A certain type of wealth is created covertly through procurement contracts, defense appropriations bills, and Senate committee votes that most people never pay attention to, rather than through IPO hoopla or product launches. That is the type of wealth that is currently building up in the aerospace corridors of Los Angeles, Huntsville, and suburban Virginia, as well as in the corridors connecting Washington. It’s also accelerating more quickly than most observers have noticed.
It’s difficult to ignore the background. What some defense economists refer to as a generational rearming is currently taking place in the United States. Major defense companies’ order books have reached all-time highs. Despite delivering at record rates, Lockheed Martin’s missiles and fire control division saw a 20 percent increase in backlog in just one year. The entire backlog for Boeing is close to $695 billion. The European missile manufacturer MBDA has a backlog of almost eight years’ worth of revenue. Vanity numbers are not what these are. Because they have come to the conclusion that geopolitical risk is no longer hypothetical, they represent actual governments writing actual checks.
The structured rivalry between the United States, China, and, to a lesser extent, Russia for technological superiority, military might, and economic clout is what analysts now refer to as great power competition. It sounds ethereal. The financial outcomes are not at all what was expected. These days, early-stage defense startups are raising capital at multiples of 17 to 50 times revenue, which five years ago would have seemed unreal in the defense industry. The industry, which used to move at the speed of a government procurement cycle, is now approaching venture capital speed.
It’s not just the money that has changed. What matters is who is using it and how. Even for those who have followed defense policy for years, the Cato Institute’s list of the Pentagon’s direct equity stakes in over 20 private companies under the Trump administration is startling. A L3Harris spinoff that manufactures solid rocket motors for weapons is one of those investments.
Others concentrate on the mining and processing of rare earth elements, which are crucial in a world where China dominates a large portion of the supply chain. Once a bureaucratic footnote, the Pentagon’s Office of Strategic Capital is evolving into a true powerhouse. In order to create a defense-focused investment vehicle within the Department of Defense itself, it is now initiating a National Security Fund Finance program to combine government loans with private capital.
It’s truly unusual, so it’s worth taking a moment to consider that. Industry has long received grants and loans from the federal government. For many years, it has provided funding for fundamental research. However, owning a portion of the upside through equity stakes is a completely different approach. In a recent interview, Miles Arnone, CEO of Re:Build Manufacturing, stated succinctly, “When you get to ownership, that’s a different matter.” His main concern is the moral hazards that arise when the Pentagon has a financial stake in a business while also having to assess whether that business’s product is truly the best choice. The same question was more tactfully brought up by Republican Senator Mike Rounds of South Dakota. “I don’t want to pick winners and losers necessarily,” he stated. How those tensions are resolved is still unknown.
In the meantime, private capital has emerged. In the world of venture capital, defense technology is no longer a specialty. Big tech firms like Alphabet, Microsoft, and Amazon are all connected to the national security ecosystem in different ways. That was unavoidable given the conflict in Ukraine. Starlink maintained communication between Ukrainian forces. Microsoft defended Ukrainian networks against cyberattacks. These weren’t initiatives of the government. These were personal choices with strategic ramifications. The lesson was clear to investors observing from the sidelines: the distinction between a defense contractor and a tech company has essentially vanished.
Observing this from a distance gives the impression that what is happening now is reminiscent of something much older. Private armies were constructed by the English East India Company. At its height, the Dutch East India Company’s value exceeded that of Alphabet, Apple, Meta, Amazon, and Microsoft put together. Reshaping the balance of power by private commercial actors is not new; in fact, it is more akin to the historical norm. The speed, the valuations, and the extent to which Washington is actively luring private capital through the door are all different now.
It’s genuinely unclear if this will all work out. According to a recent report by Bain & Company, supply chain issues are now preventing delivery in almost 90% of the defense programs it examined, surpassing labor, capital, and engineering as the main barrier. The wealth is genuine. The difference between what has been promised and what has actually been constructed is also significant. That difference might be the most crucial statistic to keep an eye on for the new aerospace billionaires being created in this boom.
