody in the world says doesn’t work,” he added, noting the policy would “fundamentally limit exports outside of that AUKUS bubble, and this is not something that is helpful to the local community of vendors who are heavily reliant on export markets.”

Andreas Schwer, the chief executive of EOS, an Australian company specializing in high-tech remote weapons stations, directed energy and counter-unmanned aircraft systems, told Defense News stricter, more ITAR-like regulations in the country “will make life extremely difficult for us to export into any non-AUKUS country.” He said it can sometimes take six months to a year to get simple upgrades formally approved for NATO allies under ITAR.

“This is something which is hated by most of the western European procurement agencies,” said Schwer. “That’s the reason why they always prefer non-ITAR offers. I expect that the same will happen with Australian products. As soon as we have similar regulations in place, they will also say we don’t want to have Australian ITAR components.”

But proponents of ITAR argue it’s a crucial tool for keeping U.S. technology out of the hands of rivals such as China and Russia. Mike Burgess, director general of the Australian Security Intelligence Organisation, warned last year of an uptick in online espionage attempts aimed at the country’s defense industry since AUKUS was announced in September 2021.

U.S. Under Secretary of State for Arms Control Bonnie Jenkins told lawmakers this week the U.S. must “make sure that we protect our intellectual property.

“We know there’s countries like China who want to steal information,” she added.

Jenkins noted Britain updated its espionage laws in July 2023 as part of the National Security Act and pointed to Australia’s proposed export control overhaul pending a review in parliament.

Biercuk said the Australian proposal was “rushed” and called it “a catastrophically bad piece of legislation.”

Still, NIOA Group chief executive Rob Nioa, noted “really what the U.S. wants to do is protect U.S. [intellectual property. “If it was technology that originated in America, it was always subject to those controls,” Nioa told Defense News. “Our concern will be if that captures Australian uniquely produced intellectual property and prohibits it from going to other places.”

NIOA Group is an Australian munitions company which also owns U.S.-headquartered Barrett Firearms and has a joint venture company with Rheinmetall.

Yet, he added, a comparable Australian export control regime “might streamline” some export approval processes by allowing Canberra to administer them “instead of having to go back to the U.S. for approval.”

“Until we see how it’s implemented, I’m not going to automatically panic,” he said. “People are nervous about it though in Australia because people are nervous about the unknown.”

Speaking at the West naval conference in San Diego on Feb. 15, Del Toro, a former businessman, said that in a time of war abroad and political uncertainty at home, the U.S. needs companies to deliver weapons, warships, aircraft and more on time, on budget and without excuses.

“You can’t be asking the American taxpayer to make even greater public investments while you continue, in some cases, to goose your stock prices through stock buybacks, deferring promised capital investments, and other accounting maneuvers that, to some, seem to prioritize stock prices that drive executive compensation rather than making the needed, fundamental investments in the industrial base, in your own companies, at a time when our nation needs us to be at all-ahead flank,” he said.

“Through initiatives like the Taxpayer Advocacy Project, I have directed our contract community and the Office of General Counsel to ensure that we will leverage all legal means at our disposal to ensure that the American people are also getting what they paid for,” he added.

RTX shake-up signals a shift from change to steadiness, analysts say

The message was delivered to a standing-room-only crowd teeming with some of the world’s largest defense contractors. Del Toro did not single out any one company.

The defense industry in the aggregate is financially healthy, and that status has improved over time, according to a Pentagon contracting study published in April. Traditional defense firms outperform commercial counterparts in many key financial metrics, it found.

Shipbuilder HII this month reported revenue rose 13 percent to $3.2 billon in the fourth quarter of 2023 from the same period a year earlier, as operating income almost tripled to $312 million. General Dynamics said it earned $1 billion, or $3.64 per diluted share, on revenue of $11.7 billion, the highest quarterly EPS and revenue in company history.

Del Toro said the Navy would hold accountable contractors with poor performance, including through a “deep dive” investigation of the most chronic offenders.

“We must endeavor to ensure that contracts with the Navy are delivered on time and on budget,” he said. “The global strategic situation demands it.”