Cleaning House
Legacy defense firms and startups lock horns in the battle to restore the West's arsenals.
Who will build the arsenal of the future? Storied, legacy defense manufacturers? Buzzy, VC-backed startups? Firms and founders yet unknown?
This is a hot topic in Washington and other hubs of power. Many careers and many billions of dollars hinge on the answers—not to mention many lives.
And so the question provokes passionate reactions. Armin Papperger, chief executive of the German defense firm Rheinmetall, issued a salvo on behalf of the legacy defense firms earlier this year. He criticized small defense manufacturers in Ukraine, which are producing waves of lightning-fast drones to patrol the front line and intercept incoming attacks. These manufacturers are "play[ing] with Legos," he told The Atlantic’s Simon Shuster. Their factories were staffed by "Ukrainian housewives" with "3-D printers in the kitchen." "This is not innovation," he concluded with Teutonic bluntness.
The response was swift and merciless. Volodymyr Zelenskyy quipped that "if every Ukrainian housewife can really produce drones, then every Ukrainian housewife could also be the CEO of Rheinmetall." Wags on X designed patches for a fictitious "17th Housewife Drone Regiment." Rheinmetall quietly issued a clarification praising "the innovative strength and the fighting spirit of the Ukrainian people."
Papperger’s outburst is one salvo in the ongoing cold war between legacy defense manufacturers and new competitors. The implication of his comments is that only established companies (like his) with meticulously tested and validated products can deliver the capabilities that modern war demands.
This claim shouldn’t be dismissed outright. After all, the war in Ukraine is not merely a war of drones and AI; it is also a war of armor and artillery, the very things built by companies like Rheinmetall. Other recent fights have been even more lopsided in favor of legacy companies and their products. It wasn’t startups that supplied America’s military actions in Venezuela and Iran. It was Black Hawk helicopters that ferried the Delta Force to Nicolas Maduro’s compound, F-35s and Tomahawk cruise missiles that battered the IRGC, and Patriot and THAAD batteries that protected our troops and allies from Iranian missiles. Novel capabilities made appearances, but they were supporting players rather than leads. Western militaries still rely heavily on the exquisite systems provided solely by legacy defense firms. They will for years to come.
Behind Papperger’s bravado, however, one senses the unease of a buggy whip maker who has seen a horseless carriage chugging around the bend.
Legacy defense companies are more vulnerable perhaps than they have ever been because they have no good answer to the central dilemma that we in the West face: our weapons are expensive and scarce, while our enemies’ weapons are cheap and plentiful. In all but the briefest and most lopsided campaigns, our side burns through its stockpiles of high-end munitions and interceptors faster than it can replace them. Our enemies are counting on it.
We have known this for years, but the roughly month-long campaign against Iran made the problem impossible to wish away. The United States and its allies expended enormous quantities of precision interceptors and stand-off missiles—systems that cost hundreds of thousands to millions of dollars apiece, built by legacy defense companies. They worked. (For the price, they should.) But there simply are not enough of them.
The Center for Strategic and International Studies estimates that the U.S. military expended roughly one-third of its Tomahawk cruise missiles, one-fourth of its JASSMs, and more than one-half of its Patriot and THAAD ballistic-missile interceptors. The lead time to replace those munitions is measured in years, creating a conspicuous window of opportunity for our adversaries.
This dawning reality has set off a mad scramble to rearm—and to find alternatives to existing systems—which is both opportunity and threat for legacy defense firms. The president’s $1.5 trillion defense budget includes tens of billions of dollars for new exquisite missiles and missile interceptors. But it also invests heavily in cheaper alternatives, potentially circumventing the legacy defense complex altogether. The buzz word of the moment is “attritible mass,” a phrase that translates roughly to “lots of weapons, at a lot lower price.”
So suddenly, legacy defense firms face the prospect of serious competition against dozens of “housewives” for defense funding and contracts. And they are starting to feel the heat.
The Secretary of War released a video that vividly illustrates the new reality of defense contracting. He stated that the Pentagon is prepared to offer steady, long-term contracts to refill its arsenal, but it expects legacy defense manufacturers to invest in new factories using their own money, to boost output of key munitions, and to hold prices steady. “If they fail to deliver,” the secretary warned, “we will hold them accountable and bring in new companies who will.” The video depicts legacy manufacturers as paunchy older men in pinstriped suits and the new entrants as jocular tech bros in vests.
Acquisition dollars are beginning to shift to new entrants. The Department of War recently announced agreements with four defense companies, including Anduril, to supply 10,000 low-cost, containerized cruise missiles over the next three years. It reached a similar agreement with Castelion to supply at least 1,000 hypersonic missiles. The Pentagon’s press release boasted that every company involved is a new entrant. No primes allowed.
And although it is still early days, new entrants’ weapons are already proving their mettle on the battlefield and the test range.
Ukraine’s war of national survival has proven an excellent incubator and proving ground for new defense firms. A few short years ago, Papperger wasn’t entirely wrong: Ukraine did indeed rely on homemade drones made in the military equivalent of cottage industry, to the point that it launched a “People’s FPV” initiative to train non-technical workers in the relevant skills. Now the industry has matured through a combination of bottom-up innovation and top-down support from programs like BRAVE1, a government-backed effort to nurture and coordinate the country’s startups. According to the Snake Island Institute, Ukraine’s defense tech ecosystem grew since Russia’s invasion from roughly a dozen companies to more than 1,500. These companies have enabled Ukraine to scale its domestic drone production from roughly 3,000 annually at the war’s beginning to an astounding 5 million per year today.
Now the most successful of these firms are raising private capital, hungrily eyeing the broader global defense market—and dominating head-to-head trials. The housewives have learned a thing or two about what works and what doesn’t from four years of existential warfare. Increasingly they are winning on quantity and quality, as the proximity of producers and front-line operators creates a rapid feedback loop for improvement.
The products of these new entrants are already popping up in Western military service. In recent Congressional testimony, Army Secretary Dan Driscoll lauded the Merops—a small, inexpensive interceptor drone developed by an American company and battle-tested in Ukraine—as a breakthrough solution to shooting down Iranian drones in the Middle East. Scarcely a week into Operation Epic Fury, the Army purchased 13,000 Merops at roughly $15,000 apiece. At scale, the price is expected to drop below $10,000. The drones are being used to knock down Shaheds that cost $30,000 to $50,000 each, putting the United States—for once—on the right side of the cost curve.
All of this is real competition, and it is forcing legacy firms to adapt in several ways. Since the start of Epic Fury, prime contractors have reportedly agreed to triple or even quadruple production of key munitions and interceptors. They are racing to modernize antiquated factories and manufacturing processes, bringing 21st-century technology to lines stuck in the past.
They are also trying to develop their own answer to attritible mass, from small drones to affordable cruise missiles. One especially ironic example from Europe: late last year, Rheinmetall expanded its offerings of small kamikaze drone. "Lego"-like drones may not be Papperger's idea of innovation, but it seems they will play a role in the future even of his company.
So who will win this high-stakes, high-dollar contest for the future of the Western arsenal? The answer may not be a clean either/or. Western militaries clearly need a mix of high-end systems for range and precision and low-end systems for endurance. But in each segment of the market, the firms that win will have to earn it through speed, the ability to iterate, and the ability to ship product in the quantities and at the price point that Western governments demand.
The firms that succeed in this new paradigm will be the ones that channel their inner housewife.