Aerospace & Defense Conference 2026 Key Takeaways

What You Need to Know:

• The defense budget outlook for FY'27 remains highly uncertain, with US$1.5 trillion viewed as unlikely (but not impossible) in an election year.
• The DoD is moving from identifying supply‑chain weaknesses to executing direct investments to close critical gaps.
• Manufacturing constraints—especially labor shortages and limited capacity—are increasingly viewed as a national security emergency.
• Geopolitical strategy emphasizes resource prioritization, Western Hemisphere security and situational crisis response.
• Space policy under Trump 2.0 appears inconsistent, with Congress driving momentum more than the White House.
• Labor and execution—not funding—remain the primary bottlenecks across shipbuilding, munitions and major programs.

The TD Cowen Insight

TD Cowen recently hosted its 47th annual Aerospace & Defense Conference. This year’s discussions were dominated by just a few pertinent topics:

• defense spending outlook,
• the push to close strategic supply chain gaps via direct capital tools,
• Defense Industrial Base (DIB) constraints as a production limiter for key weapons and systems,
• Geopolitics centered on resource prioritization, Western Hemisphere dynamics and more situational crisis posture in Mideast.

Macro Policy Issues

FY27 Budget

Both the FY'27 budget total and split between the base budget and reconciliation are unknowns. Consensus view seems to be that US$1.5 trillion is unlikely in an election year when there's a narrow-margin Congress (esp. after recent Trump comments). We think the Department of War (DoW) will request the highest base budget it can, but its still to be determined. Budget timing is expected mid-March to mid-April.

Supply Chains

The DoW appears to be moving from identifying supply chain gaps and vulnerabilities to taking action. Focus areas include technology, Artificial Intelligence (AI) data centers, maritime & shipbuilding, critical minerals and industrial technology.

Manufacturing

Industrial base concerns are framed as both capacity and labor limited, creating an emergency. At a broad industrial level, there are concerns about China's share of global manufacturing (~30%) versus U.S. (~17%) and a large unfilled defense labor gap (~800K, potentially rising materially). The urgent need to boost manufacturing is creating a new willingness to accept more acquisition risk to reduce operational risk.

Geopolitics

The National Security Strategy (NSS) was framed as prioritizing core interests and allocating limited resources, reflecting a distinctly Trump worldview and shifts in perceived leverage. The NSS is underpinned region specific factors including a proximity driven Western Hemisphere strategy focused on countering Chinese/Russian influence amid migration/narcotics pressures (with Greenland, Venezuela and Cuba highlighted as long duration strategic tests). Europe is characterized by negotiation asymmetry in Ukraine and skepticism that sanctions alone can alter Putin’s calculus. Also, the Mideast is defined by situational decision-making, looming Iran “red line” dynamics and reluctance to own post conflict outcomes.

Segment/Program-Specific Issues

Space

Despite strong senior leadership, space does not appear to be a top-tier priority for this administration so far. Trump 2.0 has been largely inactive on the National Space Council and has shown inconsistency across major space programs. Space Force funding would have declined without support from the One Big Beautiful Bill Act (OBBA), underscoring that recent momentum is being driven more by Congress than the White House. There is also concern that NASA Admin Isaacman’s mission driven approach may not fully align with broader Administration priorities, limiting near term policy impact.

Launch

While U.S. launch leadership is effectively synonymous with the incumbent's leadership. The competition is seen as dominating the small launch, though the overall small launch market is limited. Demand is strongest for heavy and super heavy lift. A new spacecraft and rocket in development represents a potential step change, with the opportunity to reduce launch costs by another order of magnitude.

Golden Dome

The Golden Dome is increasingly framed as a mechanism to drive investment in space command and control, missile warning and missile tracking sensing, but execution has been slower than expected. Space based interceptors could be seen as the largest cost driver and most difficult to execute, while boost phase intercept remains technically challenging and may be limited to demonstrations. Some incremental need for new ground based interceptors is expected. Importantly, Golden Dome (certainly the space portion) is viewed as likely to endure beyond Trump Admin given bipartisan support, even if near term progress remains uneven.

Shipbuilding

Budgets have not been the binding constraint over the past decade. Rather, labor availability and industrial base throughput are limiting output, with shipyard hiring, training and attrition being persistent challenges. The Navy estimates a requirement to recruit ~250K workers over the next decade to grow and replace retirements, with constraints compounded by a supplier base that remains heavily single source (~70% of key Virginia class components come from one supplier). Labor challenges vary by geography.

Munitions

The general consensus was that the recent seven-year framework announcements for a handful of munitions are just the start. Many believe that more munitions will see similar frameworks/deals and they could be applied to components like short-range missles (SRMs). Production expansion for major weapons and growth provides opportunity for both existing and new entrants.

Space Development Agency (SDA) Tracking and Transport Layers

Space Development Agency's Tracking Layer (Tranches 0–3) is moving forward in various stages, but Transport Layer T3 outlook remains unknown for a variety of reasons. DoW elements and military branches may resist adopting new concepts of operations (CONOPS), particularly given the availability of constellation satellite military networks (e.g., MILNET). There is growing debate over whether DoD will further lean into commercial players for future space communications and data transport. The FY'27 budget request should provide clarity on Transport T3.