Ukraine War Spurs US Defense Industry Changes 

Ukraine War Spurs US Defense Industry Changes

The Russian invasion of Ukraine has prompted changes in the US defense industry as the Pentagon and major arms suppliers try to replenish stockpiles and reduce bottlenecks after years of sector consolidation impacted national security, competition, and innovation.

During the last two decades, the number of major contractors operating in the US defense sector has shrunk through mergers and acquisitions to six from nearly fifty. This has caused supply chain vulnerabilities and hindered arms production capacity as the US tries to supply Ukraine with weapons and maintain its defense posture.

Supply Challenges

While FGM-148 Javelin missiles have proven critical in bolstering Ukrainian defenses against Russian armor, maintaining supplies has been more difficult. With Aerojet Rocketdyne, the sole supplier of engines for Javelin missiles based in Rancho Cordova, California, “primes” have sought alternative sources of supply.

The continued pressure on US war materiel stockpiles led to a controversial Biden administration decision in July to supply cluster munitions as an alternative to 155mm Howitzer ammunition, which is the primary platform for several US artillery systems. It was produced at a single factory in Louisiana, which exploded in June 2021, prompting the US military to suspend its production.

The use of cluster munitions has been banned since 2006 after the United Nations ratified a decision prohibiting their use. The use, distribution, manufacture, or stockpiling of cluster munitions is considered a war crime, however, the treaty includes a provision allowing signatory nations to cooperate militarily with non-signatory nations.

In response to the war’s supply challenges, the Biden administration proposed in March that $19.2 billion be allocated to modernize facilities. This would enable “readiness improvements” and bolster the production of naval and anti-strike missiles, aimed, in part, at supporting Ukraine in its battle against Russia and in countering Chinese influence.

Congress has committed about $60 billion in aid to Ukraine as of early August, $43 billion of which went toward military assistance.

Improving Production

In May, the US military entered a three-year contract with the Javelin Joint Venture (JVV), a collaboration between Lockheed Martin and Raytheon Technologies to secure the production line for Javelin missiles, with specific responsibilities divided between the two companies.

The contract, valued at up to $7.2 billion, spans fiscal years 2023 to 2026 and includes an initial order of $1 billion. According to the Center for Strategic and International Studies (CSIS), replenishing the Javelin missile stocks provided to Ukraine alone is projected to take anywhere between five to eight years at current production rates.

The US Army is also taking steps to enhance its weapon production and replenish its stockpiles. It has committed to expanding its production infrastructure, including production lines aimed at increasing capacity by a factor of six by 2028.

The army will allocate $2.5 billion of its 2023’s spending to expand and modernize the production capability of General Dynamics, with at least one new factory in Texas, to make up for shortages in 155mm artillery shell production.

Strategic Acquisitions

The need to address production bottlenecks has driven strategic acquisitions in the US defense industry this year.

Defense contractor Anduril Industries bought Adranos, a manufacturer of solid rocket motors. The terms of the deal in June were not disclosed. Founded in 2015, Adranos manufactures solid rocket motors in Mississippi and last year opened a fuel-production facility in Indiana.

The Pentagon granted in July approval to L3Harris Technologies to acquire Aerojet Rocketdyne. L3Harris said it aims to establish itself as the "sixth prime" defense contractor to the US military.

The Defense Department concluded that the acquisition would not impact competition or innovation significantly, despite similar concerns when Lockheed Martin moved to buy the company before the Ukraine war. The Pentagon blocked the Lockheed deal amid antitrust concerns and resistance among the Federal Trade Commission, which sued to block the deal.

Massachusetts Democratic Senator Elizabeth Warren and other Congressional members had opposed the Aerojet Rocketdyne acquisition by L3Harris and Lockheed Martin. Warren had asked the FTC to take a tougher stance on defense industry mergers and acquisitions.

Silicon Valley

The Pentagon is also looking to US tech companies to compete more effectively with China. Beijing has used public-private sector funds to advance ahead of the US in key technological sectors, such as small drones and hypersonic missiles.

Secretary of Defense Lloyd J. Austin III established in December the Office of Strategic Capital (OSC) to strengthen ties with Silicon Valley and boost its role within the national security framework, acting as a bridge between the government and the private sector.

The OSC mission is to build “an enduring technological advantage by partnering with private capital providers.” It was founded amid growing concern in the national security ecosystem about the wide availability of adversarial capital and the corresponding lack of trusted capital in critical technology sectors.

OSC will spend its first year analyzing the undercapitalization of critical technology, as it is not funded in the fiscal 2022 National Defense Authorization Act. The office must wait until at least the FY23 NDAA to fund a broader scope of activities.

Defense Budget

The Biden administration's budget proposal for the Department of Defense for 2023 was a record-breaking $842 billion, but it reached $816.7 billion instead. This marked a 10% increase over the previous two years.

Despite defense spending accounting for 13% of total expenditure in the fiscal year of 2023 year-to-date (FYTD), uncertainties concerning the restoration of the US defense industry as a proactive power capable of autonomous defense persist.

“As the United States transfers massive amounts of weapons, munitions, and supplies to Ukraine, questions arise about the health of US inventories,” Mark F. Cancian, a senior adviser with the International Security Program at the Center for Strategic and International Studies, wrote in January.

“Most inventories, though not all, will take many years to replace,” he said. “For most items, there are workarounds, but there may be a crisis brewing over artillery ammunition.”