Pentagon Plus-Up Pushes Defense Innovators To The Forefront

A question has hovered over the U.S. Defense Department’s decade-long courtship of Silicon Valley-based or -inspired technology startups: Even if those nontraditional suppliers produce a new class of low-cost, mass-producible alternatives to proven, if high-priced, weapon systems, would the Pentagon cough up the money to buy them?

Thanks to a combination of the Trump administration’s first annual budget proposal and Congress’ newly approved defense reconciliation package, the military can answer “yes”—if only for one year, perhaps.

• The one-year reconciliation plus-up raises questions about future spending levels
• Some lawmakers are concerned about fiscal 2026 appropriations

The prospect of a combined $961 billion defense budget in fiscal 2026—adding an $848 billion base budget proposal and $113 billion from a potentially one-off budget reconciliation law—could allow the Pentagon’s spenders to keep most traditional weapons programs on track while opening a funded, parallel path of development and procurement dollars for defense industry newcomers.

The package, if enacted by a base budget approval from Congress, could allow the Pentagon to sidestep several difficult choices.

The U.S. Air Force, for example, could ramp up Boeing F-47 fighter development, extend Boeing F-15EX production and accelerate Northrop Grumman B-21 bomber deliveries in the reconciliation package while reviving the hypersonic Lockheed Martin AGM-183 Air-Launched Rapid Response Weapon in the base budget request. Meanwhile, Congress also added $750 million in the reconciliation law for the F/A-XX program, ignoring objections from Navy leaders who had gutted the program’s funding in the base budget proposal because of concerns about the defense industry’s ability to deliver the future carrier-based fighter.

On top of those favorable moves for traditional defense contractors, the Pentagon opened new funding channels that could attract an expanding pool of nontraditional suppliers, including:

• Procuring the Air Force’s Family of Affordable Mass Missiles and the Navy’s Multimission Affordable Capacity Effectors, with a targeted price tag at about 15% of the stealthy Lockheed AGM-158D Joint Air-to-Surface Standoff Missile.

• Launching development of a new class of low-cost, air-to-air missiles to arm future Collaborative Combat Aircraft with a weapon that is a fraction of the cost of a Raytheon AIM-120 Amraam.

• Completing development of the Blackbeard, a rocket-boosted hypersonic glide vehicle designed by startup Castelion that features a proposed unit cost about 1/10th that of a Lockheed Dark Eagle missile from the Army’s Long-Range Hypersonic Weapon program.

The reconciliation fund, which President Donald Trump christened the One Big Beautiful Bill, stands as a unique opportunity for the defense industry. Of the $148 billion approved for the Pentagon and the National Nuclear Security Administration, more than $120 billion would be spent on procurement or research, development test and evaluation (RDT&E). The effect is a one-year, 40% jump in spending for both categories over the fiscal 2026 base budget request.

Moreover, funding approved through the reconciliation process does not expire for five years, giving the Pentagon’s spenders until fiscal 2029 to obligate all of the money. In the base budget, RDT&E funding expires after two years, and procurement money expires after three.

The extra cash and flexibility give the Pentagon a unique opportunity to address several chronic shortages in the U.S. defense industrial base. The spending will include a $7 billion investment in the industrial base for critical minerals, seeking to break China’s mining and processing dominance over those ubiquitous raw materials. Billions more are set aside for expanding U.S. manufacturing capacity for drones, munitions and rocket motors.

For example, a newly created $1.4 billion fund to expand the industrial base for small uncrewed aircraft systems helped persuade Israeli drone-maker Xtend to acquire a European electronics supplier and move production to the U.S. By tapping into the fund, Xtend expects to reduce the financial risk of the move and dramatically lower the cost of building up inventories.

“It’s [for] the machinery; it’s the workforce,” says Roy Levy, Xtend’s U.S. general manager.

But the reconciliation package could not spare the Pentagon from every hard decision. The Army Transformation Initiative, which seeks to retire half of the Boeing AH-64E Apache fleet in the fiscal 2026 proposal, was left untouched by lawmakers. Nor does reconciliation funding contain any measure to reverse the Defense Department’s proposal to cancel procurement of the Boeing E-7A Wedgetail after the first two prototypes, leaving the strategy in place to migrate airborne command and control to space-based sensors in the long term and a joint unit operating land-based Northrop Grumman E-2D Advanced Hawkeyes in the short term.

Lawmakers also made no attempt through the reconciliation process to offset the Defense Department’s proposal to buy only 47 Lockheed Martin F-35 Lightning IIs in the fiscal 2026 base budget, which roughly halves the military’s traditional annual request. The Pentagon instead plans to divert some of the savings to help Lockheed recover from delays with the F-35 Technology Refresh-3 and Block 4 modernization efforts. Despite the proposed cuts, Lockheed is not backing off from a target to deliver 170-190 F-35s this year. CEO James Taiclet reassured analysts that international demand can cover any reductions in U.S. orders for the stealthy jet.

To be sure, reconciliation is not the only option for offsetting reductions or omissions in the base budget request. The appropriations process also gives Congress the option to amend the fiscal 2026 spending proposal, but that comes with a caveat. Despite Republican control on Capitol Hill and in the White House, lawmakers failed to pass an appropriations bill in fiscal 2025, settling for a full-year continuing resolution slightly higher than the enacted level in fiscal 2024. Some lawmakers are warning that efforts to pass the fiscal 2026 defense appropriations bill could meet the same fate.

“What I’m trying to tell you is, back here on planet Earth, you’re going to have to make do with the money we get you on reconciliation,” Louisiana Republican Sen. John Kennedy said during a June 24 appropriations committee hearing on the Navy budget request. “We’re headed toward a series of [continuing resolutions]. I hope I’m wrong, but again, I live on planet Earth.” Kennedy also predicted that Congress would propose a new round of reconciliation spending next year.

Those concerns underlie another risk in relying on the reconciliation process to fund defense spending growth. The Trump administration invoked the rare legislative maneuver to cover spending shortfalls created by the full-year continuing resolution in fiscal 2025. Instead of proposing an extra $150 billion in the Pentagon’s base budget request for fiscal 2026, the White House chose to fund the military’s spending gaps and new requirements by adding those items to the so-called One Big Beautiful Bill.

Several programs, including F/A-XX and line items associated with the Golden Dome concept for homeland air and missile defense, now rely on the reconciliation process for continued funding, unless the administration inserts future spending requirements into the base budget request. The reconciliation process was intended to be a one-off solution this year, but that approach could change.

“We can do more than one reconciliation bill,” Kennedy said to Navy Secretary John Phelan during the June 24 hearing. “You and your colleagues need to start planning for that eventuality. Maybe it’ll change. Maybe someday donkeys will fly backward, too. But for the foreseeable future, I don’t see it.”