The Impact of the Top 3 Strategic Imperatives on the US Defense Industry

Disruptive Technologies

Why

• Generative artificial intelligence (AI) tools are expanding rapidly commercially. Data analytics applications are now widely used.
• All tools are also making some routine and data analysis tasks easier for DoD organizations.

Frost Perspective

• AI is beginning to disrupt some DoD applications, especially repetitive and data-intensive jobs such as intelligence analysis.
• As AI tools are integrated into more applications, some defense firms may lose market share.

Internal Challenges

Why

• Continuing resolutions due to political disagreements over defense spending levels and priorities have become common in recent years.
• The lack of firm and clear budgets makes program planning unstable.

Frost Perspective

• Programs are usually multi-year, and budget problems can force program delays and cancellations.
• Budget process instability can be compounded by uncertain supply chains and skilled labor shortages.

Competitive Intensity

Why

• The DoD is increasing the use of commercial information technology (IT), such as cloud computing, that brings in new contractors and reduces costs.
• Commercial satellite services also bring in many new firms.

Frost Perspective

• Many industry participants are experiencing tighter margins and short-duration contracts.
• Competition for raw materials, components, and industrial automation is continuing.

Purpose and Overview

• This research provides an overview of program funding in the 2025 US DoD budget request. The total request is $849.80 billion.
• The study includes an outline of the budget requests by military service departments and defense-wide agencies to illustrate potential opportunities for industry participants.
• The budget request includes 2,201 line-item programs for research, development, test, and evaluation (RDT&E); procurement; and operations and maintenance (O&M), totaling $648.63 billion.
• Frost & Sullivan projects that total DoD spending will have a compound annual growth rate (CAGR) of 0.3% through 2029.
• O&M is the largest spending component request, with 340 programs totaling $337.92 billion for 2025. Mission support is the largest technology area request at $242.79 billion.
• The Air Force/Space Force department has the largest share of the 2025 request, with 570 programs and a total budget request of $262.60 billion.
• The largest line item areas are classified, healthcare, mission support, training and simulation, ships, fixed-wing aircraft, and nuclear deterrence.
• DoD budget forecasts and program segmentation are made at analyst discretion. Budget line items marked classified and codeword are included. Department of Energy and other defense-related activities are not included.

US DoD Budget Assessment Segmentation

Air Force/ Space Force

The Air Force and Space Force budget priorities include flight training, nuclear deterrence, F-35 fighter aircraft procurement, and satellite launch capabilities.

The 2025 budget request totals $262.60 billion for 570 programs.

O&M is the largest spending category. Classified programs, base support, and logistics support are leading spending areas.

Army

The Army budget request emphasizes service-wide communications, missile systems, medical readiness, facilities sustainment, and helicopters.

The 2025 budget request totals $185.80 billion for 547 programs.

O&M is the largest spending category. Lead spending areas are management and operational headquarters, specialized skill training, logistics support, and recruiting.

Joint Services

Joint services organizations provide programs that support each of the military services and combatant commanders.

The 2025 budget request totals $143.80 billion for 384 programs.

O&M is the largest spending category. Classified programs, healthcare, and special operations are leading spending areas.

Navy/ Marine Corps

The Navy and Marine Corps budget focuses on submarines, destroyers, helicopters, and the F-35 fighter aircraft.

The 2025 budget request totals $257.60 billion for 700 programs.

O&M is the largest spending category. Ship depot maintenance, flight operations, logistics, weapons maintenance, and base operating support are leading spending areas.

Growth Drivers

• Counter-unmanned aerial systems (C-UAS) at scale have become an essential operational priority. Lessons learned from the Ukraine and Iran wars indicate that bases, mobile ground forces, and ships all require a multi-layer air defense capability, driving advances in this technology.
• The “transforming in contact initiative” is providing real-world feedback on the effectiveness of new fighting organizations and equipment. For example, the Army has established the Regionally Aligned Readiness and Modernization Model (ReARMM) to ensure that units are ready for combat, driving procurement and prioritizing needed research for the future force.

Growth Restraints

• Delivery delays are expected for some ships, aircraft, ground vehicle, and C4ISR programs. The US defense industrial base is restrained by supply chain disruptions, raw material shortfalls, component availability, a skilled labor shortage, and inflation.
• All service departments are having a difficult time recruiting. The Army, in particular, is negatively impacted by the lack of new enlistees. Skilled IT and manufacturing personnel are also difficult to attract to the uniformed ranks, DoD civilians, and the defense industry. This shortage of qualified young people in the defense service is restraining some programs and resulting in a smaller force structure.