The Heat Is On: Budgets, Defense Policy and Space Contracts

Speaker 5:
Every single thing you have, Patriot, the radar, counter drone system, all these are different computer screens. Everything's now on one screen. They did this in three or four weeks, which is kind of crazy considering how many decade plus we've been doing JADC2 and billions and billions of dollars and what have we accomplished?
Roman Schweizer:
From DOD to Congress and from the White House to Wall Street, the NATSEC Need to Know Podcast, an unrehearsed podcast presenting insightful discussion and forecast of the major national security and defense issues of the day. Welcome to the NATSEC Need to Know. We've got our reporters round table to discuss the top national security issues in Washington and around the world and a preview of what to expect over the next several weeks. Joining me is a great group of experienced aerospace and defense editors and reporters. We've got Tony Bertuca from Inside Defense, Aaron Mehta from Breaking Defense, and Marcus Weisgerber from the Wall Street Journal.
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Gentlemen, thanks so much for joining me. It's been a while since we've done this. A lot to catch up on, and let's just start off spinning the globe. We've got a couple of global conflicts going on around the world. Let's try to keep it from a policy perspective. Congress going through the budget cycle but appears to not be satisfied with how DOW is spending Ukraine dollars and/or supporting Ukraine. And then also there is a potential this week for a war powers vote given President Trump's support for ousting some Republican senators, Bill Cassidy and John Cordon, so those votes could swing. So, just quick around the horn, any updates from your perspective on either Ukraine or Iran? Obviously these are two fast moving situations, so no need to get into the policy weeds.
Marcus Weisgerber:
We're now how many months, three months into this conflict and we still have no supplemental. One thing I want to point out, and we reported this and others I believe have too. Remember back in March when the $200 billion was brought up and the Pentagon had sent a $200 billion request? That got confirmed. That was an official response that the White House had sent OMB a $200 billion request. I'll point out, the most recent, and I'm sure Tony and Aaron and their teams have written about this more recently than me, but about within the last month, the last time I wrote about during the posture seat when Hegseth was on the Hill about the cost of war being what, 25, 30 billion so far and not counting the damage to the bases.
The White House referred me to the Pentagon for a comment on when they will send a budget to the Hill. So, a supplemental request to the Hill. So, I don't think I've ever heard that happen before because it's OMB and the White House's job to send the request to the Hill. Call me skeptic. I don't think a supplemental's coming unless this thing's completely over. There's a lot of money in the Pentagon budget. 1.5 trillion, we have the reconciliation. Maybe it gets thrown into the reconciliation package, which probably would be the most likely. I don't know if we're going to see anything and certainly there's a lot of extra stuff in the budget and a lot of stuff we don't know what it's even for, like the dog money.
Speaker 3:
I think the $200 billion, that's very illuminating when we're thinking about the state of the back and forth with the budget between DOD, OMB and the Hill right now. Clearly at one point they thought $200 billion was a perfectly reasonable thing to send to the White House and that the White House would find a way to structure this and go for it.
Marcus Weisgerber:
It's two weeks in.
Speaker 3:
Yeah.
Marcus Weisgerber:
Two weeks in, and it-
Speaker 3:
Yeah, two weeks into the war.
Marcus Weisgerber:
... was $200 billion.
Speaker 3:
The Secretary of Defense confirmed it. He confirmed it. It was not, this is the Secretary of Defense. Now he did say, now, hey, look, that could be adjusted. He didn't say it could be adjusted to $29 billion. He did say, "Hey, look, it could be adjusted."
Roman Schweizer:
200 going higher, not 200 going way lower.
Speaker 3:
But yeah, I think that's extremely illuminating. And then given where we are with the timing of trying to get reconciliation 2.0, let alone 3.0, which is the one we're watching for defense and when that might happen, what gets collapsed now into reconciliation to kind of maybe sweeten the deal to get some votes for it. And maybe you could use the argument on the Hill. If some Republicans are inclined to vote no, like, "Hey, we need this for Iran. This is an Iran thing. This is going to help us sew up everything with Iran." So, yeah, I definitely think that's going to play a role in sort of maybe you don't see a formal supplemental, it just kind of gets collapsed.
Speaker 4:
So, here's my counterintuitive thought. What if they're holding onto the supplemental, because I agree, this is not coming anytime soon. What if they're holding onto a supplemental in case reconciliation 3.0 falls apart and you need to get a whole bunch of those munitions and the 350 billion that you're trying to jam into supplemental, some of that then shifts to a base budget out of reconciliation and some of it you say, "Hey, this is a war supplemental, which we can just get through maybe more easily than a reconciliation bill." I think given that we've heard now reconciliation, I think Wicker said he's expecting it to come after the election itself. I think you have to consider that they've got to have a plan B in place here and maybe this is just the easiest path forward.
Speaker 3:
Obviously, I think that remains an open possibility too, but we should also discuss the complications. One of those is you stop negotiating with your side, republicans stop negotiating with each other, and they start negotiating with Democrats if that happens. So, that becomes very different and Russ Vought does not stop being director of OMB when it's time to say, "All right, we're going to negotiate with Democrats to get a supplemental through because we need all those votes." So, I think that could be a plan B, but that just changes your formula quite a bit.
Roman Schweizer:
Yeah. If you were tuned into this podcast, thank you, one, for doing so. But also this is why you tune in, for the budget nerdery and wonkery at its finest. I am going to throw two variables in there, is that what if you were to take that supplemental and attach it to a continuing resolution in September and dare the Democrats to shut down the DOW and vote against defense a month before an election.
Speaker 3:
That's a fun one.
Roman Schweizer:
Dun, dun, dun. Right?
Speaker 3:
Yeah, that's a fun one, yep.
Roman Schweizer:
And then the other thing is this, and I think again, I have been more bullish than pretty much everybody on reconciliation 3.0. And I think you got to believe if they get 2.0 done, but this weaponization fund is kind of screwing that up right now. But think about it this way. The House wants reconciliation 3.0 before the midterms because they're all up for reelection and they want things on energy affordability, mortgages, ACA, defense, all that stuff so that they can give that on America 250 and this is Donald Trump's gift to America and please reelect a Republican majority in the House.
That's the plan. The Senate? So much. They'll do it in the lame duck. It's not so much of a big deal for them. So, that's the way it's always skewed to me. The House really wants to get it done before the August recess. The Senate's like, "We got all the time in the world because only a third of us are up for reelection."
Speaker 3:
Yeah, I'm really sympathetic to that view because the thinking is like, we have the trifecta, guys, how could we not get it done? It's more money for defense amid a very dangerous situation with Iran. How could we not get this done? So, yeah, if they drop it'll be one for the books.
Roman Schweizer:
For Republicans, in reconciliation 2.0, you are banking three years worth of deportation so you don't have to deal with Democrats. If the Republicans lose the House, they're not going to be more money for defense. So, you want to get anywhere from two to 350 so that you've got that to spend over the remaining two and a half years of the Trump presidency. So, you bank that now, spend it out over the balance. We were going to talk about some other topics, but we went right to the budget nerdery. That's what you get here. I do want to just briefly talk about Secretary of War, Pete Hegseth was at the Shangri-La dialogue, big international confab in Asia. His speech has been criticized by some for not beating the drum on China more clearly, though I would say he did hit the national security strategy, national defense strategy thing about not allowing a hedgemon in Asia, which is again, part of the plan and that is implied.
He did actually, I think I checked the speech. I think he did say China at least once, maybe twice, but explicitly there's a lot more implied there. It's very interesting that the US messaging is a lot more like the Chinese. There's a lot of subtlety and innuendo in there these days. The other thing I thought was interesting, he did throw down the 3.5% gauntlet that he expects all Asian countries like piggybacking off the NATO thing, we are living in a 3.5% of GDP world for defense. Now interestingly, if you take US GDP for next year at, I think it's about 39 trillion is the OMB forecast, that gets you to about 1.2 trillion. So, you got to think 1.2 trillion is the bare minimum 1.5 gets you to four and a half percent whatever. The last thing is he did call out a number of allies for actually stepping up and the US and Australians did agree to Aukus phase two, which I've got an interesting riff on that. But guys, any thoughts on Secretary of War headset at Shangri-La?
Speaker 3:
Yeah, I think the three pieces really are you can't listen to that and think that China isn't still the pacing challenge. That message was still pretty much communicated. It just wasn't... The rhetoric wasn't as... The rhetoric is typically reserved for other things, but didn't use it for China this time. Allies need to do more and the United States intends to remain a central security partner in the region. I think if you're someone who's watching defense and defense spending and you want to know why the Pentagon is investing in almost everything from submarines to autonomy, the answer is still China. And I think that came across.
Marcus Weisgerber:
It was consistent. I mean, like Tony said it, but it's consistent in the way the administration has approached Europe and others. Notable, I'll pivot a little bit. I was randomly at the White Sands missile range last Wednesday with Army Secretary Dan Driscoll and talking to folks there about hypersonic testing and stuff. We just got a background around the range and kind of what they do there and the challenge of the hypersonic testing. Australia came up as a potential place with a lot of land mass, a lot of rural areas where stuff like this could be done and there keeps being more and more integration, I guess, between the United States and Australia. So, that to me was notable. But the lack of saying China and I feel like that's consistently around the Pentagon right now since the president going there a few weeks ago, everyone is now, it reminds me very much of during the Obama administration when we couldn't say Russia or China and everyone wanted to say potential adversaries. And we'd ask like, "Who?" And it'd be like policy official X being like, Humana, humana, humana, humana.
Speaker 3:
Near peer competitors.
Speaker 4:
Yeah. Didn't talk a lot about China, didn't say the word Taiwan at all. And as notable for its swipes to Europe as it was to its honanzas, to the allies in Asia, I do find the OCUS of it all very interesting at this point because this was such a major thing and this is the important part remains a major thing for the UK and especially for Australia. This is the single biggest public works effort in Australian history by dollar value. So, even while Washington seems to have largely forgotten or kind of ignored Aukus, you just don't hear it talked about at all anymore. Every little signal on Aukus is a gigantic thing in Australia. So, the fact that they went and they had something tangible to talk about with Aukus I think will be very appreciated both in London but especially down under.
Marcus Weisgerber:
I know we've kind of got drifted away from the Hegseth speech. The one thing when talking to defense companies right now, the one country they constantly want to talk about is Australia. You hear Eastern Europe and Ukraine and stuff like that still, but like everything is like all the high end stuff that the United States is buying. Everyone just wants Australia, Australia, Australia. We're going to Australia. Are you going to the conference? Are you going to Avalon? Are you going to this one? Are you going to that one? So, it's very important.
Roman Schweizer:
Yeah. The one thing I would just note, I mean, Australia has made... So, Aukus phase two was announced and this covers unmanned undersea vessels and joint agreement potentially joint fielding as well. There's actually a date on there for a fielding system by 2027. And this aligns, I think, pretty neatly. It's not explicitly called out, but the Australian or the Royal Australian Navy, the RAN, has purchased about a billion two worth of Anduril Ghost Shark UUVs. I think the implication is that that is at least one of the initial systems. I think the US Navy is probably quietly reviewing that, kicking the tires on that system as well. And so that's pretty significant. Even Boeing has its Ghost Bat, which is its collaborative combat aircraft.
So, Australia's moving out with stuff. And I think there's something to be said that in a lot of ways in terms of unmanned systems, Australia's doing some interesting things. Ukraine obviously is breaking a lot of ground in there in a lot of different categories. A lot of the US-declared enemies are doing things like that. US is doing things too, and hopefully there's a lot going on in the classified world. But yeah, I would agree the unmanned aspect. I do want to also just give a shout-out to Tony, give him full credit for this, but we were talking about Hegseth kind of railing or really putting it to allies that they need to kind of step up. No more freeloading. 3.5% of GDP is the price of entry. If you spend 3.5%, you're going to get priority on US foreign military sales, you're going to get tech transfer, you're going to get treated like an equal.
So, I think Tony appropriately named this the Jerry McGuire Defense Strategy, the Help Me Help You strategy. So, henceforth shall be named by that. And so please buy Tony beer if you see him in public. Marcus, you not so subtly dropped the notion that you were on a trip with the Army Secretary. So, tell us about that.
Marcus Weisgerber:
We were in Colorado Springs at Fort Carson. A bunch of 600 or so engineers from defense companies, dozens of companies. I think it was upwards of... I don't want to say, but it was upwards of like 70 something systems they jailbroke. What the hell does that mean? I always think of my iPhone and back in the day when you couldn't get cool apps when the iPhone first came out and you could hook it up and jailbreak it, get the apps you always wanted that could, may or may not ruin your phone. Anyway, what they've done is they have been able to connect the interfaces of 70 something weapons in a matter of weeks and they held up this big binder of like 700 and something pages and that's like the DOD standard for interfaces, which is like 40 years old.
We basically threw that away and said, let's do this in modern software. And they were able to basically get everything so it plugs into Anduril, Anduril again, Anduril's Lattice command and control system. And so think of this as you're a missile warning person and you're sitting in a face in a tent and every single thing you have, Patriot, the radar, counter drone system, all these are different computer screens. Everything's now on one screen. They did this in three or four weeks, which is kind of crazy considering how many decade plus we've been doing JADC2 and billions and billions of dollars and what have we accomplished? Now granted, they threw a lot of regulation out the window with the whole like, you don't have to build to the interface. There were classification things that they just said, "Hey, everybody's in the room. We're going to guarantee cybersecurity and stuff." And seemingly they did this and they didn't allow a big thing.
They didn't allow business development folks in. It was just engineers. I was there on a dog and pony show day when you had a lot of executives, lots of CEOs or division presidents, the president of RTX's Raytheon division was there. And I talked to the president of General Dynamics Land Systems. He was telling me about the Abrams, how now not only can they get live telemetry back at the command center of like an Abrams tank, but they can tell the weapon load in it and where it is and even the person remotely can turn the headlights on and off. I don't know if it has a horn, maybe beep the horn. Kind of wild, kind of game changing and they're already pumping these software updates over to CETCOM already.
So, for folks in the fight, it's kind of amazing and kind of bizarre it's not getting a little bit more attention. I'll have a story very shortly coming out saying all that. Some other folks I believe covered it a little bit, but I mean, this is a big, big, big deal.
Roman Schweizer:
When you're describing the M1 Abrahams, I couldn't help think of OnStar for Abrams, right?
Marcus Weisgerber:
Yeah. That's exac-
Roman Schweizer:
You can start that thing up.
Marcus Weisgerber:
You know what? If my story hasn't been finalized, I might put that in there, but that's exactly what it is. It's like I could pull up my car right now and I could see how much gas is in it, my range, like the doors are locked or unlocked, windows are open and everything. I could close them all if I need it. It's exactly the same thing. It's not exactly the same thing, but it's similar.
Roman Schweizer:
I mean, here's the interesting thing, and maybe get Tony and Aaron on this too, but here's the thing, and you mentioned it was all engineers, not business development people, and I would suggest not lawyers either. So, I'm sure there's a lot of intellectual property and things like that and Army Secretary, Dan Driscoll, who picks up some flack and all these kinds of things, but it has been a major proponent of right to repair and sort of rolling back some of these IP rules and I'll be curious to see where that goes as well.
Marcus Weisgerber:
He pushed back on the fact that this was... Yes, he is a big advocate of right to repair. He pushed back on the giving up of IP. The big thing they kept saying is they're not giving up their IP, it's just the interface. They're just getting the view essentially. I mean, to me, you're getting a little more than the view if you're turning on the lights and stuff in the Abrams, but he picked up the phone and called all the CEOs of all the nine companies, like within hours of coming up. He got briefed in Europe on some stuff Ukraine was doing with their command and control and was just like, "Why aren't we doing this?" And he called the Army chief technology officer up, said, "Can you do this in X amount of time?"
And they were literally getting outside this place, outside this building where they were, they had a Patriot system. They had every radar, they had LTAMS and all sorts of tons and tons of things. This one company had these little chips that go in the handle of the gun and you could tell on Lattice which way the gun is pointing. It was absolutely wild, wild, wild. But him actually being involved and calling up everybody and saying, "Hey, come help me." And he said he got no pushback. Like you, Roman, I know that the defense industry's not a big fan of right to repair. I asked the question there of Lockheed L3, Raytheon, general dynamics. I asked all of them like about stuff and they put a very rosy picture on it right now. We'll see what happens if this goes a step further.
Speaker 4:
It seems like right now the Pentagon is... I'm the youngest of this group, so maybe you guys remember this before my time, but-
Roman Schweizer:
But you are also the grayest, meta, so let's keep that down.
Speaker 4:
You want to talk about the hair? We'll leave this out. This is not a visual media [inaudible 00:21:05]. So, look, I just don't remember a period where I've been covering this where the Pentagon seems to have the defense industry on a bit of a beck and call situation. Obviously, industry always wants to respond to the customer, et cetera. But in this case, you've seen it certainly with Feinberg and we've all heard the stories, read the stories, written stories about calling it in and literally telling them, "Hey, come to my office," and people come run it. And now you're starting to see this with the services as well at a lower level. It's an interesting dynamic shift and I think if there are going to be some of these changes happening and these are changes we've all been talking about for years, this might be the power dynamic that can actually push through some of the bureaucracy that's there.
Speaker 3:
Yeah. And just to maybe riff a little off of that, the place where industry is going to do its fighting is on Capitol Hill, right? They're going to go to Congress and say, kill this in the NDAA like they did last year. And so this year you're seeing at least just a little bit of that right now, sort of the beginning of some dis-ease with some of these framework deals. So, if you look at the chairman's mark for House Armed Services Committee, Chairman Rogers mark, they've got a section in there that's like, "Hey, I'm obviously paraphrasing, but we're not really cool with that L3 Harris deal where you guys took a billion dollars in equity and basically picked a winner in the free market. And according to a staffer who talked to the press, quote unquote, put your finger on the scale DOD." This is not something they've really talked about publicly.
It was just in the chairman's mark and if you read the mark and read industry press, you know that they're not thrilled, but they're keeping it pretty quiet, but this is where it's going to happen. So, if there's dis-ease with all of this on right to repair or we'll be at your beck and call, we'll come to the dog and pony show or whatever, we're going to go to Congress though and make sure that we try to get the best deal we can here. I think that remains in place, that dynamic.
Marcus Weisgerber:
Maybe Feinberg and company, they find an ally in the Democrats if the House flips for some of these initiatives that they have that might not be popular among the Republican Party, but maybe they find a bipartisan way to move some of the right to repair, Elizabeth Warren's been pushing that and others.
Speaker 3:
Yeah, definitely. I think you've also probably got a potential ally in Adam Smith if the house flips and he becomes chairman of the hask. So, yeah, for sure.
Roman Schweizer:
The one thing though I do, I will give the War Department credit and whether it's the Arsenal of Freedom Reforms, we haven't really seen much on paper what those, but it is, I mean, you literally have a service secretary picking up the phone and like pushing the lawyers out of the way and it's the threat of competition, right? It's the threat of traditionals and new entrants. And look, I think the primes can innovate as well as anybody, but they play the game to the system, right? Is it a requirement? You got requirements documents, you've got legalese, you've got all of these things and if DOW is willing to throw all that out the window, I think you're going to get a lot more of innovation from both the traditionals and the non-traditionals as that go.
Speaker 3:
One of the differences too is, yeah, aside from just that leadership horsepower that we've got this time around, you have got a direct connection to the president's bully pulpit where now you can tell contractors, "Guys, we're going to tell the White House about this and you're going to end up on truth social." And then the clock starts ticking. We can talk about ships, I guess, and possibility of foreign made ships if you want, but that's what I think this is too. That's leveraging what you think you've got to get industry to perform.
Roman Schweizer:
Well, and let's not be... No need to be subtle here amongst friends, but if JD Vance is President, Dan Driscoll is Secretary of War.
Speaker 3:
Extremely influential in a Vance administration, extremely influential.
Roman Schweizer:
It's not like John Phelan or somebody who's already departed the pattern, as they politely say. So, just real quick, and I mean to the degree you guys mentioned this, we do our monthly track of foreign military sales, just notable, I mean, foreign military sales are on a historic pace, I mean, could actually beat the prior record of in fiscal '24 by 20 or 30% over a hundred billion dollars in case notifications. It is just amazing. Again, there's a lot of people investing in defense companies and I think the broader issue is uncertainty about what we talked about at the beginning, what spending is going to be both in '27 and longer, but the demand for US weapon systems in Europe, in the Middle East, in Asia is just incredibly robust even though the government of Canada, Mark Carney has decided to buy Sab-Bombardier globalized airborne early warning systems. But I just want to shout out on that because I think that's one of the things global defense spending is at all time highs and US foreign military sales are at all time highs. I don't know if you guys have any comments on that.
Speaker 4:
I mean, the big thing is that that's all true, obviously. The long-term I think is still the question, if you consider Europe rising Japan now becoming more of an exporter for the first time really. Also, if there's going to be any effects from the US staying to other countries, "Hey, thanks for buying our FMS stuff. I know we said you're going to get this, but we actually need it for Iran, so you're getting kicked to the back of the queue." These are all the long-term things. Short-term, I don't see any impact. People have to keep buying the US. There are not alternatives. Longer term, I think if you are a country who is a little concerned about America's commitment to your security, the actions of the last six months are not going to make you any more likely to say, "We can definitely fully rely on America being there and giving us what we need going forward."
Marcus Weisgerber:
I just want to say you hit it, Aaron. They can be lining up. The question is when they're going to get it. Who knows? They're prioritizing the Middle East allies in the United States, Europeans and such reportedly aren't getting stuff, aren't going to get Patriot and stuff as quickly as they wanted it. And we alluded to it with the ship comment Tony made. How quickly are you going to... You can't build ships quickly in the United States. You can build them quickly overseas. So much of this stuff just takes time to do. There's no easy switch to actually flip to speed this up, it seems.
Speaker 3:
Yeah. And the new Lockheed facility in Alabama, real big deal, but it's not going to start meaningfully contributing to FAD output till 2028, I think is what they said. So, it's going to take a really long time still in terms of that. But I think the other thing too is that the-
Marcus Weisgerber:
And that's fast.
Speaker 3:
Yeah, I know. It's nuts. 2028's nuts. So, global events have certainly conspired to create an insane market for US weapons. Every missile that is launched in the Middle East is an advertisement for missile defense and nobody does it like the United States and that's the product. So, I definitely think that's not going to cool off anytime soon.
Roman Schweizer:
We recently did a sort of forecast looking at the FitEp and basically to use a term that the kids are using these days, the war department is production maxing. I know some of the folks are looksmaxxing, but the war department is production maxing. And you're right. I mean, but that is really across the board. And again, I throw it back to Pete Hegseth doesn't have to go around saying Marsha, Marsha, Marsha, like China, China, China. I guess that's more of a Frank Kendall throwback, right? That was a Frank Kendall.
He doesn't need to say China, China, China, but 1.5 trillion and buying 85 F-35s a year and doubling F-15 production and submarines and munition, that is deterrence against China. And that is hopefully, again, depending on who you believe when Xi Jinping is going to wake up some morning and say, "Yeah, today's the day I want Taiwan." I mean, if that's not within the next few years, it's going to be that much farther once all these production lines are open and going. All right, I do want to just touch on this because obviously I worked in Navy shipbuilding for a little while. There's a push now to potentially buy some non-combatants, non-submarine kind of stuff, like basically auxiliary or logistic ships from foreign buyers or study building destroyers and foreign shipyards.
I got to be honest, I can't imagine the US Congress would ever allow that to happen, particularly a guy like Roger Wicker, chairman of the Senate Armed Services Committee, home to Ingle Shipbuilding. I mean, tell me if I'm wrong, guys. I've listened to the hearings. I mean, the new acting Navy secretary kind of did his best to explain it that maybe they built a couple and then US workers are going to go over there and learn production methods and then come home. But I mean, Aaron, why don't you go lead us off with this?
Speaker 4:
Yeah. So, my colleagues, Valencina and Diana Stancy wrote a piece recently where they talked to an OMB official who expressly said there's about 1.9 billion in the reconciliation spending plan, which is supposed to be for studying potential foreign builders. This official was very upfront and said, look, nobody spends 1.9 billion to study something. We're going to buy something. Said the reason it's in reconciliation is that we know Congress is going to have issues here and Congress is going to want to try to slow it down or would raise issues. Reconciliation, we can kind of go around that. So, they're very expressly telling us their plan is to buy something. Now what ship that is unclear. I mean, the official even raised the idea of being a frigate potentially, but it's something that we'll have to see how that shakes out.
Congress is absolutely going to line up to fight this, but that's the magic of reconciliation. You get the money through and it's just a little bit easier to work the rafts and to come up with a solution. The other aspect of this is it's not just buy foreign ships. It's you're buying foreign ships. They come talking about the Finland model, because this is what they're doing with icebreakers. You're buying a foreign ship to get that under production and then you're going home and saying, "Hey, for ships three, four, five, you guys need to have a new yard in the US and be building stuff after that in the US." So, it's kind of a down payment, get things moving while they get built in the US eventually. So, it's kind of a multi-step plan. That seems to be their idea of how to make Congress feel better about it. We'll see how it shakes out, but OMB is very openly now talking about, We are going to buy a foreign ship, that is our plan.
Speaker 3:
Yeah. And I think certainly that contributes to the atmosphere you want to create if you're negotiating with US shipbuilders. We have seen munitions were the first out of the gate with these different multi-year frameworks, but you've got to assume ships are coming. They want to work something out with US shipbuilders to invest their own money upfront in ways that they haven't been willing to do before. And so if maybe they did the math over at OMB, they're like, "Well, what's $2 billion if we can get X billion invested from them if we just use this as the stick and we get them moving in the direction we want them moving?" And again, there is always the bully pulpit that they can use. It worked with RTX. RTX showed up after the president called them out on Truth Social and said they questioned their patriotism, threatened to investigate them.
And not to mention we still have floating around the Pentagon somewhere, I don't know if it'll ever emerge, the so called naughty list of everybody who's not playing ball. So, I think eventually we'll see something like that, but they said, "Well, it's an extended review. No reason that you can't bring that up when you're negotiating with US shipmakers and also bring up the fact that we can go overseas for some of this stuff." So, I think Congress is definitely going to have some say, but yeah, it's reconciliation. We'll see ultimately what ends up there.
Marcus Weisgerber:
I think you have a scapegoat in it. If it does go south, you could blame John Phelan for it all. He was a big proponent of this. I know he bragged about going to all the shipyards overseas and seeing stuff. I mean, I don't know if he said this, but I had heard he saw he went to a Fincantieri yard in Italy where they built cruise ships and apparently it's like light years different from how ships are built here. I mean, granted a cruise ship is not a warship, but just in terms of, it's like going on an auto assembly line where it's very streamlined robotic, fewer people. It was very much like that. I was told by someone. But as you said, OMB is behind it, like Aaron's report or Aaron and his team have reported. So, if it's in the reconciliation, it gets through if assuming reconciliation gets through.
Roman Schweizer:
I would just say as someone who lived the Littoral combat ship dream, I would say the one thing that I think is interesting, and the reason why I say we're at an interesting point is that US warships have such high specifications and tolerances for damage control, firefighting, survivability, all of those things. If you look at the coal, all the various US warships that have been sort of struck, I mean, really, even a lot of the states back to World War II, that the tech authorities or warn holders are very stringent. Their whole job is to really over-specify and over-engineer these warships. And I think that's why a DDG, a US Arlene Burke class is that much in some ways more expensive. There are some valid reasons than their foreign counterparts that they don't have that damage and survivability built into them. I think the interesting jux- because we don't want to have disposable ships, right?
You put 350 sailors on a ship, you want it to be able to survive and fight hurt. The interesting thing that I think, and I just know Sironic, which makes unmanned USVs, HII is partnered, I saw them have some... If a ship's going to be unmanned or lightly manned, then maybe the damage control standards are different and things like that. But certainly when it comes down, a commercial design is a commercial design for a bunch of good reasons as opposed to a warship design.
Okay. We're coming up on time. I want to throw one thing out. I thought it was amazing. There's this little company called SpaceX. I think that's it. Absolutely won two fascinating contracts last week. Notably, I thought of interest from Space Systems Command, which is the sort of Space Force traditional acquisition arm. These are not being done under Space Development Agency, which if you look at some of the congressional language, SDA may be going away, but SpaceX won a contract for the Space Data Network, which sure sounds a lot like StarShield, the classified militarized version of Starlink.
And then they also won a contract for something called Space-based AMTI, Air Moving Target Indication. And if you are a nerd like me, you think that is fascinating stuff. Leo satellites with radar that can detect aircraft, like crazy stuff. No more AWACS, no more $500 million AWACS that are big fat targets for the PLAF and things like that. And then of course, very sadly, but obviously good for SpaceX. Blue Origin had the absolutely, unfortunately, spectacular explosion of its new Glen on the pad at Cape Canaveral. I mean, it looked like a Michael Bay movie, really that explosion will be in B roll forever. But anyway, guys, any thoughts? I mean, as they say in Zoolander, space is so hot right now, any thoughts on those contracts or what's going on?
Marcus Weisgerber:
So, I was at Space Command on Friday, I was everywhere last week. No, my macro-
Roman Schweizer:
The hardest working man in defense journalism, ladies and gentlemen.
Marcus Weisgerber:
You're right.
Roman Schweizer:
Marcus Weisgerber.
Marcus Weisgerber:
So, I will just say we're seeing SpaceX win a lot of contracts for CNO win a lot of contracts these days. I know we've been talking so far into this administration. Are the startups and Neoprimes or whatever, are we going to actually see an emergence or whatever of them? I think that is starting to happen, but at least in the Neoprime, the big guys. Will we see it at a lower level as referenced earlier by Tony with the... Sorry, I think it was Tony who talked about the L3 investment. Are we going to see it down at that level at others? Time will tell.
Speaker 3:
I think just one of the more interesting sort of business aspects of this is SpaceX continues to win the strategically important defense business and the Pentagon is increasingly buying access to what our commercial ecosystems instead of building every system itself, which is what they said they want to do. So, you've got the defense space market shifting from these government owned architectures to what is sort of a hybrid commercial government architecture. So, it's something that just continues with the trend, right? SpaceX, they're not a launch company, they're becoming part of the military's operating infrastructure with this.
Speaker 4:
The only thing I'd say on Blue Origin, aside from agreeing that the explosion is honestly must see video because it's incredible. Pretty quickly, Friday night, SSC came out with a statement and said, "We're adding a plan to launch Blue Origin in early 2028 as a show of support that we still believe they're viable and they're going to get there." They expressly said in the statement, this is a show of support and we believe in them. Everyone who remembers the old ULA fights and the idea of single source supplier, the Pentagon very much does not want to get back into that business. That's how SpaceX broke into the first place was because they didn't want ULA to be the only supplier. Pentagon doesn't want SpaceX to be its only supplier. They want New Origin to work and Blue Origin to work. So, they're continuing to at least offer verbal support of Blue Origin's efforts here.
Roman Schweizer:
And I would just maybe sadly note or with the sad trombone, where is ULA though? I mean, there really should be three horses with... And then that's even to throw Rocket Lab into the mix. I mean, there's plenty of horses, but ULA is unfortunately not the powerhouse, I guess it was, or compared to some of these newer entrants. Gentlemen, we have covered a lot of ground as always. Thank you very much for your time. It's great to see you and happy summer and we'll talk soon.