As dramatic electronic music pulsed, the video showcased one of the Air Force’s newest drones — and heralded an emerging sea change in the defense industry.

The video, posted May 1 by Air Force chief of staff, served to announce served to announce that the YFQ-44 collaborative combat aircraft, an autonomous drone intended to one day fly alongside the service’s most advanced piloted fighters, had officially begun ground testing. Soon after, a photograph of another CCA in ground testing — the YFQ-42 — was also released.

But it wasn’t the defense industry’s biggest aviation companies, such as Lockheed Martin, Boeing or Northrop Grumman, behind the service’s first fighter drones.

It was Anduril Industries and General Atomics, two smaller but growing firms, behind the drones dubbed YFQ-44 and YFQ-42, respectively.

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The growing importance of those companies, and other smaller and technology-focused firms, continues to reshuffle the often staid list of the world’s top 100 defense firms, as analyzed by Defense News.

Advancements in artificial intelligence and drone warfare continue to bear fruit, prompting many nations’ militaries to rethink their defense strategies and turn to unexpected companies to bolster their armories.

What’s more, massive geopolitical shifts of recent years continued to realign the Top 100 list for 2025.

Russia remained resurgent and emboldened in 2024 as its unprovoked invasion of Ukraine ground on into its fourth year. European allies, worried both about Russia’s military ambitions and a U.S. shift to a more isolationist stance, have renewed focus on rearming themselves. And Israel’s war in Gaza continues to drive defense spending, nearly two years after the Oct. 7 attacks.

“Countries have looked at both their own border security as well as defense writ large against the significant attacks” of recent years, defense contracting expert Alan Chvotkin said. “But we’d also expect to see some increase in their smaller technology-focused companies, because they’ve seen the use of drones or other robotics, other technologies. You’re not going to get those from the traditional heavy industry, aircraft, ship manufacturing … companies that are on the top list today.”

The five biggest companies remained largely unchanged from the previous year, with Lockheed Martin, RTX, Northrop Grumman and General Dynamics topping the list. Also placing third this year: the China Aerospace Science and Industry Corporation.

(Revenues for that corporation from 2023 were not available when last year’s Top 100 list was compiled. The second-highest grossing defense firm in 2023, the Aviation Industry Corporation of China, did not make its 2024 defense revenues available.)

Defense revenues grew dramatically in 2024 — topping $661 billion, 11% higher than the $594 billion those companies notched the previous year.

This paralleled an overall rise in defense spending worldwide, as governments spent more than $2.7 trillion on militaries in 2024, according to the Stockholm International Peace Research Institute, or SIPRI. That was a 9.4% increase over 2023 spending, SIPRI said, and “the steepest year-on-year rise since at least the end of the Cold War.”

In Defense News’ latest Top 100 list, based on defense revenues in 2024, smaller tech firms continue to see profits grow, and in some cases crack into the Top 100:

• Palantir Technologies also emerged on the list at 70, with its defense revenue growth rising to nearly $1.6 billion. Palantir’s work this year with the Trump administration to compile data on Americans has stirred controversy, but the developments happened after 2024, meaning its revenues could grow more next year.
• Kratos Defense and Security Solutions, maker of the Valkyrie drone, saw its defense revenues jump 38% to $989 million. Despite that growth, Kratos’ ranking slipped slightly from 89 to 91, demonstrating the toughness of the competition.
• Anduril landed on the list for the first time at 93, after its defense revenues more than doubled to an estimated $950 million.

“And they’re going to grow rapidly,” Chvotkin said of such companies like Palantir and Anduril. “Besides their strong relationships [with the Trump administration], they’ve intentionally built out their defense structure. … They’re going to continue to be a major player in the IT and cyberspace.”

Chvotkin pointed to a $100 million award by the U.S. Army to Anduril for leading a team of high-tech firms to build a next-generation command-and-control prototype as an example of the deals the firm is landing.

Matt Steckman, Anduril’s president and chief business officer, said in a recent interview that Anduril has been roughly doubling its revenue each year for the last five years.

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Part of Anduril’s growth in 2024 came from its CCA victory, he said, one of its biggest deals of the year, as well as air defense programs for U.S. Special Operations Command, the Marine Corps and the Army, software programs, loitering munitions deals with Taiwan, and autonomous submarines.

“In 2024, you saw a couple of large [autonomous submarine] programs come through, funding growth in our maritime division,” Steckman said. “There’s a renewed focus in unmanned, undersea warfare.”

Steckman anticipates Anduril’s growth to continue due to the company’s diversified portfolio and militaries’ focus on tech.

“The physics of the battlefield have changed permanently,” Steckman said. “The math problem of the battlefield — distances, numbers, mass, size, sensing ubiquity — you have to amass tons of effects at moments of time, at long distances, in order to project power.”

To accomplish that, Steckman continued, “you need an insane amount of computing capacity, driven by breakthroughs in artificial intelligence … autonomy … [and] unmanned command and control. The only way to meet that new math problem is through … software applied to an absolute metric ton of hardware.”

Chvotkin doesn’t expect Anduril to be a unique example for smaller firms.

When asked about growth of firms that specialize in uncrewed systems, Chvotkin pointed to the war in Ukraine.

Both Ukraine and Russia have heavily leveraged drones in the yearslong conflict — everything from Ukraine’s swarm of small quad-copters, which used AI to reach and demolish multiple Russian bombers as part of Operation Spider web, to the Iranian-designed Shahed kamikaze drones that Russia sends to pound Ukrainian cities.

Future conflicts could follow similar paths, Chvotkin said, leading to even greater shifts in the defense industry.

“The increased use of drones, of AI, of small, more tactical approaches rather than heavy industrial systems” will be a hallmark of future wars, he said. “Everything from pilotless aircraft to unmanned subs, all of those things … [will require] a different kind of demand set.”

“There’s still a heavy demand for the traditional munition stuff,” Chvotkin continued. “But in the move to the tech space, [there is] a different kind of demand set starting over the last few years and rapidly accelerating under the Trump administration.”

This emphasis is bipartisan as well. The Biden administration similarly focused on tech and drones, with then-Deputy Secretary of Defense Kathleen Hicks and former Air Force Sec. Frank Kendall initiating the Replicator and CCA programs, respectively.

Even if the White House changes hands after the 2028 election, the Pentagon will likely not shift course — and defense firms with a strong hand in advanced technology will have an advantage.

The Pentagon’s increasing use of Other Transaction Authority, or OTA, agreements — which give the Defense Department more flexibility to enter into arrangements with nontraditional defense contractors — has allowed it to speed up the development of new technologies and open the defense market to new organizations, Chvotkin said.

Steckman credited former Defense Secretary Ash Carter, who began his tenure in the Pentagon under President Barack Obama as undersecretary of defense for acquisition, technology and logistics, with starting the long process of pushing DOD to transform into a tech-focused enterprise.

“[DOD] is the largest single institution in the world,” Steckman said. “So, it doesn’t actually seem crazy that it’s taking [nearly] 20 years for that bow wave to crest, and then result in the [environment] that you’re seeing today.”

Other nations’ militaries, particularly those of NATO allies, also present a growth opportunity, Steckman said.

“What NATO countries are doing right now is fairly unprecedented, in terms of their own defense industrial bases scaling to meet the current challenge,” Steckman said. “It’s an opportunity for us. To scale at the speeds that they are attempting to achieve, they’re going to need to partner … within their own countries, within Europe [and] with outside partners [like] the U.S.

“They’re all aligned in the types of scale and materiel needs required to reestablish the deterrent effect of Europe, particularly towards Russia,” Steckman added.

Such growth is apparent on the Top 100 list, with Thales rising from 17th last year to 10th in 2024, Italian firm Leonardo rising from 14th to 13th, and German firm Rheinmetall AG going up from 20th to 18th. Rheinmetall’s defense revenues climbed 50% in 2024 to more than $8.2 billion.

That change comes as Germany adopts a more muscular foreign policy — dubbed Zeitenwende, or turning point, 2.0 — to take the lead in rearming Europe in the face of Russian aggression.

Rheinmetall, the largest arms manufacturer in Germany, struck an optimistic tone on geopolitical currents as it announced its 2024 year-end results.

“Rheinmetall is facing the challenges of Zeitenwende 2.0,” chief executive Armin Papperger said in a March 2025 release on 2024 results. “An era of rearmament has begun in Europe that will demand a lot from all of us. However, it also brings us at Rheinmetall growth prospects for the coming years we have never experienced before.”

In the last year and a half, Rheinmetall has expanded its satellite business, focused on expanding manufacturing and engineering capabilities through acquisitions, moved to build an artillery shell factory in Lithuania and partnered with the German military.

Israeli defense companies, meanwhile, saw significant growth in 2024 as well, as the nation’s war in Gaza and conflict with Hezbollah in Lebanon drove higher military spending.

SIPRI reported that Israel’s military spending grew $46.5 billion in 2024, which marked 65% growth over 2023, and the nation’s steepest defense spending increase since the Six-Day War in 1967.

Elbit Systems, an Israeli firm that makes guided munitions and ammunition, aircraft systems, combat vehicles, artillery and other weapon systems, jumped from the 22nd largest defense firm in 2023 to 21st in 2024, with revenues growing 14% to $6.8 billion.

Israel Aerospace Industries remained at No. 28 on the list, posting a defense revenue growth of 20% to $5.2 billion.

And Rafael Advanced Defense Systems climbed two spots to 31. Both firms are key manufacturers of Israel’s Iron Dome air defense, which has been hailed for its success in shooting down rockets and short-range missiles.

In the U.K., BAE Systems leapfrogged Boeing in the rankings to take 6th place.

BAE’s defense revenues grew 17% to more than $32 billion on the strength of its work on programs like Lockheed Martin’s F-35 and Eurofighter’s Typhoon, the U.K. Royal Navy’s Dreadnought class submarine and the Royal Australian Navy’s Hunter class frigate.

Boeing, meanwhile, continued its slide of recent years and dropped to 7th, as its revenues dipped slightly to $31.8 billion.

As recently as 2020, Boeing was the second-largest defense firm in the world, second only to Lockheed Martin. It then began dropping down the list as Raytheon, which later became RTX, Northrop Grumman, General Dynamics and Chinese aerospace corporations surpassed it.

But despite Boeing’s well-publicized troubles in recent years, Chvotkin thinks it’s ripe for a comeback.

If Boeing can get programs like the new Air Force One back on track, he said, the company may be able to come off of its back foot.

Boeing’s contract to build the Air Force’s sixth-gen F-47 fighter also provided a much-needed win, he noted, one that could help regain footing if it can avoid missteps.

“Unless there’s a big issue, they may drop another spot or two, but you’re not going to see their defense revenue drop significantly,” Chvotkin said. “They’re still going to be a significant player. Don’t count them out.”

Recent events show just how seriously both sides are taking the challenge.

When two undersea cables were severed in mid-November – one connecting Germany to Finland, and one Lithuania to a Swedish island – Germany’s defense minister was quick to announce that “no one believes that these cables were cut accidentally,” hammering the point home by adding that “we have to assume … it is sabotage.”

Soon after the cables were cut, armed vessels from several Baltic Sea states, including Denmark, Sweden and Germany, approached a Chinese ship that they suspected of having been responsible for the rupture, the Yi Peng 3, making its way toward the Atlantic. Visible damage on the ship’s anchor and hull, seen by journalists from a Danish state broadcaster, suggested it may have dragged its anchor across the sea floor in an effort to cause damage.

Satellite-based ship tracking data implies a tense standoff with the ship stopped just a short distance outside of Danish territorial waters and being watched over by armed European vessels. A Russian warship was keeping nearby, spotted on satellite imagery. The ship’s owner, China-based Ningbo Yipeng Shipping, told the Financial Times that “the government has asked the company to cooperate with the investigation.”

It wasn’t the first time that undersea infrastructure in the Baltic Sea mysteriously and violently disconnected. It wasn’t even the first time that a Chinese cargo ship had dragged its anchor across a cable connecting two NATO states and caused considerable damage in doing so. In October 2023, the Newnew Polar Bear damaged a gas pipeline and data cables in the same manner.

And in September 2022, months after the start of Russia’s full-scale invasion of Ukraine, the Nord Stream gas pipelines connecting Russia to Germany exploded, leaving a gaping hole and taking them out of commission. While much blame was initially heaped on Russia, the Kremlin has denied any wrongdoing, and additional evidence has emerged since that complicates the picture. A perpetrator has not been publicly identified, although German authorities have issued an arrest warrant for a Ukrainian man in connection with the incident.

So, what is going on in the Baltic Sea, and why is it suddenly so important?

A NATO ‘lake’?

With the recent accession of Finland and Sweden – two previously longtime neutral states – to NATO, many Western observers triumphantly declared the 386,000 square kilometer sea a “NATO lake.” Russia, whose empire once controlled roughly half the coastline here, now holds on to only about 700 kilometers around Saint Petersburg and its Kaliningrad exclave wedged between Lithuania and Poland. Both are incredibly valuable to Moscow: Kaliningrad is heavily militarized and serves as the headquarters of the Baltic fleet, while Saint Petersburg is one of the region’s most important financial centers and plays a major role in Russian foreign trade.

Kaliningrad is also Russia’s only year-round ice-free port in the Baltic. And the territory’s forward position much closer to Western Europe makes it prime real estate for stationing bombers and missiles, according to Moscow’s calculus.

For Russia, as for the other states sharing the Baltic coastline, the sea and its narrow connection to the open Atlantic through the Danish Straits is a crucial link to global trade and commerce. Things get crowded there: Around 2,000 ships are in the Baltic at any given time, and the trade volume amounts to about 15% of the global total, according to the Baltic Marine Environment Protection Commission HELCOM.

It’s not just what’s on the water but what lies under it that has attracted attention – wanted and unwanted. Beneath the waves stretch dozens of cables transporting power and information between the tightly interconnected European countries on either side of the straits. These pieces of undersea infrastructure crisscross through national and international waters, under shipping lanes and across the exit from the Gulf of Finland, which harbors Saint Petersburg. They are joined by other maritime infrastructure usually found closer to the shore, like liquefied natural gas terminals taking deliveries of gas from countries that Europe has better relations with than Russia, and wind farms that were developed to bolster Europe’s energy independence.

The cutting of undersea cables is not a new hybrid warfare tactic. During World War I, both the British and German navies severed the opposing side’s underwater telegraph lines. The idea of hybrid warfare likely has become attractive for Russia due to the military imbalance with the West: Moscow avoids engaging in outright war by employing plausible deniability while still having the potential to undermine Western infrastructure, resolve and cohesion, explained Sebastian Bruns, a senior researcher at the Kiel, Germany-based Institute for Security Policy at Kiel University (ISPK).

“With thousands of kilometers of cables spread across the world’s oceans, it is practically impossible to ‘protect’ them all in an efficient way,” said Basil Germond, a professor of international relations at Lancaster University who researches naval affairs and maritime security. Instead, redundancy and deterrence must be employed. If a network is redundant enough, there will be no significant impact from an attack unless it is large-scale and coordinated, he argued.

Military posturing

The crowdedness and strategic importance of the Baltic to its neighbors means that it has played a central role in these countries’ defense policies. For Russia, access to the Baltic Sea is vital to keep Kaliningrad supplied, as the exclave lacks a direct land connection to Russia and is surrounded by NATO members. To others, like Sweden, it presents the country’s longest frontier and one that is remarkably tough to guard: With archipelagos, bays and sounds, there are plenty of places for unwelcome guests to hide, which led to repeated submarine hunts during the Cold War years.

As a result, Sweden and other Baltic states have developed uniquely adapted navies and military doctrines for the Baltic littoral environment. The Swedish navy operates a fleet of five submarines designed for brown-water operations near land – and is constructing two more – in contrast to the blue-water, deep-sea navies of other NATO states, and a set of seven minesweepers and other boats designed to operate close to shore.

The Baltic Sea is a unique environment, boasting an average depth of just around 55 meters. It is also considered brackish water (an in-between level between salt- and freshwater) due to the many rivers that empty into it. Layers of varying salinity provide ideal conditions for submarines to hide, especially the smaller ones capable of operating in the Baltic in the first place.

States around the Baltic Sea have been some of Ukraine’s most ardent supporters, given their own proximity to Russia. Particularly the Baltic nations have sent outsized contributions to Kyiv’s defensive war effort: Estonia and Lithuania gave 1.8% of their GDP to Ukraine and Latvia 1.5%, according to a report by the Wilson Center, a Washington-based think tank.

In September, NATO announced it would open a naval command center for the Baltic Sea in the German coastal city of Rostock to “coordinate naval activities in the region” and provide NATO with a “maritime situation picture in the Baltic Sea region around the clock,” according to the German military. Staff from 11 other alliance countries will be present at the HQ.

Russia decried the move as a violation of an agreement that no NATO forces would be moved to the territory of the former GDR, which the USSR had considered a precondition to agree to German reunification following the fall of the Berlin Wall and the collapse of the East German government in 1989.

German defense minister Boris Pistorius argued the naval command center was necessary to “ensure that Putin will not have his way,” referring to Russian President Vladmir Putin.

According to experts, the quick response to the most recent case of severed cables shows that European preparation has worked. Efforts led by NATO have focused on better surveillance and operational coordination, said Christian Bueger, author of the book “Understanding Maritime Security” and professor at the University of Copenhagen. The involved governments’ reaction to the Yi Peng 3 incident “clearly indicates that the strategy and coordination on the NATO level work well now,” he said.

Simultaneously, the increased attention has galvanized scrutiny of national and international legal frameworks for protecting undersea infrastructure and interdicting ships. Some countries, such as Belgium, have moved to introduce legislation criminalizing damage to critical infrastructure. On the other side of Europe, Portugal and Italy have led the charge in coordinating with industry and conducting legal reviews on the security of maritime infrastructure, said Bueger.

How is China involved?

The part of the story that continues to perplex analysts is the China connection.

In both recent incidents, it was Chinese civilian vessels that appear to have dragged their heavy anchors along the seafloor for large distances on their way out of Russian waters and toward the open Atlantic, a pattern that has baffled marine experts. It is unlikely such a thing would happen accidentally, most say, and even less likely that it would go unnoticed by the crew for long stretches. Suspicious movement of the vessels near crucial undersea infrastructure and away from typical shipping routes further suggests intentionality rather than accidents.

In both cases last month, the Chinese government rejected any claims that it had been involved. Additionally, Chinese authorities appeared cooperative and, in the case of the damaged gas pipeline and data cables between Estonia and Finland, later even publicly stated that their ship had accidentally caused the damage.

Mao Ning, a spokesperson for the Chinese Foreign Ministry, said on the more recent incident involving the cables around Estonia, Sweden and Finland that “China maintains communication with relevant parties, including Denmark, through diplomatic channels.” Reporting from governments involved in the investigation seemed to support this and indicate a generally constructive attitude.

What exactly is going on here is hard to say. While China has an interest in undermining the West, broadly speaking, in its quest to replace the United States as the world’s preeminent superpower, it has little reason to be focused on the Baltic Sea in particular. Nor does it have a significant track record of similar actions in parts of the world more relevant to China’s immediate geopolitical ambitions, though it has used some methods that could be considered hybrid tactics in the disputed archipelagos of the South China Sea.

Several experts interviewed for this story said they considered it highly unlikely the Chinese government was directly involved. However, with Chinese shipping companies being among the few that still conduct business with Russia, they said there is a chance of their ships being employed – even unknowingly – for nefarious actions.

Both of the Chinese ships involved in the recent Baltic incidents had fairly close ties to Russia, beyond simply coming from a Russian port when the damage took place. The Economist has previously reported that the Newnew Polar Bear, linked to the damaged pipeline between Estonia and Finland, had a number of ties to Russia, including through its ownership, crew, prior voyages and shipping contracts.

While less is known so far about the 225-meter-long Yi Peng 3, reporting has emerged that suggests similar connections. Erik Kannike, an Estonia-based defense consultant, found that Russian federal port records listed the captain of the ship as being a Russian citizen. He also pointed out that the vessel’s ownership was only transferred to the current company about a month before the incident. The presence of a Russian warship near the site of ongoing investigations further suggests Russian interest in the case.

Among the unresolved questions, one thing is certain: The Baltic Sea has shaped up to be a new frontier in the geopolitical cat-and-mouse game that has engulfed Europe since the escalation of the war in Ukraine.

With surveillance technology still allowing attacks on sea floor infrastructure to go unnoticed, more incidents testing the waters may only be a matter of time.

The 50-plus nation forum, also known as the Ramstein Group, has been hosted by U.S. Defense Secretary Lloyd Austin, representing Ukraine’s most powerful ally in the defense against Russia’s invasion. Its regular meetings at the air base in Germany, or sometimes via teleconference, have been instrumental in drumming up new rounds of military aid and financial contributions to the war-torn nation.

Keeping the group going is a priority for top defense leaders from Germany, France, the U.K, Poland and Italy, who met in Berlin on Monday to take stock of Europe’s defense strategy as Trump ascends to the White House once again

“The five of us want to stick to the UDCG format, keep supporting it and lobby for its continued existence,” German Defense Secretary Boris Pistorius told reporters.

Pistorius noted that Ukrainian Defense Minister Rustem Umerov, who dialed into the meeting remotely, had made the request.

Another goal of the five-nation group is to focus on building Ukraine’s defense industry, as the local production of weapons would cut down fielding times, Pistorius said. Special emphasis will be on providing Ukraine with artificial intelligence-enabled drones as well as munitions, especially artillery rounds, he added.

The ministers stressed the importance of maintaining military support for Ukraine, while at the same time ramping up their own defense spending.

Meanwhile, France in the coming weeks will provide Ukraine with Mistral air defense missiles and other weapon systems, including equipment it’s supplying together with Italy, French Defense Minister Sebastien Lecornu told reporters in Berlin.

The aid will be funded using interest income from frozen Russian assets, an innovative solution that will please French and European taxpayers, according to the French minister.

The country has been training an entire brigade in the east of France, which includes equipping the force of more than 2,000 soldiers with VAB armored personnel carriers, AMX 10 RC infantry fighting vehicles and Caesar 155mm artillery.

Lecornu said the work of training the brigade is complementary to what France is doing in Poland, noting that Umerov had asked for continued support in training troops.

The French defense minister said he expects to make quick progress on the European Long-Range Strike Approach, the proposal to develop a land-based long-range cruise missile.

France, Germany, Italy and Poland signed on for ELSA in July, with the U.K. and Sweden joining later this year. The project touches on Europe’s capability to provide security for the continent, not only against threats from the east but also the Middle East, Lecornu said.

Pan-European missile maker MBDA has proposed a truck-mounted version of its naval cruise missile as a short-term option for the ELSA project.

Leaders from the United States and Germany agreed at the NATO summit in Washington this summer to station U.S. medium-range and long-range missiles in Germany to deter Russia, under what Pistorius labeled an “interim” solution until the ELSA project yields results.

As is the case with most trans-Atlantic security projects, there’s no telling if the incoming Trump administration plans to follow through on the missile commitment.

Either way, Pistorius told reporters there is no fallback plan.

“There are no indications that the decision would change,” he said, adding, “If that were to happen, we’d have to think anew about alternative interim solutions.”

And while talking around a conference table near the Pentagon briefing room, he reached for the only thing in the room to make his point: two remotes and five water bottles.

Putting them in a row, one by one, Black made a list of enlisted personnel’s expenses: a phone bill, insurance, gas, rent, electricity, childcare, food.

“These are all closer to being requirements than they are luxuries,” he said.

Black is the senior enlisted advisor to the Chairman of the Joint Chiefs of Staff, and before then, he was the Sergeant Major of the Marine Corps. In other words, he’s now America’s top enlisted leader to America’s top military officer. His job is to advocate for enlisted personnel, and one of the ways the U.S. can do that, he argues, is to have more empathy for the bills they need to pay, particularly those of young people.

In a late-August interview, Black discussed military pay, balancing goals in the budget and 1980s fashion as the Pentagon nears the end of its Quadrennial Review of Military Compensation, or QRMC, due early next year.

This conversation has been edited for length and clarity.

We see Congress poised to enact pay increases for junior enlisted members, and that’s even before there are findings from the report. How do you assess what role this report still plays right now?

The role of the report doesn’t change. Looking back, the last QRMC made recommendations. It requested some further analysis. It gave options to the to the secretary and to the Congress, because it’s an executive branch initiated analysis. Some of those things you take on, some of those things you don’t. They’re recommendations, they’re not requirements.

There are always iterative things that happen between one report beginning and ending. Pay raises is a good example. It won’t be the first time a pay raise was given by our Congress while the QRMC was going on, before recommending to either do it or not to do it. We see these things as trends.

It seems that with inflation moderating, this might be somewhat less of a challenge going into the report next year. How do you factor that in?

I think the important thing to note is the cost of living never goes down, so therefore pay and compensation have got to maintain at least some pace. This is where you start seeing the imbalance. If cost of living goes up, which it always does, but pay and compensation don’t keep pace with that, then you create gaps.

Do you think the system is set up to keep pace?

The system is doing what the system is designed to do. Every four years [we] review what is the cost of living, what is pay and compensation and do those two things match federal mandates. From that sense, yes.

What’s challenging is there are many levers inside of the pay and compensation processes that you can pull in the meantime. Cost of living allowance — let’s take one thing in particular. It’s an adjustable opportunity for the services, given their funding, to do cost of living adjustments, iterative to massive pay raises or a quadrennial review. I know for a fact there’s levers that we can pull that maintain that balance. Of course, the budgets that the services receive have to facilitate being able to do that.

I think the bigger question there is the competing priorities. You have modernization efforts and then also you have taking care of people. How do you feel like that balance is being struck right now?

If you look back and get testimonies, from the service senior enlisted, the service chiefs, even the secretary of defense and the chairman spoke to this. We’re pulling back a little bit on the modernization lever in order to increase our readiness and be able to focus on quality of life. It doesn’t mean we’re not modernizing, doesn’t mean we’re not maintaining readiness and doesn’t mean we’re not taking care of our people. But a dollar’s a dollar.

Is this a case, though, where there needs to just be more money for both priorities?

A little bit of a political question, but what I would offer is that things have changed. The capabilities and capacities of the Department of Defense — really the entire interagency — have got to move in a direction to be able to compete with multiple nation state competitors. It’s easy to manage inside of regional conflicts like Iraq or Afghanistan, for instance, or manage what’s going on in the world today. All the operations the Department of Defense is invested in right now are using resources that you can’t always plan for. But in the interim you have all of these things to modernize the force, better train the force and support the force and obviously quality of life. They all compete.

It’s a long way of saying two dollars is better than one dollar.

Are there real stories about compensation from service members that you’ve seen in the last several years that have stuck out?

I can think of a number of scenarios but let me explain a little bit differently. Sometimes we don’t understand all of the responsibilities that a certain generation has that we as we get a little older think are luxuries.

If you’re in a room, you’re talking about pay and your assumption is, “Hey, why do these new service members get these expensive cell phone contracts?” Well, because everything in the world is now digital. You either have a very expensive data plan or you can have WiFi.

When I first came in the Marine Corps, we all lived in the same barracks. The barracks was right next to the armory, it was right next to the office spaces and it was right next to where you stepped off and went to the field. Now you might be working in one place on a base or installation, and your barracks is miles away. Those aren’t necessarily of luxury costs anymore. Those are real costs.

We can debate whether a junior service member should buy an expensive vehicle. But we can no longer debate whether they need to have an automobile. Those things are ubiquitous.

Is that really what sticks out to you: those things that have become different in the generations that have followed?

I’m 36 years in as a Marine. There are people right now who have been retiring that joined after I joined. So I think we should be very, very careful to say a generation can or can’t do something. What we should be talking about is a new generation of Americans are going to start putting on the uniform and serving their nation. What skills do they have? How do we adjust to that, while also making them understand this is the United States military. There are standards that have ended up in us being successful throughout our entire history.

When I first came into uniform as a United States Marine, a Vietnam veteran gunnery sergeant took one look at me and went, “Oh my gosh, if we ever have to go to war with you in a uniform with your two polo shirt popped collar, Run-DMC listening, yuppie selves.” It was just going to be different than when they were driving a ‘57 Chevy with the sleeves rolled up and a white t-shirt on.

Lo and behold, we’ve done pretty good.

Did you actually have a moment where you’re wearing two polo shirts and Run DMC headphones?

In high school? Yeah, absolutely. I had the Brian Bosworth flat top with the V’s cut in the side and all that kind of stuff … if you know who Brian Bosworth is.

The signing ceremony was held on Aug. 13 and was attended by Poland’s Deputy Prime Minister and National Defence Minister Władysław Kosiniak-Kamysz.

“Today we are making a milestone with regards to equipping the Polish Armed Forces with the most modern AH-64E Apache attack helicopters,” Kosiniak-Kamysz said during the event, according to a statement released by the Polish ministry.

Under the offset agreements signed as part of the acquisition, Poland’s defense industry will be involved in servicing and upgrading the helicopters, Kosiniak-Kamysz said.

The contract is worth approximately $10 billion. Once the 96 aircraft are delivered, the Polish military will be the Apache’s second largest user in the world, preceded only by the U.S. military, the release said.

Poland has intensified its military modernization efforts following Russia’s invasion of neighboring Ukraine in February 2022.

Owing to the latest deal, the Polish military will be able to replace its outdated Soviet-designed Mil Mi-2 and Mi-24 helicopters with new aircraft. The contract marks the largest acquisition of Western-made helicopters in Poland’s history.

Under the plan, the aircraft will be deployed to the 1st Aviation Brigade in Inowrocław. Located in the country’s west, the brigade is tasked with providing aerial support to the Polish land forces.

The foreign military sale to Poland was approved by the U.S. State Department on Aug. 21, 2023. In a statement, the Defense Security Cooperation Agency said that, in addition to 96 helicopters and related gear and services, Poland aims to secure a wide range of weapon systems.

These include 1,844 AGM-114R2 Hellfire missiles, 460 AGM-179A Joint Air-to-Ground Missiles and 508 Stinger 92K Block I missiles, among others, according to the agency.

When the fighter, dubbed Kaan, landed 13 minutes later, a mob of revelers flooded the flight line to celebrate with hugs, applause and cheers — not only for the jet but what it represented.

Turkey had flown its first homemade prototype fighter jet, which manufacturer Turkish Aerospace Industries says will have fifth-generation stealth capabilities and the weapons capacity to rival or surpass the F-35 Joint Strike Fighter.

Kaan’s debut came almost 13 years after Turkey began developing its own combat aircraft, and four years after the U.S. kicked Turkey out of the F-35 program over the country’s plan to buy S-400 air defense systems from Russia. That punishment failed to deter Turkey from pursuing the S-400, and instead of the F-35, the country focused on its own indigenous fighter jet.

Turkey’s efforts to go it alone have proved fortuitous for TAI. In Defense News’ latest Top 100 list, which ranks companies around the world by defense revenue, TAI jumped from 58th place to 50th as its defense revenue ballooned nearly 50% to $2.2 billion in fiscal 2023.

TAI isn’t the only firm seeing rising revenues. As Russia presses its invasion of Ukraine, Israel attacks Hamas in the Gaza Strip, the U.S. and several allies fight Yemen-based Houthi rebels, and tension over Taiwan’s independence and disputed territory in the South China Sea proliferates, nations are increasing their defense spending — and businesses are seeing their revenues climb.

“There’s definitely a trend there,” said Stuart Dee, a European defense research leader at the think tank Rand. “This rapid and marked re-securitization with three fronts of potential geopolitical instability — Ukraine; Israel, Gaza and the Red Sea; and then Taiwan — what we’re seeing all at once is a whole lot of capability backfilling going on, right across the board.”

A piece of the pie

Defense News each year ranks the top defense contractors for its Top 100 list, by collecting and tallying information on firms’ revenues from the companies, earnings reports, analysts and other research.

Mega-firms based in the U.S., such as Lockheed Martin, RTX, Northrop Grumman, General Dynamics and Boeing, remain some of the largest defense companies worldwide, as reflected in this year’s list. But there are signs that non-U.S. businesses are playing greater roles across the sector.

For example, Aviation Industry Corp. of China is now ranked as the second-largest defense firm in the world, behind only Lockheed Martin. The Asian business saw its defense revenue jump by 45% from FY22 to FY23.

Over the last five years, the worldwide defense revenue share of Asia-based companies (including those in Russia) that have made the Top 100 rankings has fluctuated, but did increase from 16% to 21% from last year’s list to this latest version.

The share for U.S.-based firms also fluctuated over the last five years, but declined from 59% to 54% from last year’s list to this year’s iteration.

For Europe-based businesses, including Turkey and Ukraine, the defense revenue share didn’t change much over the last five years. In FY23, they took up 21% of the worldwide pie.

Notably, the Ukrainian Defense Industry’s defense revenue, which amounted to about $651 million in FY20, has skyrocketed to $2.2 billion. The company formerly known as Ukroboronprom jumped 16 spots on the most recent Top 100 list to 49th place.

‘Wartime footing’

The rising defense revenues among Asian and European firms likely reflect “an enhanced understanding of security challenges in the global environment,” according to Cynthia Cook, who leads a defense industry research team at the Center for Strategic and International Studies think tank.

Russia’s invasion of Ukraine pushed NATO members to spend more on military efforts, she told Defense News.

In 2014, the year Russia annexed Crimea from Ukraine, just three NATO allies met guidelines to spend at least 2% of their respective gross domestic products on defense; that number is expected to reach 23 this year, according to the alliance, which based its findings on 2015 rates.

And NATO Secretary General Jens Stoltenberg said in February that European members will spend a cumulative $380 billion on defense this year, reaching a new record. In comparison, using the same rates, European allies spent $250 billion in 2014.

“The increase in spending and the growth of European defense contractors is an important start for the rebuilding of their industrial base, which will be necessary in any future conflict,” Cook said. “European nations, especially places like Poland, are looking to the right — to the Russian threat on their immediate border. And [Russian President Vladimir] Putin has not ever said anything like: ‘Well, we’re just going to take over Ukraine and then sit tight.’ He’s pretty bold in his territorial ambitions. He’d like to do a Soviet reunion.”

And in Asia, Cook noted, Japan and South Korea are increasing their defense spending in light of potential threats from China and North Korea.

“China’s industrial base is on a wartime footing if you look at things like how many ships they’re producing and so forth,” she said.

But it’s not just American allies investing in defense, she added. After initial setbacks in Ukraine, Russia has poured money into reconstituting its military — with success that surprised some Western observers.

“Russia has ramped up its production,” U.S. Defense Secretary Lloyd Austin said in April. “All of their defense industry really answers directly to the state, so it’s easier for them to do that a bit quicker.”

Shopping local

Global military spending has skyrocketed in recent years, reaching a record $2.4 trillion in 2023, according to an April report from the Stockholm International Peace Research Institute. That was the ninth straight year in which defense spending increased.

“Defense spending is up,” Rand’s Dee said. “But at the same time, what that is being spent on is increasingly national supply chains [and] local champions” so nations can be more self-reliant.

Take Turkey, for example. In the past, he said, the country would have bought more off-the-shelf military equipment from foreign providers, primarily from the U.S. But as Turkish President Recep Tayyip Erdoğan’s administration pivots away from dependence on the U.S. as a supplier, the nation has invested more into its domestic industrial base, Dee added.

This is resulting in Turkey taking a “quite interesting hedged relationship” with the U.S. when it comes to military imports, he said. Turkey still relies on foreign military sales for much of its “bread and butter” military capabilities, he added, while also investing in next-generation capabilities with an eye on exports.

“If you went back 10 years ago, Turkey was an outright defense capability importer,” Dee said. “You’re starting to actually see Turkey transition to being a defense exporter for the first time.”

Five Turkish firms made the 2024 list, with Dee specifically pointing to TAI and the missile manufacturer Roketsan as notable examples of local growth. The latter jumped from 80th place on the list to 71st.

And while drone maker Baykar did not respond to Defense News’ requests for data, nor did it publicly share revenue figures by press time, the company touts its abilities as an exporter to 34 nations — including Ukraine, whose use of the Bayraktar TB2 drone was an early success story in its war against Russia.

A similar pattern is playing out in the United Kingdom, Dee noted. While the U.K. military flies Boeing and Lockheed Martin aircraft, such as Chinook helicopters and F-35s, its sixth-generation fighter program, dubbed Tempest, is largely a British effort.

U.K.-based BAE Systems is taking the lead among industry participants, which also include MBDA, Rolls-Royce and Leonardo. BAE Systems landed at the 7th spot on the Top 100 list; Rolls-Royce the 23rd; and Leonardo the 14th.

“A lot of the [British] next-generation capability investment across the board is going to … developing indigenous capability, which is directly benefiting BAE Systems, Rolls-Royce, as examples,” Dee said.

For its part, South Korea’s industrial base has always been robust, Cook said, and is also a notable exporter of military equipment.

In 2022, Poland struck a $5.8 billion deal to buy Korea Aerospace Industries-made fighter jets, tanks from Hyundai Rotem Co., and howitzers and vehicles from Hanwha Defense. Also in that year, South Korean President Yoon Suk Yeol pledged to make his nation one of the top weapons suppliers in the world.

Three South Korean firms made the list, with Hanwha ranked in 19th place; LIG Nex1 in 58th; and Hyundai Motor Co., of which Hyundai Rotem is an affiliate, in 73rd.

And it’s not only local economic and military issues that are driving further globalization of the defense market. Political turmoil in Washington, which for months stalled U.S. rearming of Ukraine, jolted some European allies into investing more in their own defense industries, according to Saab CEO Micael Johansson.

Johansson in February described America’s wavering on Ukrainian support as “quite scary to see,” adding that Europe must fill any gaps. He called for European governments to make long-term financial commitments with local defense firms to build new production sites and capacity — and not let indigenous capabilities wither, as occurred after the Cold War.

“I am prepared to take risk, but it has to be in some sort of handshake with governments if I’m going to do more in terms of new sites, high capacity,” Johansson said. “We can’t afford to dismantle things once more.”

Saab’s defense revenue grew 18% in FY23 to nearly $4.4 billion, bolstered by a $102 million deal with Boeing to build fuselages for the T-7 trainer aircraft and a $1.2 billion contract to an undisclosed customer to provide Carl-Gustaf recoilless rifles. The Swedish firm made the Top 100 list at 29th place.

In nearby Norway, Kongsberg’s defense revenue jumped 23% to $1.7 billion in FY23. The company, which ranked 59th, builds National Advanced Surface-to-Air Missile Systems, which have been sold or donated to Ukraine to bolster its defense against Russia.

A worldwide defense industry that relies less on U.S. firms could be an overall positive development — even for American companies, Dee said.

The defense-industrial base, while vast, only has so much capacity. For instance, the sector has struggled to produce munitions, such as 155mm shells, at the rate of demand. And so, more companies serving as major players can lead to more capacity, he explained, and more competition.

“The relative lack of competition in the defense market is one of the primary causes that is often pointed out for consistent cost overruns,” Dee said. “More competition, within the confines of export control capacity, is a good thing.”

But a more globalized defense-industrial base could create problems if systems and ammunition created in different countries can’t function well together, Cook noted.

“We want systems to interoperate, and we want ammunition made in one country to fit into the systems of others,” she said. “That is just hard. You have to set joint requirements, you have to set standards. What do you do with the older systems that may require specific ammo? Do you retrofit them? There’s a lot of questions to think about.”

The focus of the Ramstein Legacy drill, held June 3-14, was on developing the alliance’s integrated air and missile defense with an additional eye on combating Class 1 unmanned aerial system threats — a reference to small, mini and micro drones.

Participating units hailed from Romania, Germany, Portugal, Hungary, France, Turkey and Poland, supported by British and Finnish fighter jets. In addition, three companies were invited to introduce some of their counter-drone equipment, including the U.S.-based firm Echodyne, the French CS Group, and German electronics specialist Rohde & Schwarz.

“Class 1 UAS have become one of the most important threats we observe at the moment in military conflicts. Where for many years having air superiority was one of the pillars of the NATO doctrine, we have seen recently that’s no longer the case,” said Cristian Coman, chief scientist at the joint intelligence, surveillance and reconnaissance center at NATO’s Communications and Information Agency (NCIA).

On the first day of the training, participants were asked to get familiar with the capabilities of the systems at the exercise, including electronic warfare equipment, radars, and command-and-control systems.

The following days were focused on practical exercises and hands-on training, with each scenario increasing in difficulty. Part of the personnel involved in this segment were officers from the Italian C-UAS Center of Excellence, who performed the job of the enemy.

“We are here acting in the role of the red team in this exercise, where we are the threat the trainees need to identify and counteract. We are flying the drones, which are common civilian ones,” Italian Navy Lt. Cmdr. Federico Fugazzotto told reporters.

Some of the models displayed included the American-made Parrot Disco first-person-view drone as well as two Chinese-made DJI types. Exercise participants were instructed to use their detection equipment for picking up the drones’ electronic signatures.

According to Fugazzotto, increasingly complex scenarios entailed flights of varying lengths, hiding the drones’ points of departure on the ground, and attacking with multiple systems at once.

Crimea mirage

As the training unfolded, experts with NCIA confirmed to Defense News that GPS spoofing was detected and affected some of the drones, though officials did not name the source. The interference method feeds false coordinates to drone navigation systems in an effort to crash or disorient them.

“When I had the hand-held device from the drone, where you basically have the controller, my hand device would ‘be’ on a foreign location in Crimea,” Mario Behn, the principal scientist at NCIA, told Defense News. “But the drone was still here, which of course is physically impossible, as it is a huge range,”

On both days of Ramstein Legacy, data provided by the website GPSJam showed a high level of GPS interference that encompassed all of Constanta.

Military personnel here were vague about anti-jamming techniques and equipment used to mitigate interference, citing security concerns in revealing Western countermeasures.

The extensive level of jamming was also apparent in the area surrounding the nearby Mihail Kogalniceanu air base, where Finnish F/A-18 fighter jets and British Eurofighters were deployed. The exercise marked Finland’s first foreign deployment for NATO since joining the alliance in April 2023.

When asked if he was used to flying amid this amount of jamming, Lt. Col. Rami Lindström, commander of the Finnish F/A-18 detachment in Romania, acknowledged the GPS interference but appeared unfazed about it affecting the equipment.

“We have a lot of reports in Finland about the same kind of jamming, so we are used to that. But the F-18 is a warhorse and is resistant against that,” Lindström told Defense News in an interview.

“You can say we know our neighbor and we like to share this knowledge with our allies,” the Finnish official added, referring to Russia.

Back to school

In 2019, NCIA established an academy in Oeiras, Portugal, to provide training on NATO systems devoted to communications, air command and control, and cybersecurity. With drones omnipresent in today’s military thinking, the school’s emphasis is about to change.

“Our idea would be to add a counter-UAS curriculum with educational courses followed by enhanced practical training, which would be very easy to integrate at the Portugal academy,” Behn said.

There are some hurdles to that end, however, especially when it comes to standardizing hands-on training.

For one, the drone arsenals of NATO countries are so diverse that finding cross-cutting training approaches will be tricky. That is in addition to the ceaseless cat-and-mouse game of buying improved drones and superior countermeasures.

“Procurement processes take years, except we don’t have years to defend against those small drone threats,” Coman said.

This had long been a bright red line in the administration’s support for Kyiv, fearing an expanded war.

It took only a few days for Ukraine to say it wasn’t enough.

“Is that sufficient? No,” said President Volodymyr Zelenskyy, speaking at a news conference in Singapore hours after meeting with U.S. Defense Secretary Lloyd Austin.

The comment was a microcosm of a much longer-term challenge for Washington. In an effort to avoid escalation, the administration has withheld certain weapons requested by Ukraine, only to later change course. The result is an ever-shifting policy that often leaves Kyiv dissatisfied — why accept one change to the rules when pushing for another could loosen them more?

The latest and perhaps most significant example of this situation has been cross-border strikes. The limited authority the White House gave Ukraine to fire into Russia is already expanding. And if this continues, analysts say, it may make a real impact in the fight.

“It could really change the war,” said George Barros, who leads the Russia and geospatial intelligence teams at the Institute for the Study of War, a public policy research outfit.

Two weeks after Zelenskyy’s comments, a senior U.S. official defense official said the policy may just be moving in that direction. On the sidelines of a June meeting at NATO headquarters in Brussels, the official listed examples of things Ukraine has wanted that America has changed its mind on: fighter jets, long-range missiles, shooting into Russia.

“If you look back over the course of a conflict, you can find a number of areas where we were reluctant to do something and then we did it,” the official said, speaking on the condition of anonymity, per Pentagon policy. “So never say never.”

A different approach

The path to the late-May policy change began weeks before Zelenskyy’s comments in Singapore.

Earlier in May, Russia launched a new offensive near Kharkiv, Ukraine’s second-largest city. Unlike other major urban areas in the country, Kharkiv sits near the Russian border — about 20 miles away. Largely due to limitations on how Ukraine could use Western-provided weapons, Russia was able to fire from its side of the border without significant retaliation.

“You could just look at the maps … showing the Russians amassing just across the border and using that to strike into Ukraine,” the U.S. defense official said.

Ukraine asked for the ability to fire into Russia, which Washington granted after some European partners publicly supported the request. But it would be limited: Ukraine could fire U.S. weapons — like the High Mobility Artillery Rocket System, with a range of nearly 50 miles — across the border to defend itself around Kharkiv. It still couldn’t fire long-range American weapons — such as the ATACMS missile with a reach of about 186 miles — at targets deeper into Russia.

Within weeks U.S. officials were crediting the change, in part, to a more stable front line. When Austin visited NATO headquarters in June, members of the U.S. delegation called the mood “upbeat.”

“What I see is a slowing of the Russian’s advance and a stabilizing of that particular piece of the front,” Austin said.

Some analysts were skeptical of that account.

Michael Kofman, who studies the Ukraine war at the Carnegie Endowment for International Peace think tank, said that by the time America’s policy changed, Russia had already started to lose momentum.

“The Russian offensive had already culminated before the policy change went into effect,” he said.

That isn’t to say the approval to fire into Russia was useless. The point is to create dilemmas, according to Barros. Under the current policy Russian forces will have to spread farther apart, lest they become easy targets. That will make it harder to launch new offensives.

But that’s a limited benefit, Barros told Defense News.

“It’s not going to make a massive difference in the long run, as it stands,” he said.

‘Right to self-defense’

Hence, a bevy of officials in the U.S. and abroad have pushed to end the remaining restrictions. Among this group is NATO’s secretary general.

Shortly before the June meeting in Brussels, Jens Stoltenberg stepped into the headquarters lobby to speak with reporters. On strikes into Russia, he made two points: Because the border and the front lines are so close near Kharkiv, Ukraine would struggle to defend itself if it couldn’t fire into Russia. And the burden shouldn’t be on Ukraine to avoid escalation.

“Ukraine has the right to strike military targets on Russian territory — part of the right to self-defense — and we have the right to support them in defending themselves,” he said.

Members of Congress, prominent Democrats among them, have urged the Biden administration to loosen restrictions for Ukraine. Many European partners have joined them.

“Russia is organizing the attacks from Russian territory, and we put restrictions on Ukraine,” Lithuanian Defence Minister Laurynas Kasčiūnas said in an interview with Defense News. “It’s nonsense.”

But based on several recent statements from American officials, it’s unclear what those restrictions are.

When asked to clarify America’s policy on strikes into Russia, the U.S. defense official speaking in Brussels paused and opened a binder of prepared notes. Reading them, the official listed several of the talking points the administration has used when discussing the policy: “limited,” “military targets,” “just across the border.”

“That’s not much more detail,” the official said, as reporters in the room laughed.

In a news conference later that day, Austin answered questions about the policy, framing it around Ukraine’s northeast. “The ability to conduct counterfire in this close fight in Kharkiv region is what this is all about,” he said.

But several days later in an interview with PBS, U.S. national security adviser Jake Sullivan said the permission to strike “extends to anywhere that Russian forces are coming across the border from the Russian side to the Ukrainian side to try to take additional territory.”

“This is not about geography,” Sullivan added. “It’s about common sense.”

From Ukraine’s perspective, the policy is “quite clear,” according to Dmytro Klimenkov, the deputy minister of defense for procurement. He declined to comment on whether the policy should be looser.

Red lines

When it comes to long-range fires, specifically the ATACMS, the Biden administration has drawn a red line. But there are reasons for the limit.

The U.S. wants Ukraine to concentrate its responses to Russia’s invasion as much as possible — the difference between one uppercut and multiple jabs in a boxing match. Preventing Ukraine from firing even farther into Russia forces the embattled nation to focus on what U.S. officials call “the close fight” around Kharkiv and other parts of the front line.

There’s also the escalation factor: Russia is a nuclear-armed country and has threatened to use those weapons multiple times during the war, although that hasn’t happened. The Russian government can also harass the U.S. and other allies elsewhere: supporting militant groups targeting American forces or staging limited attacks in European cities.

Concern over a deeper or wider war has influenced the Biden administration’s policies since the full-scale invasion two years ago. But that concern has changed as the Pentagon gets a better sense for Russia’s actual willingness to escalate.

“The risk of escalation is not as high as maybe it was at the beginning of the process,” Gen. CQ Brown, the U.S. military’s top uniformed officer, said during a March roundtable with reporters. “You understand a bit more over time.”

And over time, with the threat of escalation unrealized, Ukraine has received more capable weapons and greater authority to use them.

It wasn’t until March when the Biden administration sent Ukraine the long-range ATACMS missiles. The country is already using them by, for example, hitting air defense batteries stationed in Crimea, a peninsula Russia seized in 2014.

Ukraine’s ability to hit Russian assets on Crimea has made Moscow restructure its forces there, shifting much of its naval fleet farther away. One could imagine a similar move elsewhere if the ban on long-range strikes into Russia were lifted, said Barros, the analyst at the Institute for the Study of War. For example, Russia would likely be forced to spread its air defense and electronic warfare assets farther apart.

It might also struggle to launch as many raids on Ukrainian cities, threatened by Russian bombers that sit on airfields that are out of reach under the current policy.

“Russia is permanently firing in calm, knowing that Ukraine will not fire back,” Zelenskyy said at the news conference in Singapore.

‘Sovereign decision’

But Ukraine has fired back. Throughout this year, its military struck oil refineries across Russia in an attempt to damage one of the government’s core sources of revenue.

The strikes proved controversial in Washington.

During a hearing before the House Armed Services Committee in April, the assistant secretary for defense for international security affairs said the Pentagon doesn’t want Ukraine attacking civilian infrastructure.

“So far the strikes that we have seen against Russian energy sources have not significantly altered Russia’s ability to prosecute the war,” Celeste Wallander said.

But Ukraine wasn’t using American-provided weapons for those strikes, which meant they didn’t apply to existing restrictions.

“This is Ukraine’s sovereign decision,” Wallander noted.

A senior Ukrainian official, who spoke on the condition of anonymity due to the sensitivity of the topic, told Defense News his country has two sets of long-range weapons: drones that can fire up to 900 miles and missiles that can reach 430 miles. The limiting factor for these capabilities, the official said, is scale.

In other words, the official claimed, Ukraine knows how to build them and could increase production, but it lacks the funding to do so.

Klimenkov, the Ukrainian defense procurement official, was more cautious.

“We don’t have enough capacity” to build the required amount of long-range weapons alone, he said.

That means for now, Ukraine will need to keep using other countries’ weapons and conforming to their rules. But building its own long-range fires remains a top priority, he added.

“That is not easy,” he said. “It takes time.”

As the CEO of DefendTex, an Australian firm specializing in precision-guided weapons, rockets and loitering munitions, he’s encouraged by a government-run program aimed at growing the domestic industry’s capability to build long-range weaponry. The problem, though, is he can’t get the financial backing expected from the Australian government’s Guided Weapons and Explosive Ordnance Enterprise program.

Instead, large defense contractors, especially those hailing from overseas, are receiving preferential treatment, according to a local analyst.

“There’s a tendency by government to default to the primes. Everything must go through Lockheed Martin, Boeing, Thales or whatever. Let’s see what SMEs [small and medium enterprises] can do in terms of things like long-range missiles,” said Malcolm Davis, an expert in capability development and military technology at the Australian Strategic Policy Institute. “Give them a chance to actually demonstrate their capabilities.”

For months, DefendTex has been asking Export Finance Australia — the government’s export credit agency — for a yearlong AU$70 million (U.S. $46 million) loan to acquire cash-strapped Avibras in Brazil. Reddy said he’s depending on the government to assist, noting that domestic banks have refused to provide him a loan as a weapons manufacturer.

DefendTex’s exclusive negotiation period with Avibras has reportedly expired, as the timetable was to last until the end of June. Already the Chinese defense industry giant NORINCO is taking steps to buy the business. To sweeten the deal, NORINCO has expressed a willingness to manufacture Chinese weapons in Brazil.

But Reddy said Australia could benefit from Avibras’ extensive experience with guided weapons, gain intellectual property and quickly replicate manufacturing facilities on Australian soil. “We know that within 24 months we’d achieve full-rate production in Australia: the full IP suite, the seeker, propulsion system, the whole box and dice.”

Referring to mounting geopolitical tensions in the Asia-Pacific region, Davis highlighted the government’s slow response time with endeavors like the Guided Weapons and Explosive Ordnance (GWEO) Enterprise.

“At the moment it seems to be moving very much at a snail’s pace on a small scale, a very hesitant approach on the part of government, which I don’t understand given the very adverse strategic outlook we’re facing,” he said.

Backup plan?

The GWEO Enterprise program is the government’s official vehicle to develop a sovereign capability for producing long-range strike weapons. It currently boasts about 900 personnel and was formally created in May 2023 when Air Marshal Leon Phillips was appointed its inaugural chief.

“The GWEO group was established to accelerate the development of a guided weapons and explosive ordnance manufacturing industry in Australia,” Phillips told Defense News.

He outlined the enterprise’s two main functions: to establish a manufacturing industry, and to manage the acquisition, sustainment and support of weapons. According to the Defence Department’s website, the government is spending $4.1 billion to increasingly buy long-range strike systems and locally manufacture longer-range munitions.

However, Reddy said the program’s lean toward American defense companies is hindering plans like his.

Indeed, the government has appointed the Australian arms of the American firms RTX and Lockheed Martin as GWEO’s strategic partners.

“The strategic partners and their U.S. parent companies are working with [the Department of] Defence to explore opportunities for greater partnerships and, to this end, are developing detailed, costed plans for manufacturing guided weapons and their components in Australia,” Phillips said.

The department has said it will consider those “costed plans” in the second quarter of 2024.

“Support and assistance from the U.S. is critical to the success of the GWEO Enterprise. At the Australia-U.S. Ministerial Consultations in July 2023, the principals agreed to deepen cooperation on Australia’s GWEO Enterprise by collaborating on a flexible guided-weapons production capability in Australia. This cooperation is underway, and an initial batch of GMLRS [Guided Multiple Launch Rocket System] missiles will be manufactured in Australia by 2025,” Phillips added, referring to a AU$37.4 million contract for Lockheed Martin Australia, announced in January 2024.

James Heading, the director of programs at the Strategic Capabilities Office within Lockheed Martin Australia’s missiles and fire control division, said further developing industry is critical and that GMLRS is a good starting point for the country. International demand for GMLRS is growing, especially in Ukraine amid its war with Russia.

“That doesn’t necessarily mean everything’s manufactured in Australia,” Heading added. For example, he noted, it might be five to 10 years before Australian industry can unilaterally build missile seekers for the GMLRS.

Tenders for GMLRS production-related requirements in Australia close around the June-July time frame this year, which will lead to the assembly of GMLRS kits starting next year at the munitions storage base Defence Establishment Orchard Hills in Sydney. What will follow is the gradual introduction of domestically assembled components, before ramping up quantities, Heading said.

To be clear, Reddy said, he doesn’t take issue with the Lockheed deal, but does think the government needs a backup plan.

“I’m not saying don’t do GMLRS, don’t do HIMARS [High Mobility Artillery Rocket System]. Do all of that and preserve 5% of your budget [for] a plan B,” he said, referring to government funding to support domestic industry acquisitions. “That would be the pragmatic approach to ensuring we get the best of both worlds. So if the world goes to hell in a handbasket tomorrow, we’ve got something we can respond with.”

He argued that the purchase of Avibras would be a “very cheap” insurance policy that does not detract from any long-term plans dependent on American firms.

Davis agreed that there isn’t a clear path from the Lockheed deal that would lead to more locally made, sophisticated capabilities. “I think it’s taken an inordinately long time to actually make any progress, and we’re only talking about assembling GMLRS components here in Australia in 2025.”

He said the government should encourage industry to pursue the local production of longer-range weapons like the Long Range Anti-Ship Missile, the extended-range variant of the Joint Air-to-Surface Standoff Missile, and the Tomahawk cruise missile — all of which are made by American businesses.

But the GWEO Enterprise isn’t just about American-made weapons. For example, the Spike missile by Israel’s Rafael Advanced Defense Systems and the Naval Strike Missile by Norway’s Kongsberg are both candidates for domestic production.

“GWEO is really about giving industry the opportunity to participate,” Heading said, noting gaps in Australia’s defense industry are due to capacity rather than ability.

To overcome these issues, Davis suggested the government further prioritize the GWEO program as well as incorporate lessons from the Russia-Ukraine war.

“We should actually be looking at how can we, ourselves, develop the long-range strike capabilities that can support the needs of the ADF [Australian Defence Force], the needs of our allies and partners, and offer us an export capability as well,” he urged. “Once again, there seems to be this lack of boldness and vision on the part of the government just to even think beyond the most minimalist application of GWEO in the near term.

“I don’t understand why their perception of GWEO is so constrained and so limited.”

Preparing for war

Part of the problem is Australia’s peacetime mindset, Davis said.

“We assume that nothing bad will happen in this decade, and that we’ve got 10 years to wait. Ironically, we’ve said in past defense whitepapers that we no longer have 10 years of strategic warning, but that mindset of 10-year strategic warning time is still pervasive in the defense organization and within government,” he explained.

“There needs to be recognition that we might have two, maybe three years to prepare for a major war,” he added. “So what can we do in the next two to three years in terms of mass production of capabilities? That’s going to take some risks, it’s going to take a bit of vision.

“My concern is that those decisions won’t be made and we’ll end up going into a next war in 2027 or 2028 with what we’ve got — and not much to show for GWEO.”

To be sure, the program hasn’t been idle, Philips said, noting several major achievements to date, including upgrades to infrastructure and technology at the government-owned Mulwala and Benalla munitions factories operated by Thales Australia; remediation of the Port Wilson wharf to enable large-scale imports and exports of weapons; commissioned construction of additional storage and distribution infrastructure; and domestic production of 500-pound BLU-111 bombs.

In addition to the GMLRS contract, Phillips also pointed to accelerated acquisitions of Tomahawks, JASSM-ERs, Naval Strike Missiles and sea mines from overseas.

But these foreign purchases by the government don’t help with situations like Reddy’s.

“They’re not taking any steps to develop a domestic, sovereign alternative to the kind of weapons they need,” he said. “In the event of high-intensity conflict, will Australia as a nation have the ability to manufacture the ordnance that it needs to keep the Australian Defence Force capable of conducting its mission? The overwhelming answer is no.”

Rocket Lab CEO Peter Beck has watched those launches while smaller and emerging providers like his own company lacked a clear pathway to compete for the missions.

He and other launch executives have encouraged the Space Force to create entry points for firms building new rockets. And now they may have a way forward.

The Space Force announced last year that the next phase of its strategy for procuring launches would set aside missions for new providers. It was welcome news for Beck, who believes his company’s Neutron rocket, still in development, will be a top contender.

“That was the right approach,” Beck told C4ISRNET in an interview. “We really wanted that approach to occur, and we were very vocal that that’s the way it should be.”

The strategy for Phase 3 of the Space Force’s National Security Space Launch program, or NSSL, includes two lanes in which companies can compete to launch military satellites.

Lane 1, which will include 30 launches from 2025 through 2034, is for new providers. Missions in this category have less stringent requirements, and companies will have a chance to join annually as they prove their rockets are ready.

The service plans to select initial, eligible Lane 1 companies this spring but won’t award the first round of contracts until next year. While launch vehicles don’t need to move through the traditional certification process, firms must fly their rockets by Dec. 15, 2024, to receive an initial contract.

The remaining 49 launches will carry heavier Space Force payloads and are reserved for companies able to meet a more stringent set of security and performance requirements. Contracts for Lane 2 are expected this summer.

Most of those missions will go to two firms — likely incumbents SpaceX and ULA — but the service has the option to choose a third provider if a company presents a sound plan to certify its rocket for Lane 2 launches by 2026.

If the government selects a third firm, it will likely be Blue Origin, whose New Glenn vehicle — designed to fly large payloads — is slated to fly this year.

Smaller companies have long-term ambitions to compete for more lucrative contracts, like those in Lane 2, but are targeting the more accessible missions in Lane 1 in the near term. As the deadline approaches for the Space Force’s first round of selections, none of those newcomers expect to have their rockets off the ground in time to qualify.

Rocket Lab’s Neutron was closest, according to its internal projections, but the firm announced May 6 it is now targeting mid-2025 for the vehicle’s debut.

Other companies developing medium-lift launch vehicles — which can carry 4,400-44,100 pounds into orbit — to compete for Lane 1 contracts include ABL Space Systems, which is targeting next year for the first launch of its RS1 rocket; Firefly Aerospace and Northrop Grumman, who are working together to develop the Medium Launch Vehicle and also aiming for a 2025 flight; and Relativity Space, which expects to fly its Terran R rocket in 2026.

Those timelines mean that — despite the Space Force creating opportunities for emerging launch vehicles to compete — initial contracts for those missions could end up going to NSSL program incumbents and potentially Blue Origin in Lane 2.

Development delays

Launch executives and outside experts aren’t surprised by the rockets that remain ineligible to receive contracts next year, despite the Space Force’s strategy.

While the initially slow on-ramp to competition may present a symbolic blow to the service’s approach and raise eyebrows in Congress, the reality is that developing launch systems is challenging and schedules tend to slip — as evidenced by Rocket Lab’s latest setback.

“Getting Neutron to the pad this year was an ambitious greenlight schedule that we had — a path to closing if every single aspect went according to plan,” Beck said in the company’s May 6 earnings call. “As we’ve always said, this is a rocket development program and this is always filled with gremlins, some in our control and some not.”

Gen. Chance Saltzman, chief of space operations for the Space Force, cautioned against downplaying the significance of the on-ramp opportunities that the service is providing in its strategy.

“The on ramps and off ramps — we shouldn’t just cast those aside because there are companies at different stages of development,” he told reporters April 10 at the Space Symposium in Colorado. “We’ve tried to account for that in our acquisition strategy so that as they develop, as they mature, there’s pathways into contractual arrangements.”

The bigger question, experts said, is how many of these companies can, in the coming years, make a place for themselves within a multibillion-dollar national security launch market dominated by a single player — SpaceX.

The answer to that question will depend on several variables, including commercial launch demand and the continued pursuit of proliferated satellite constellations from both government and private sector customers, according to Joshua Huminski, senior vice president for national security and intelligence programs at the U.S.-based Center for the Study of the Presidency and Congress. The organization partly focuses on how leaders can address national challenges.

“The demand from the commercial market — which is really going to keep a lot of these companies afloat and in operation — is going to be almost a driver, and it’s a question of: Can the national security space enterprise keep up?” he told C4ISRNET.

Another factor is whether the Space Force can keep its launch procurement strategy agile enough to adapt to that dynamic market. Todd Harrison, a senior fellow at the American Enterprise Institute think tank, said the Space Force should focus on creating an environment that fosters competition rather than try to choose winners and losers through a more restrictive approach.

“I think what we should do is try to create the conditions so that the next SpaceX can emerge,” he told C4ISRNET.

SpaceX dominance

That “next SpaceX,” of course, would be competing with the actual SpaceX, which is owned by billionaire Elon Musk and has a tight hold on the U.S. launch market. The company’s Falcon 9 rocket flew 207 of the 256 domestic launches conducted between 2020 and 2023, according to data compiled by Harrison.

The firm’s dominance in the military market traces back to 2014, following Russia’s annexation of the Ukrainian territory of Crimea. At the time, ULA — a joint venture of defense giants Lockheed Martin and Boeing — was the sole-source provider of military launches for the U.S. government.

The Russian-made RD-180 engine powered ULA’s workhorse rocket, the Atlas V. Concerned that the U.S. was too reliant on the Russian propulsion system, Congress called for the Pentagon to end its use of the engine and ensure the military is not dependent on a single company to carry national security payloads.

The Defense Department responded in two ways. It developed a process for certifying more rockets to fly these missions. And it provided seed funding to three firms so they could mature their designs for domestically produced rockets: ULA’s Vulcan, Blue Origin’s New Glenn and Northrop Grumman’s OmegA.

Ultimately, SpaceX — which received no DOD development funding but did get money from NASA for its Falcon 9 rocket — was the first new company to successfully onboard an American-made launch vehicle through the Space Force’s certification process. In 2018, SpaceX launched its first national security payload. And in 2020, along with ULA, it won a five-year contract to fly military missions.

Meanwhile, ULA began phasing out its Atlas V rocket and shifted its focus to a new U.S.-sourced launch vehicle, the Vulcan Centaur. The rocket, initially slated to fly in 2019, took its maiden flight in January 2024, after repeated development delays. It must fly one more non-DOD mission before it is certified for NSSL launches.

Surging demand

These events ultimately positioned SpaceX as one of the U.S. military’s primary source of launch services and have helped support its rise in the commercial market.

Following Moscow’s full-scale invasion of Ukraine in 2022, Western militaries followed the Pentagon’s earlier course of action and divested Russian-made components from their supply chains. That included Russia’s Soyuz rocket, which at the time held about half of the global launch market share.

Bonnie Triezenberg, a senior engineer at the think tank Rand, described the Soyuz rocket, prior to the 2022 invasion, as “the only counterweight to the Falcon 9.”

“When the Ukraine invasion happened was really when Soyuz was taken off the market,” she told C4ISRNET. “All of that backlog that was on the Soyuz, a couple of them went to India, but the bulk of it all went onto the Falcon 9.”

The exit of Soyuz from the global market came amid a surge in demand for launch services that analysts expect to continue for some time. Quilty Space, a Florida-based consulting firm, estimated in a 2023 report that 20,000 new satellites will be sent to orbit by 2030.

That demand and the state of the Soyuz — combined with recent retirements of many medium and heavy rockets — created a gap in the number of launch vehicles available to meet that demand, Triezenberg said. That gap has drawn companies like Rocket Lab and Firefly, who have a foot in the small launch market, to branch out to medium-lift systems.

Caleb Henry, the director of research at Quilty, said there’s room for more firms to compete in the medium-lift market, but that questions remain about demand, which could shape how much capacity is needed in the long term.

“I do think there’s a role, certainly, for one or more companies to fill that gap,” he told C4ISRNET. “But I don’t have a good guess on how many medium launch vehicles the market will support.”

Triezenberg echoed that sentiment, noting she’s surprised at how many rocket providers started developing medium-lift rockets in recent years. It’s only a matter of time, she said, before the competition starts to thin.

“Things have gotten pretty frothy in the last few years. Everybody’s throwing their hat in the ring,” she added. “You’re going to see some of that froth come out.”

Building a backlog

The lack of affordable launch capacity in the medium and heavy lift markets is what is driving Relativity Space’s development of its Terran R rocket, according to Chief Revenue Officer Josh Brost.

The company has described its approach as customer-centric, focused on containing costs by 3D printing major parts and designing others to be reusable. And while the 270-foot-tall Terran R is “optimized” for launches to low Earth orbit — about 1,200 miles above the planet’s surface — Brost said the vision is for it to fly more stressing missions to higher orbits.

One of the most important parts of Relativity’s strategy, according to Brost, is early spending on manufacturing capacity, which the company hopes will allow it to quickly scale Terran R production.

“Even if you’re reliable and provide great economics, if you can only launch a handful of times a year, you don’t actually move the needle on the market,” Brost said. “The supply-demand imbalance is strong enough now that to be compelling, you need to be coming into the market with lots of capacity.”

Like many of the other emerging rocket companies, Relativity has secured a strong backlog of business for Terran R, despite it never having flown. The company has already signed commercial launch contracts cumulatively worth about $2 billion.

“We have people signing deals today for 2027, 2028, despite the fact that we’re still evolving, because they see the need for the capability we’re developing,” he said. “The commercial market is becoming the first buyer of capability, and then the defense market can benefit from that commercial marketplace.”

The Space Force may not be the biggest customer for Relativity and other growing rocket firms, but its launch needs are still a significant part of its business case. Military launch will likely account for about 30% to 50% of the addressable market for these companies, according to Rand’s Triezenberg.

Although it’s not the Defense Department’s goal to choose which rockets will succeed in the broader market, Triezenberg said the backlog many of these companies have secured indicates that the service’s Phase 3 strategy, and ultimately its procurement decisions, will play a role in how these companies fare.

“I think what the government is trying to do here with the Phase 3 Lane 1 contracts is sort of [build] up the backlog for these emerging providers,” Triezenberg said. “That’s going to help these firms when they go to the capital markets and try to raise money.

“Launch is a very capital-intensive business,” she added. “Those backlogs are important.”

Conditions for competition

While the Space Force’s launch procurement strategy offers the opportunity for new launch providers to compete, some experts and members of Congress have questioned whether there’s more the Pentagon can do to lower barriers for these companies.

Rep. Dale Strong, R-Ala., said May 1 during a House Armed Services Committee hearing that while he applauds the Space Force’s Phase 3 approach, he’s worried established players like SpaceX and ULA will encroach on Lane 1, underbidding on those missions in order to edge out smaller firms.

“I do have concerns about Lane 1,” he said. “I would personally like to see something a bit more concrete to protect them.”

Beck, Rocket Lab’s CEO, told C4ISRNET he’d like to see rules addressing which missions Lane 2 companies can and cannot compete for.

“The real risk you run is competitors in Lane 2 not wanting new entrants to come in and going in there and very aggressively bidding that work or doing other things to make it very difficult for new providers,” he said. “If the whole goal is to on-ramp new providers and utilize the commercial-industrial base, I think there is risk there that it gets stifled by some poor behavior of the incumbents.”

Another way to better foster competition, according to AEI’s Harrison, would be to allow companies to join Lane 1 as soon as they’ve flown their rockets. As the strategy stands, firms must wait until the annual on-ramp period opens.

“Commercial innovation moves faster than a 12-month cycle sometimes,” Harrison said. “Let’s say the on-ramp is in May and a company isn’t ready to bid until that June; they have to wait until the next May to on-ramp again — an 11-month, 12-month delay. That could be the end of that company.”

For smaller firms, building the infrastructure required to support new rockets is also a barrier. Bill Weber, CEO of Firefly Aerospace, said he has talked with the Space Force about pursuing more public-private partnerships to alleviate some costs.

“That’s a $100 million launch complex for a medium launch vehicle,” he told C4ISRNET. “These launch complexes that are required in order to support these national security missions — they’re exorbitantly expensive, and the utility of it is used by the government customer. So there has to be some public-private partnerships.”