Defense contractors

[Hektor]

Boeing, Blue Origin, et al might catch a break after all.

 

https://www.washingtonpost.com/technology/2025/06/07/trump-musk-spacex-nasa-national-security/

 

NASA, Pentagon push for SpaceX alternatives amid Trump’s feud with Musk

The fight between President Donald Trump and Elon Musk highlights the government’s outsized dependence on a single company for missions.

[Spekulatius]

2 hours ago, Hektor said:

Boeing, Blue Origin, et al might catch a break after all.

 

https://www.washingtonpost.com/technology/2025/06/07/trump-musk-spacex-nasa-national-security/

 

NASA, Pentagon push for SpaceX alternatives amid Trump’s feud with Musk

The fight between President Donald Trump and Elon Musk highlights the government’s outsized dependence on a single company for missions.

Origin needs to hire Gywnne Shotwell from SpaceX. Make her CEO and hire some key employees from SpaceX. 

 

This is Michael Corleone‘s Alt Account speaking.

[Hektor]

3 hours ago, Spekulatius said:

Origin needs to hire Gywnne Shotwell from SpaceX. Make her CEO and hire some key employees from SpaceX. 

 

This is Michael Corleone‘s Alt Account speaking.

Some might voluntarily leave. Read somewhere that the leader of Optimus has quit Tesla.

[Hektor]

https://www.bloomberg.com/news/articles/2025-06-11/pentagon-slashes-in-half-its-request-for-air-force-f-35s

 

Pentagon slashes in half its request for Air Force F-35s

The Air Force has cut in half its request to Congress for its signature F-35s, dealing a blow to Lockheed Martin Corp., the top US defense contractor.

 

A Defense Department procurement request document sent to Capitol Hill this week asked for 24 of the planes, down from 48 that was forecast last year.

 

[Spekulatius]

Also this:

https://aviationweek.com/defense/budget-policy-operations/canadian-f-35-order-faces-cost-spike-facility-delay-pilot-shortage
 

So this was ordered in 2022 based on 3 year old estimates? Nobody bothered to update the quote?  

 

Seem like ain’t nobody likes the F35 no more.

[Spekulatius]

Based on what we are seeing in Iran, it sounds like the X and tech brother experts that claimed that cheap drones and guided rockets are a winning formula against air superiority fighter like the F-35 etc were a bit early. I think the cheap drones in Ukraine are winning precisely because air superiority is not achieved by any side.

 

Iran shows that if you have air superiority, you can do whatever you like. The Israeli Air Force now can bomb any target within reach of fighter planes in western Iran with cheap JDAM/ glide bombs and there isn’t much Iran can do about it.

 

The cheap drones really don’t do much because they are easy to take down and they don’t have the reach or precision to hit high value targets. What Iran is doing is the equivalent of lobbing V1 rockets into London in WW2 with much worse results.

 

Sort of ironic that the F-35 batch was cut in half due to cost savings. If we really get into a conflict with China, we would need all those F-35 we can muster.

Edited June 17, 2025 by Spekulatius

[Xerxes]

3 hours ago, Spekulatius said:

I think the cheap drones in Ukraine are winning precisely because air superiority is not achieved by any side.

it is a shame that F-35 production is cut in half. But I don’t think that is permanent. 
 

On Ukraine, you can have a WW1 style brutal trench war while you are having advance drone warfare at the same time. Ultimately the war is shaped by its circumstances.
 

Ukraine war circumstances meant a bungled invasion that achieved strategic surprise (I.e gained lots of ground) but ultimately failed to sustain itself. (I.e to go further). Out of that came the trench war. That is one scenario that happened out of a distribution of many outcomes that could have happened. Out of that trench war, emerged drone warfare.  

Even with Russian Air Force not operating in the same zip code when it comes to Western doctrine about getting air superiority at all cost, they could have achieved it, if not for (1) immense support Ukraine has received from NATO (2) Russian shyness to cause real damage, because in their view they would soon operate from those airfield.
 

By Q2 2022, it was too late. Die was cast.  
 

 

[Spekulatius]

24 minutes ago, Xerxes said:

it is a shame that F-35 production is cut in half. But I don’t think that is permanent. 
 

If you cut production in half, you need to double it to get back to where it was, which is very hard to do.

 

The aerospace industry (and others) has learned this during COVID-19 and is still not back to the production rate they had in 2019.

The complexity of the aerospace supply chain for anything that fled in mindboggling. The tariffs throw another wrench into the gears here as well.

[Marco Van Basten]

46 minutes ago, Xerxes said:

it is a shame that F-35 production is cut in half. But I don’t think that is permanent. 
 

On Ukraine, you can have a WW1 style brutal trench war while you are having advance drone warfare at the same time. Ultimately the war is shaped by its circumstances.
 

Ukraine war circumstances meant a bungled invasion that achieved strategic surprise (I.e gained lots of ground) but ultimately failed to sustain itself. (I.e to go further). Out of that came the trench war. That is one scenario that happened out of a distribution of many outcomes that could have happened. Out of that trench war, emerged drone warfare.  

Even with Russian Air Force not operating in the same zip code when it comes to Western doctrine about getting air superiority at all cost, they could have achieved it, if not for (1) immense support Ukraine has received from NATO (2) Russian shyness to cause real damage, because in their view they would soon operate from those airfield.
 

By Q2 2022, it was too late. Die was cast.  
 

 

Not to change the thread, but what do you think will now happen with the war between Israel and Iran?  Thank you.

[LC]

1 hour ago, Xerxes said:

Even with Russian Air Force not operating in the same zip code when it comes to Western doctrine about getting air superiority at all cost, they could have achieved it, if not for (1) immense support Ukraine has received from NATO (2) Russian shyness to cause real damage, because in their view they would soon operate from those airfield.

 

Now imagine if Biden/Trump weren't asking Ukraine to handicap themselves by not targeting Russian energy infrastructure. 

[Xerxes]

20 minutes ago, Marco Van Basten said:

Not to change the thread, but what do you think will now happen with the war between Israel and Iran?  Thank you.

 

too many outcomes. Outside my preview 

Few observations:

 

- Khameni needs to go; this needs to happen

- Whatever threat Iran was; is no longer is. But Fordo and permanency only comes with a deal. 

- Bibi owns Trump, and sold it to him that this can be his ticket to his much desired peace prize. 
- Iron Dome is breached using those two stage solid fuel in great numbers. But that threat has shelf life as launchers are disabled/removed. 

- Don’t know what are Tehran evacuation order are about. I have a feeling that I am going to be disgusted … 

[Marco Van Basten]

8 minutes ago, Xerxes said:

 

too many outcomes. Outside my preview 

Few observations:

 

- Khameni needs to go; this needs to happen

- Whatever threat Iran was; is no longer is. But Fordo and permanency only comes with a deal. 

- Bibi owns Trump, and sold it to him that this can be his ticket to his much desired peace prize. 
- Iron Dome is breached using those two stage solid fuel in great numbers. But that threat has shelf life as launchers are disabled/removed. 

- Don’t know what are Tehran evacuation order are about. I have a feeling that I am going to be disgusted … 

I hope Tehran evacuation is psychological warfare.  I can't imagine that weapons of mass destruction or Tokyo fire bombing is contemplated for Tehran.  You think that Fordo cannot be destroyed from above?  How likely do you think a deal is?  

[Xerxes]

1 hour ago, Spekulatius said:

If you cut production in half, you need to double it to get back to where it was, which is very hard to do.

 

The aerospace industry (and others) has learned this during COVID-19 and is still not back to the production rate they had in 2019.

The complexity of the aerospace supply chain for anything that fled in mindboggling. The tariffs throw another wrench into the gears here as well.

 

sorry. My poor choice of words. 
 

I meant the DoD intake. The production rate is the preview of the Lockheed not DoD. They can lower rate and reallocate to other customers. The usual stuff one does.

[Xerxes]

3 minutes ago, Marco Van Basten said:

I hope Tehran evacuation is psychological warfare.  I can't imagine that weapons of mass destruction or Tokyo fire bombing is contemplated for Tehran.  You think that Fordo cannot be destroyed from above?  How likely do you think a deal is?  

Maybe you can damage Fordo. But what for. Better have a government that you can work with. But Khameni needs to go before that happens. 
 

Either way, Fordo today is not a threat after the attacks on everything else. 

[tnathan]

For anyone looking for a very good summary of where BAH is currently at (and I know I'm late here and it may have been covered above) I thought this was helpful: https://tbri.com/blog/doge-federal-it-vendor-impact-series-booz-allen-hamilton/

[Spekulatius]

9 hours ago, tnathan said:

For anyone looking for a very good summary of where BAH is currently at (and I know I'm late here and it may have been covered above) I thought this was helpful: https://tbri.com/blog/doge-federal-it-vendor-impact-series-booz-allen-hamilton/

I think this is pretty much priced in as consensus view. My Tikr consensus shows 2.2% expected growth for 2025, which is in the middle of the 0-4%range. The question is - does it get worse from here?

[tnathan]

BAH had a nice quarter the backlog has really expanded these are looking more interesting

[buylowersellhigh]

21 minutes ago, tnathan said:

BAH had a nice quarter the backlog has really expanded these are looking more interesting

Somewhat surprised by market reaction to earnings report.

[Hektor]

Is this the beginning of opportunities for private ship/boat builders?

 

https://www.wsj.com/us-news/u-s-navy-ships-are-languishing-in-repair-yards-e6358adf

U.S. Navy Ships Are Languishing in Repair Yards

 

President Trump has called attention to U.S. shortcomings in building new naval vessels. America is also struggling to fix the ships and submarines it already has. Limited dry dock capacity and aging equipment are also challenges.
 

The problems reflect a lack of investment in public yards after the Cold War-era and a broader decline in the American maritime industry. Those issues are now coming into sharp relief amid a greater focus on naval preparedness.

 

Naval experts are concerned that tardy or substandard work in repair yards will keep ships and submarines out of action during a potential war in Asia—a conflict expected to be fought in large part at sea.

 

The Navy’s difficulties with ship repair increased in the 1990s, when the U.S. halved the number of public shipyards mandated to maintain nuclear aircraft carriers and submarines.

 

The four remaining government-owned yards were set up over a century ago, designed to build wind- and steam-powered ships. They suffer from aging infrastructure, with more than half their equipment past its expected service life, according to the Government Accountability Office.

 

A shortage of experienced workers is a major problem. With some shipyard welders earning roughly the same as fast-food workers, many have left the profession, according to a report by the Congressional Budget Office. Inexperience reduces productivity and increases accidents, adding to delays, the CBO said.

 

To tackle the resulting backlogs, the U.S. needs to invest in more dry docks, naval experts say.

 

[Saluki]

On 8/3/2025 at 10:25 AM, Hektor said:

Is this the beginning of opportunities for private ship/boat builders?

 

https://www.wsj.com/us-news/u-s-navy-ships-are-languishing-in-repair-yards-e6358adf

U.S. Navy Ships Are Languishing in Repair Yards

 

President Trump has called attention to U.S. shortcomings in building new naval vessels. America is also struggling to fix the ships and submarines it already has. Limited dry dock capacity and aging equipment are also challenges.
 

The problems reflect a lack of investment in public yards after the Cold War-era and a broader decline in the American maritime industry. Those issues are now coming into sharp relief amid a greater focus on naval preparedness.

 

Naval experts are concerned that tardy or substandard work in repair yards will keep ships and submarines out of action during a potential war in Asia—a conflict expected to be fought in large part at sea.

 

The Navy’s difficulties with ship repair increased in the 1990s, when the U.S. halved the number of public shipyards mandated to maintain nuclear aircraft carriers and submarines.

 

The four remaining government-owned yards were set up over a century ago, designed to build wind- and steam-powered ships. They suffer from aging infrastructure, with more than half their equipment past its expected service life, according to the Government Accountability Office.

 

A shortage of experienced workers is a major problem. With some shipyard welders earning roughly the same as fast-food workers, many have left the profession, according to a report by the Congressional Budget Office. Inexperience reduces productivity and increases accidents, adding to delays, the CBO said.

 

To tackle the resulting backlogs, the U.S. needs to invest in more dry docks, naval experts say.

 

 

Besides Navy ships, there is very little demand for US built ships, other than ones that operate within the parameters of the Jones Act (US port to US port). The Koreans, and now the Chinese, have a huge cost advantage when it comes to labor, and their governments will often finance at extreme favorable terms because there is so much labor involved. Kind of like how the US government subsidizes our car industry. 

 

Ironically, offshore wind installation ships could have been a bright spot for US shipbuilding, but the current administration killed that. 

 

If I were to think about a defense company that is not viewed as a defense company, take a look at Smith and Wesson. They and Glock (which is private), lost out on an $800mm pistol contract to Sig Sauer's P320. After dozens of incidents of the gun going off in a holster and injuring police officers, and now killing an Air Force sergeant who placed it on the desk while in a holster and it shot him, there is a non-zero chance that the Pentagon might cancel the contract and two of the finalists, Smith and Glock, might get another crack at it. 

 

Anduril is not public (yet), but they have a contract for lots of sea drones that will be built in the US, so you can wait for it to go public or think about drone adjacent companies that supply parts to them (Kraken for batteries), or other companies. Optex makes optics for Bradley Vehiciles and Howitzers, Virtra makes shooting simulators, ISSC makes heads up displays for military planes, Taylor Devices makes landing gear for Predator Drones etc. (I have small positions in all of these, as a basket of defense stocks). 

[Hektor]

4 hours ago, Saluki said:

 

Besides Navy ships, there is very little demand for US built ships, other than ones that operate within the parameters of the Jones Act (US port to US port). The Koreans, and now the Chinese, have a huge cost advantage when it comes to labor, and their governments will often finance at extreme favorable terms because there is so much labor involved. Kind of like how the US government subsidizes our car industry. 

 

Ironically, offshore wind installation ships could have been a bright spot for US shipbuilding, but the current administration killed that. 

 

If I were to think about a defense company that is not viewed as a defense company, take a look at Smith and Wesson. They and Glock (which is private), lost out on an $800mm pistol contract to Sig Sauer's P320. After dozens of incidents of the gun going off in a holster and injuring police officers, and now killing an Air Force sergeant who placed it on the desk while in a holster and it shot him, there is a non-zero chance that the Pentagon might cancel the contract and two of the finalists, Smith and Glock, might get another crack at it. 

 

Anduril is not public (yet), but they have a contract for lots of sea drones that will be built in the US, so you can wait for it to go public or think about drone adjacent companies that supply parts to them (Kraken for batteries), or other companies. Optex makes optics for Bradley Vehiciles and Howitzers, Virtra makes shooting simulators, ISSC makes heads up displays for military planes, Taylor Devices makes landing gear for Predator Drones etc. (I have small positions in all of these, as a basket of defense stocks). 

Thanks @Saluki

 

Smith and Wesson might be part of a oligopoly. Would you consider the suppliers of Anduril to have a monopolistic or oligopolistic characteristics?

[Saluki]

1 hour ago, Hektor said:

Thanks @Saluki

 

Smith and Wesson might be part of a oligopoly. Would you consider the suppliers of Anduril to have a monopolistic or oligopolistic characteristics?

 

That's an interesting question. The gun companies make a LOT simpler equipment than drone companies, but they are oligopolies by virtue of industry dynamics and reputation, not barriers to entry. Consider how long they have been around: Beretta (1500s), S&W (1800s), Rossi (1800s), Sig (1800s), Ruger (1940s) and Glock (1960s). On something that your life depends on, you probably won't take the low bidder, but if you have a lot of them in your collection you can probably go with newcomers or weird cool looking toys for the shooting range, like Keltec. 

 

From what I've seen, the people supplying larger defense contracts tend to be like auto parts suppliers, but with better margins. Auto making is a low margin business, so if they outsource part of that, it's to someone willing to take less margin or is specialized and very efficient. There is one maker, for instance which makes a lot of car seats for several manufacturers. If you have a fat government contract it seems to make sense to buy from someone you have been buying from a long time, since the cost savings on a small part of the thing you make is not worth the risk if they have problems delivering on time, or there is a defect and it jeopordizes your contract. 

 

I don't know about their other suppliers, but the sea batteries for Anduril's drones are made by Kraken. There is no patent protection, just better manafacturing of a difficult to make item, which is why people pay up for it. 

 

Besides the moat, I think it's worth it to put some thought into who else you can sell your stuff to. ISSC makes heads up displays for military jets, but that could be used for commercial jets. Optex makes stuff for Bradley fighting vehicles and Howitzers. Is there an alternate use for that? I don't know. Kraken batteries are used by other sub makers (offshore drilling equipment), so if things don't go with Anduril, it won't be a home run, but won't be a zero either. 

[Spekulatius]

Rebuilding Shipbuilding is tough because the commercial shipbuilding  capacity in the uS is almost zero as the remaining shipbuilding is mostly connected to niches that are protected from competition (military and Jones Act ships). So there is no industrial base to left for building ships. Worse the tariff ones steel, Aluminum etc raise the cost and makes it even harder to compete.

 

I think a pragmatic approach would be to work with allies with large commercial shipbuilding operations to rebuild capacity. This would be Korea, Japan and to a lesser extent Italy (Fincantieri) 

It is much easier to build upon an existing competitive commercial base than to build it from scratch or upon a rotten base like HII ancient union controlled shipyards. I don’t think what I and other see as the rational solution is what’s going to happen.

 

I bought and quickly sold HII on the thinking that the narrative around shipbuilding would emerge and made a quick 40% out of it. I have no intention to hang around for the hard part though.

Edited August 4, 2025 by Spekulatius

[Hektor]

3 hours ago, Saluki said:

 

That's an interesting question. The gun companies make a LOT simpler equipment than drone companies, but they are oligopolies by virtue of industry dynamics and reputation, not barriers to entry. Consider how long they have been around: Beretta (1500s), S&W (1800s), Rossi (1800s), Sig (1800s), Ruger (1940s) and Glock (1960s). On something that your life depends on, you probably won't take the low bidder, but if you have a lot of them in your collection you can probably go with newcomers or weird cool looking toys for the shooting range, like Keltec. 

 

From what I've seen, the people supplying larger defense contracts tend to be like auto parts suppliers, but with better margins. Auto making is a low margin business, so if they outsource part of that, it's to someone willing to take less margin or is specialized and very efficient. There is one maker, for instance which makes a lot of car seats for several manufacturers. If you have a fat government contract it seems to make sense to buy from someone you have been buying from a long time, since the cost savings on a small part of the thing you make is not worth the risk if they have problems delivering on time, or there is a defect and it jeopordizes your contract. 

 

I don't know about their other suppliers, but the sea batteries for Anduril's drones are made by Kraken. There is no patent protection, just better manafacturing of a difficult to make item, which is why people pay up for it. 

 

Besides the moat, I think it's worth it to put some thought into who else you can sell your stuff to. ISSC makes heads up displays for military jets, but that could be used for commercial jets. Optex makes stuff for Bradley fighting vehicles and Howitzers. Is there an alternate use for that? I don't know. Kraken batteries are used by other sub makers (offshore drilling equipment), so if things don't go with Anduril, it won't be a home run, but won't be a zero either. 

Thanks @Saluki. My to do reading list lengthened after reading your post

[Hektor]

2 hours ago, Spekulatius said:

Rebuilding Shipbuilding is tough because the commercial shipbuilding  capacity in the uS is almost zero as the remaining shipbuilding is mostly connected to niches that are protected from competition (military and Jones Act ships). So there is no industrial base to left for building ships. Worse the tariff ones steel, Aluminum etc raise the cost and makes it even harder to compete.

 

I think a pragmatic approach would be to work with allies with large commercial shipbuilding operations to rebuild capacity. This would be Korea, Japan and to a lesser extent Italy (Fincantieri) 

It is much easier to build upon an existing competitive commercial base than to build it from scratch or upon a rotten base like HII ancient union controlled shipyards. I don’t think what I and other see as the rational solution is what’s going to happen.

 

I bought and quickly sold HII on the thinking that the narrative around shipbuilding would emerge and made a quick 40% out of it. I have no intention to hang around for the hard part though.

Thanks @Spekulatius. I doubt commercial ship building will return to the US. But, I feel the military needs would remain with US firms. I am not sure what opportunities exists based on the situation mentioned in the WSJ article.