Forget Everything You Think You Know

Roman Schweizer:
So can you imagine a major program being canceled, not by the Secretary of Defense, but some random dude, even if he is the richest man in the world.
From DOD to Congress and from the White House to Wall Street, the NatSec Need to Know podcast, an unrehearsed podcast featuring insightful discussion and forecasts of the major national security and defense policy issues of the day. Welcome to the NatSec Need to Know. We're leading off with our reporters' round-table to discuss the top national security issues in Washington and there's quite a lot of them these days, to be honest.
Joining me is our murderers' row of experienced Washington editors and reporters, Tony Bertuca from InsideDefense, Aaron Mehta from Breaking Defense, and Robert Wall from Aviation Week. They've each covered Washington and the Pentagon for years and are as well-sourced as anyone. Thank you all for joining. Let's get after it.
All right. Hey, everyone. A belated happy New Year, and it's been quite a year already. We are back with our murderers' row of reporters to discuss I mean, a growing laundry list of topics. I am grateful to welcome Tony Bertuca, Robert Wall, and Aaron Mehta. We are down a man right now, but we've got three great guys in the lineup to talk about a whole host of issues.
Gentlemen, let's lead it off, and I'm just going to toss this one out there, but it's been a momentous week in Europe. We've obviously got a high-level delegation from the US. We've got the Munich Security Conference. SecDef Pete Hegseth was wheels up as well. Just any kind of high-level observations and takeaways and I say that knowing that at any moment, anything you say could be overcome by events, tweets, or comments. So who wants to take the first crack at that?
Tony Bertuca:
Given I'm the guy who's over here, maybe I'll just take it first. But I mean, I think it was interesting because obviously it's the first real encounter. The Europeans are getting close up and personal, so to speak, with a new SecDef. And I think to some extent, you could say it didn't disappoint. The comments that he made early on about Ukraine and a peace deal and how that peace deal should come about certainly raised a lot of eyebrows, created a lot of anxiety, I think, amongst folks as well. And frankly, not just over here, but we can talk about that later. And a bit of blowback, I would say.
Basically, the head diplomat for the EU is Estonian. She's very firm on this issue. Took issue with his comments and especially kind of this idea with him laying out all the things that Ukraine was supposed to give up to come to the table with no inkling that the Russians would have to give anything up and he got called up on that, actually, at the press conference after the meeting at NATO. I wouldn't say that he necessarily ... I mean, I realize he's speaking to a one-person audience, but I think the other people who were watching probably didn't think he did a very good job, a credible job, really, defending his position.
Roman Schweizer:
Aaron?
Aaron Mehta:
Yeah. This is the first trip for Hegseth since he became secretary. And let's remember, this is a guy who, two months ago, was a Fox News host. He's never had any political position of note. He's never dealt with world leaders on a high level stage. So far, he hasn't... this is the first time he's actually faced questions from the media and from media who aren't friendly. On the trip from the Pentagon this time, he brought only friendly pro-Trump media with him, including excluding the usual media that are always on trips like wires or television pool. So he's had questions like, "Hey, what's it like to work out with the troops" and things like that. Now he's having to actually answer for things that he said over last week and I think, as Robert said, some of the questions you could tell he kind of was working through how to respond to them and getting used to being on the world stage.
You've seen already the clear message from the NATO nations, the EU nations at Munich, anytime a world leader gets the front-row camera, they keep saying the same thing, which is there's no Ukraine negotiations without Ukraine being involved because the message from President Trump, reinforced by Hegseth, is that basically, "Well, we're going to figure this out with Russia and we'll let Ukraine know what they get to keep."
And the message from the Europeans is absolutely not. Ukraine is the country here. They're the victim. They're the ones who've been fighting and they need to be part of the negotiations. How that actually plays out, obviously, we're going to see, but so far, the first whatever it is, as we record 12 hours at the Munich Security Conference. Every world leader's saying this. Our Tim Martin who's there for Breaking Defense talked with the Swedish defense minister. That was the first thing out of his mouth. You saw it from the German leaders, you've seen it from EU leaders. As Robert said, it's the clear message of, "Hey, we're putting up United Front that we are not going to let Ukraine get totally sidelined in negotiations about its own future."
Robert Wall:
Well, I'll make a couple observations of my own and I think one, I did watch Secretary Hegseth's town hall. I did see some of his media availability. And look, the one thing, whether you agree with the politics or not, he is a good communicator. And I think to your point, he doesn't know the sort of traditional party line, but again, he is talking to an audience of one and he does sound very traditional in some regards in terms of threats when talking about China, when talking about the combatant commands, the role of AFRICOM.
I thought it was interesting. I mean, look, one of the things that I've keyed on is that he has reinforced this notion that US defense spending will not go below 3% of GDP, which is an interesting peg if you think that the Republicans are going to grow defense spending or rather, the Republican policies are going to grow GDP. One might assume some similar growth in the defense budget. Now, I know we've got some more late breaking news, which we'll probably talk about about the outlook for defense. And I mean, again, that not only President Trump's most recent comments, but also the reconciliation, the FY25 process, and some other things.
And on Europe, I mean, it does seem like Vice President Vance perhaps has walked back some of those comments or amplified them in terms of talking about additional tariffs on Russia, military options, the use or the potential deployment of US troops to Ukraine. Again, I don't know how much of the Trump weave strategy, good cop, bad cop, whatever sort of negotiating tactic, the madman theory you want to talk about, but it does seem to be all in play. I mean, ultimately, it seems to be getting down to kind of one answer that I think a lot of people acknowledge in terms of Ukraine territory ultimately being ceded, the issue of NATO, and even more broadly, the topic of increased NATO defense spending, right?
And I mean, I think that Trump probably falls back on some notion that, "Okay, if you want a seat at the table, put your chips on the table in terms of more spending for defense to actually back up what you want." So I mean, again, I know there's a lot of puts and takes, but I would say it's pretty interesting. I mean, obviously, Trump has talked about we didn't get a resolution of the war in Ukraine on day one or day plus one he talked about, but I mean, this could all come together in the first 100 days and might be very interesting.
All right, so gentlemen, let's shift gears a little bit because there's a lot to... well, actually, before we shift internally, I was shocked, as I suppose everyone else was, when President Trump got up and announced that we might sell F-35s to India.
Tony Bertuca:
I thought that was a very interesting development as well, to be quite honest. I mean, for two reasons. One, the Indian development, of course, in itself is potentially significant, but we've been really, given his advisor, Mr. Musk has been so down on the F-35, it was kind of the first indication that that program may be... I think it was like most people would've expected frankly, but that that program may not be on death's door quite yet. So I thought that was actually a very interesting development as well with one caveat, I guess. Who knows what tomorrow will bring?
Roman Schweizer:
Of course. Yeah, that's the thing with all this stuff, right, especially things that the president says in the Oval Office in these sort of wide-ranging press conferences that he gives. One of the things I promised myself as a reporter was in this version of the Trump administration, I was going to try to be more deliberate this time. I wasn't going to chase every tweet. I wasn't going to chase everything the commander-in-chief said. And then yesterday, the commander-in-chief talks about selling F-35s to India and then in the next breath, he's ready to cut defense spending in half as soon as he meets with people who he says he's got good relationships with, Vladimir Putin and Xi Jinping. He's going to wait until things "settle down" and then they're going to talk and one of the things he wants to do is suggest that they all cut defense spending in half.
So I had to write that yesterday. I did not want to be in the position of chasing something that didn't really seem to have a plan or a lot of detail with it and certainly caught every Republican on Capitol Hill I talked to by surprise, especially since some of them are working on trying to get defense spending. As Secretary Hegseth said, they want to get it between four and 5% of GDP eventually. They don't want to cut it in half. So I think the F-35 statement and it's just sort of a lot of this is just you sort of have to wait and see what the president does, right?
But yet, I think as a reporter, I'm still in this position of covering what the president says because it's just... Greenland was not really that big of a deal once upon a time when he made the claim, "Let's go after Greenland" in that first term. There's some more meat on the Greenland bone right now. People are putting bills through Congress. And so it's... I do confess that I find myself still sort of chasing things that I'm like, "Does the most powerful person in the world and the guy who's in charge of all the nuclear weapons, does he really mean what he says about let's denuclearize when he talks to Putin and Xi Jinping?" I think it's just one of those difficult positions we're in when it comes to covering the Trump administration.
Robert Wall:
So just to amplify a couple of points. One, regarding sale of F-35s to India, one actually maybe troublesome issue might be the 2018, I believe it is, countering America's Adversaries Through Sanctions Act, which blocks the sale of advanced US weapons to countries that procure Russian weapon systems. That is what led to Turkey being booted from the F-35 program and has led to some issues with, I think it is UAE, which was offered F-35s during the first Trump administration. I would say that if India is truly on the table, and it does seem like there are a lot of goals and objectives that would need to be met before that would go through, but look, if that window is open, you might even think that Turkey might be allowed back in the program at some point in some sort of negotiation as well as the UAE could be allowed back in as well.
So again, I don't think that was a fully formed offer, but we will see how that comes. So I guess we'll just jump briefly to the president's aspirational world peace initiative on strategic arms talks and spending caps. I have not heard any feedback this morning from Republicans on the hill, although I suspect they may claim to have not heard the president's remarks, so they can't comment. But I mean, objectively, people will say this is a reasonable goal of securing trilateral strategic arms reductions and regional security guarantees and handshakes and fist bumps. But I would say that it is, I mean, highly aspirational.
Roman Schweizer:
He will have an ally in Elizabeth Warren, right, an ally in AOC. There's certainly... there's people who I'm sure heard that and were like, "Oh yeah, great. Let's... absolutely, world peace. Let's do it. Let's cut military spending in half. Let's go right now."
Tony Bertuca:
I mean, if we're forced into the situation, I guess just say maybe the one thing. I mean, what it totally ignores as is so often the case with a lot of things get ignored. The Chinese have never shown any interest in any sort of thing like arms control, right? I mean, even when you could even see a pathway to where the US and Russia given there's history of arms controls and agreement, even if that's completely faded and is now off the table, but the Chinese has never had any interest in this. So that idea is somewhat far out there to put it mildly.
Roman Schweizer:
Yes. I mean, a negotiation requires a counterparty and those counterparties in this case have not shown any genuine desire to do that. But I mean, start INF, all that stuff is out there as a template. I mean, it certainly... there have been instances of this occurring. Fantastical or not, as Tony said, the president said it, so maybe we don't take him literally, but we take him seriously, right, which is what everybody has said.
All right, let's get to some of where the rubber hits the road in here in Washington. Notably, we have a Senate Budget Committee budget resolution that passed. We have a House budget resolution that passed. We are on the way to some form of reconciliation bill, perhaps, either the one big beautiful bill or the two bill approach. They got those out of committee, but they still need to get to the floor to pass them. Any thoughts on how that plays out over the next several weeks? I guess Congress will be on recess over the next week and then they'll have to move out on that.
Robert Wall:
Well, you've got the dynamics, I guess, at least politically right now is you've got Johnson, Speaker of the House Johnson saying that he thinks that the Senate budget committee resolution is a non-starter. He doesn't like it, isn't going for it, right? So right away, you're at odds, right, with the GOP is again sort of at odds with itself even though it is in control. So it's really going to be interesting to see whether or not the Senate, Lindsey Graham, who was sort of behind the Senate budget resolution, whether or not they give or whether or not Johnson isn't able to keep his coalition together and ultimately they need to go the route that Graham wants, which is sort of the two bills as opposed to the one big beautiful bill. I think the numbers are... it's $100 billion over 10 years was the House budget resolution and 150 billion over 10 years was the Senate budget resolution. So I don't know.
And here's a question maybe we could also toss around. Does anybody find that number all that impressive over that amount of time? That doesn't really keep place with inflation all that much, does it?
Roman Schweizer:
Well, so the one thing I would say is it's not clear to me if they need to be constrained, if they need the peanut butter spread-
Robert Wall:
Over the 10 years, you mean?
Roman Schweizer:
Yeah.
Robert Wall:
They could sort of front load it and squeeze it. Yeah.
Roman Schweizer:
Correct.
Robert Wall:
So they said four years, right? Bill doesn't say that.
Roman Schweizer:
I mean, again, a budget resolution is a 10-year window and when you write the reconciliation bill or the budget resolution is 10 years. The instructions, the committees and jurisdiction will differ that. I mean, I think IRA or Build Back Better or one of the other reconciliation bills might be a template on that in terms of spend, but we really won't know. And I mean, the one thing that I would say is that to me, particularly on the House clock, you could conceivably see a situation where the House, Johnson is able to muscle that bill over through the House. And I would say, again, it takes a simple majority and my pun intended is there is nothing simple about the House majority, right?
But so then once you get that muscled over, then ways and means has to go out and write a tax bill that is... and as I understand it, there's a sliding scale. This does not include no tax on tips, no tax on Social Security, no tax on overtime. I'm not sure how it deals with a SALT cap. So I mean, there is a lot of Trump asks, a lot of Trump campaign promises that aren't really included, I think, in the $4.7 billion baseline. And so then passing all that stuff gets crazy. I think it's very difficult.
And then just the last thing I would say is I mean, I think Senator Graham's approach is all about quick wins, obviously, on the defense side. On the border side, border needs money. I mean, those activities, Tom Holman has said that they need money. They're going to... DOD, NORTHCOM has said they're going to put more troops, the Guantanamo detention, all that stuff. So I mean, you can't wait for the Senate, or excuse me, the House to write some intricate tax thing that may wind up collapsing on itself.
So I mean, I still think the Senate is the most viable path and you're going to spend... I mean, I'm sure that the ways and means, the tax folks and the tax lobby are going to spend all year fighting about how to extend those tax cuts and add in the new stuff. So I'll throw that out there. I don't know if, Aaron, you want to jump on that?
Aaron Mehta:
The GOP has two-vote majority in the house, I believe it is right now?
Roman Schweizer:
Two seats, so I think that's a one vote.
Aaron Mehta:
Right. And this is the same group that had how many Speaker fights in the last couple of years? Somebody's going to find something to object with in one big beautiful bill. I don't care how beautiful it is. One person is going to find an issue and decide they can grandstand on it and cause this whole thing to collapse. So I don't see any way they get one bill through. Two bills, potentially. Even that's tricky because of what the trade-offs are and again, all you need is just a certain group to decide, "We don't agree with this one particular issue" and the thing's going to fall apart.
So look, reconciliation, as far as I'm concerned, is some sort of deep black magic that can only be summoned by witches and several deep incantations. So I'm not going to pretend like I fully understand how each process is going to play out. I do think I have a good grasp on the fact that this is now several years of the House GOP, in particular, having trouble keeping its caucus together when it really gets time to get to work. Maybe that's different under President Trump, but it's not much wiggle room there.
And that brings me to the next thing I think we probably want to talk on, which is putting reconciliation aside, we still don't have a FY25 budget and by March 14th, which as we record this, is a month away. There's CR expires and either we have to kick another CR or we go under a government shutdown. And I believe and Tony, tell me if I'm wrong on this, that if the CR goes beyond April, that's when the sequestration caps kick in and that's the famous salami slice where everything gets hit and everything kind of starts going real higgly-tiggly on us.
Roman Schweizer:
Correct. That is the April 30th date and so just to jump on that a little bit to set the table. That negative one sequester level as I understand it is at the fiscal '23 spending levels. So that is an even bigger hit. I think somewhere in the [inaudible 00:20:45], I've heard 40 to $50 billion range to DOD. Three points I would briefly make on that, well, four.
I think the idea of a shutdown, the risk of a shutdown is completely underappreciated at this point as is a full year CR. Two, if you were to even get all 12 appropriations bills passed by the 14th or some extension to April, the House GOP or the Freedom Caucus is, by definition, not going to vote for an omnibus appropriations. So you will lose 30 Freedom Caucus votes, give or take, whatever. So you'll need Democrats to pass that. That gets to the other issue is Democrats are not in any bipartisan mood right now, right?
And this gets to the bigger issue of federal funding freezes, impoundment or impoundment and a looming Supreme Court fight on the Impoundment Control Act and the simple fact that Democrats have said that they have no surety that even if they agree to a spending deal that OMB and the departments will follow through on spending appropriated by Congress, right? So you've got this idea. And so even if you were to muscle that through the House, when you get to the Senate, you still have a 60 vote requirement. So you've got 53 senators plus the vice president gets you 54, but where are you going to pick up the six other Dems to get that passed, so I mean, and all the attention is on, again, reconciliation right now. Doing these two things at once is impossible or siphoning attention from one another and creating distrust and all the other things that go. And so that also gets me to the point of the two bill approach might be the way to go.
And then, of course, the looming global thermonuclear economic bomb is of course debt ceiling, which we still haven't figured out how to diffuse that, whether that's via a reconciliation vehicle or appropriations or some other method. So it is going to certainly be a choppy few months. Does anyone just want to amplify those thoughts?
Aaron Mehta:
Yeah, I mean, if you are the Democrats, why do you want to work with Republicans on this? When, to your point, Roman, you don't know that they're going to actually follow through with it, especially if it comes off of a reconciliation fight where Republicans force through on a simple majority of things that Democrats don't want. And also on the Trump side, there are people who have made it clear in the past they're not opposed to a government shutdown. I think, do we think Elon Musk is opposed to a government shutdown given the way he's going after the federal government right now? So I think that's another factor to consider. There's probably people whispering in Trump's ears right now, "Great, let's shut the government down. We can get rid of all the waste and the lazy government workers."
So this is a really perfect mix of a lot of very, very poisonous high level partisanship, a lot of people who have incentives to want the government to shut down and a whole lot of hard decisions that have to be made in a very bruising manner in the next couple of, let's say, next couple of months. And that's just on the internal Washington politics of it. That ignores all of the geopolitical factors that are in play here too. It's not great.
Roman Schweizer:
And I mean, again, I have to go through the shutdown mechanics. I mean, certainly for Democrats, this is also a way to throw it back at voters. I mean, they are incentivized as well for political motives and I don't know if does this stop deportations or any of the other... again, I have to go through my shutdown handbook again to brush it up and apply it to the current situation, but yeah, I would... or does this just sort of slow GOP momentum and force a public fight, right, and sort of attack what appear to be some pretty high public opinion numbers for Trump right now. So I mean, again, it's not clear. It's not clear who wins this fight and when I mean wins this fight, it turns into a political fight, right, and we don't know where that lies right now.
Tony Bertuca:
I mean, guys, I'd love to ask you guys a question as the one who's now abroad, but from my years living in the Beltway, this is the time of year when we were obsessing about one thing, the next budget to drop. I mean, no one's even mentioned. Is anyone in the building actually talking about FY26 budget or is it just such... we'll get to that in a couple of months or whatever.
Roman Schweizer:
Yeah, the building... yeah, the building. Here's how it is in Congress at least. You've got Cole, Chairman of the House Appropriations Committee. He has sent letters to all the other committees of jurisdiction telling them... so he told HASC, Chairman Rogers. He said, "We intend and I anticipate we are going to mark up the FY26 defense bill in late April." So this is him. That's what he says, right? So he's ready to go in late April to mark up FY26. So that's the only indication I've received of optimism from anybody. But I mean, that's coming from the chairman of the House Appropriations Committee. So that's what he tells Rogers via a letter he sent him.
So in terms of the building, there's not a whole lot of people talking about the FY26 right now that I'm interacting with. There's a lot of sort of, "Well, we are in the middle of transition. We've got a new team here. We don't have a Trump comptroller in place. We don't know." So I think the building hasn't really coalesced around an FY26 kind of here's what we're doing sort of message or theme yet. Not for me, anyway.
Aaron Mehta:
Yeah, I mean, I think obviously, anytime the new administration comes in, these things always get a little delayed because they want to put their stamp on it. I think the expectation was that would be more so now and then all the stuff we've just talked about has really kicked this to the back burner. The kind of one exception of note I would say is with the Iron Dome for America stuff, which obviously Trump signed an EO on that in his, I think, his second week in office giving the Pentagon guidance and one of our reporters, Theresa Hitchens, got a memo from Hegseth, a draft memo, so it hasn't been officially signed out as far as we know, which specifically said, "Plan to have money in FY26 on this." So there is discussions at least on that level of priority in '26. My guess would be there's also probably discussions in the building about plussing up border security or potentially O&M for border missions because we're flying C-17s of migrants out of the country right now. That's coming out of hide for the Air Force and for the Pentagon.
But to Tony's point, I think right now everyone at the Pentagon, not just in the budget but overall, is kind of just keeping their head down and trying to not lose their head if they're a general officer and trying not to get in the way of a lot of empty seats and a lot of unclear guidance from above.
Roman Schweizer:
I'll pile on with just a couple of points. One, if you look at the most recent transition years, Obama to Trump, budget came out in May. Trump to Biden, budget came out in May. I've had May circled on my calendar because I think that's likely. So Chairman Cole, I appreciate his eagerness and they could do that. I would mention, and a hat tip to Aaron Mehta, Chairman Cole also has some wonderful Valentine's Day greetings that his committee has sent out. They are amazing and I would encourage you to find them.
The second thing is, so one, there is a budget. The Biden team did leave something in the desk drawer and there is a fit-up plan and that stuff. I think really the question is how severe an adjustment in priorities it will be. I'm going to take a little bit of a different tack. I know we don't have the senior folks confirmed in there, but we do have a DOD landing team. We do have DOGE headed there. I think there are some pretty decent size shifts that I think are being worked.
And to just piggyback on that, I would point folks out and not to besmirch the fine reputations and reporting of my colleagues, but the Wall Street Journal did break a piece this morning that at least two of the services have offered up sacrificial lambs to the DOGE or DOGE bones? I don't know how do we want to... chew toys? Something like that? I'm really... I'm stretching some of these metaphors. I love it, though. It's quite liberating.
And I think from a strategiary perspective, that is a mistake because if you put it on a list, it is going to be dead immediately and then DOGE is still going to press forward and go after the things that they really want. I mean, right off the bat, that's obviously going to be DEI and you're going to see tens to hundreds of millions. That is anything related to climate change, green energy, that kind of stuff. That stuff is easy to kind of forecast. But then again, you're really going to get maybe some hard choices on modernization programs and capabilities. And I think that's where you get the uniform guys and members of Congress push back. So we will see.
I mean, President Trump has had a clean sweep batting a thousand on his nominees despite some dire projections, although pour one out for Matt Gaetz, right? He was the heat shield for all the rest of them. But despite all this hue and cry that the GOP Senate was going to reject these unconventional nominees, it's all happening. So we will see what that means when it comes to jobs and votes in states and districts where a lot of these defense programs are major employers.
So just having said on that, anything you guys think about how DOGE is going to hit DOD. It's clearly coming, despite some thoughts that it might not, so I'll toss it back to you guys.
Aaron Mehta:
Yeah, I mean, first off, I'm voting for chew toy. I like that one a lot. That's good. I'm stealing that. That's mine now.
Look, there's still two thoughts on DOGE, right? There's this idea of, "Oh, well, they're this group that's been stood up to find efficiencies" and then there's what I think we're finding the reality to be, which is this is Elon Musk going about and doing what he wants. And so what I'm really curious about is once he hits the Pentagon because I agree with you, Roman, by the way, that services offer anything up. Great, that's gone and then now what? It's not going to protect them at all.
I think the bigger question to me is what happens to things where Elon has a business interest? What happens to options where there's competitors for Starlink or competitors? The ULA has been trying to get their certification, Blue Origin for launch for military systems. Does that get canceled as why do we have multiple launchers? Let's just use SpaceX. These are the things that I think are not just on the table, but likely to come up, based on what we've seen in the first couple of weeks, and that'll trigger its own series of deep, long-standing lawsuits which could result in freezes on programs and all sorts of unintended consequences that'll have real actual national security impacts.
Everyone's talking about this as a purely, "Oh, it's dollars. They're going to find dollars to cut." Well, we're now in the realm of if you cut Sentinel, that is a national security decision that has major geopolitical ramifications. Maybe it's the right thing to do. Maybe not. Maybe that's just what Trump wants to do as a policy. That's their decision. But it's a policy decision. It's not a money decision. And I think people need to get their heads around the fact that this is no longer... DOGE is no longer a, "Let's find some efficiencies idea" that it was kind of pitched as. This is a group that's effectively creating policy through its decisions.
Tony Bertuca:
Just want to pick up on that thought. Great opportunity to think about one of my favorite defense programs, the A-12 that Dick Cheney canceled, and that was litigated for years and made it all the way to the Supreme Court, but in part, the ruling was the Secretary of Defense could not cancel a program unilaterally, no matter if it was behind schedule and over budget as much as it was, and the contract is essentially won. So can you imagine a major program being canceled not by the Secretary of Defense, but by some effectively in [inaudible 00:33:49] government standards, some random dude, even if he is the richest man in the world. So I think... well, there'll be some lawyers who get very wealthy off of this, I could imagine.
Roman Schweizer:
Yeah, and there's, agreeing with Aaron too, there's definitely been a shift in how people are talking about the DOGE, right? At the beginning, I really do think a lot of people... you still hear this a little bit from House Democrat, Adam Smith, the ranking member on the House Armed Services Committee, like, "Hey, if they want to go fix IT at the Pentagon, great. We need to take care of that." It's also siloed. It's outdated. But if what they really want to do is figure out who we need to fire that said something mean about the president on X, formerly Twitter, then that's not really a good use of everybody's time and that's going to make it hard for people to work at the Pentagon. So I think still it just remains to be seen whether or not it's going to be column A, column B, or sort of a mix of in between when they show up.
And as far as sort of offering things to cut out of the gate, I think we've seen a lot of this, sort of this doing whatever in advance of what's to come, right? I think I first heard it from Senator Fischer at the Reagan forum in Los Angeles where she told an entire room of defense contractors, "Everybody should be ready to cut something. Draw it up now, get it ready, be ready to cut." So I think when you are viewed as having the momentum, which I think DOGE is, and the president is of coming in to make big cuts and changes, a lot of people are trying to get in line in advance.
Robert Wall:
Sure. I'll make just a couple of observations. One, it has not so kindly been pointed out to me that Elon is far richer and smarter than I am and I should shut up. So I do take that to heart. But two, I mean I do want to say I don't see this as a money grab or a contract grab by Musk and SpaceX, for example, because I think by any objective measure, Falcon 9, Falcon 9 Heavy Starship, that stuff is working. Starlink is oversubscribed. Starshield is oversubscribed. They actually have accomplished what they wanted and the competitors are not doing well, right? And I think this is going to be fascinating over in NASA where I'm sure Boeing space executives are quite worried about SLS, the plan for Artemis, and other things. But I mean, look, I mean, if you do kind of rack and stack however you want to evaluate the SpaceX programs in terms of performance or value, I mean, I got to say it, he's made a lot of money for a reason.
Now again, how did he get started? Were there tax breaks? Was there a desire for competition, et cetera. You know that ship has sailed and I do think that a lot of the "new entrants" in DOD are going to be able to leverage some of that positive momentum that SpaceX and Palantir and others like that have laid down, so...
Roman Schweizer:
All right, gentlemen, this has been a great discussion. We could keep going, but I'm going to have to call it there. I thank you very much for your time, your insights, your great reporting. I don't envy your jobs, particularly in this environment. It is going to be a hectic four years, but then again, I got to do the same. So thank you all so much and we will talk soon.
Now, I'm going to turn it over to my colleague and partner, Gautam Khanna, to discuss some of his insights about our recent 46th TD Cowen Aerospace & Defense Conference. Despite some initial snow, it was a great turnout. We had some fantastic discussions and a lot of good insights into the outlook for the defense and aerospace environment as we move forward.
Gautam, thanks so much for joining. Eager to hear your insights, so why don't you please go ahead and hit us with your high level takeaways.
Gautam Khanna:
Thanks, Roman. Yes, so I had a couple takeaways from our conference. One on commercial aerospace aftermarket, demand stays is staying very strong. GE, Trans[inaudible 00:38:08] were quite bullish on the outlook, as was HICO. Basically seeing no change in customer behavior, no pricing pushback, et cetera. So the commercial aftermarket is still kind of a hot area for longer than even we had expected.
On the defense side, the large cap defense names we interacted with have kind of argued that DOGE is not a threat to their business, that their core competencies are not just managing the bureaucracy, which is dealing with the federal government when dealing with missile and weapons procurement broadly, but rather, it's their technology expertise. And whether that's true or not, we'll see, but it was also clear that it didn't sound like any of those companies had actually met with the DOGE leadership yet, so that's TBD.
In terms of commercial aerospace, [inaudible 00:38:55] production still remains a challenge. We've heard a lot about constraints in certain areas of the supply chain, seeding being a big one. Still hearing about heat exchangers on the 787. You may have seen that Airbus is having challenges raising the A350 rate. That type of language, that type of dialogue was pretty consistent across the conference, which is the OE supply chain remains pretty constrained.
On government services, it was as though we were talking past one another. None of them have seen any impact from DOGE. A couple did acknowledge that you might see a slowdown in contract award adjudications, which could impact bookings over the next quarter or two, but all seem to argue that they're part of the solution, not part of the problem, and that DOGE ultimately will benefit them. CACI even went as far as to say that they're making no change to their long-term growth forecast based on what they've heard out of DOGE and the new administration. So that's still TBD, but nonetheless, they're not seeing it yet.
What did you hear, Roman?
Roman Schweizer:
Great, Gautam, thanks so much for all of that. It sounds like there was a lot of great commentary during the conference and a lot of meaningful insights. I just want to set one high-level takeaway as we head into the next few weeks. I think there's going to be a lot of uncertainty about the congressional reconciliation process as well as the closeout of the fiscal '25 appropriations. There's not a really good vibe on bipartisanship spirit in town right now. So even the prospect of a shutdown or full year CR is on the table. Obviously, the clock is ticking on all of this and it needs to kind come together pretty quickly. And then, of course, running in the background, we've got the fiscal '26 budget. I think it's probably most likely sometime in the May timeframe, but it could be sooner. And then, of course, we've got looming invasion by DOGE into DOD to see how that will all play out.
So again, one of the things I think that sort of my key takeaway, and unfortunately, it's tough to say, but I think uncertainty is going to persist for the next few months and really, we may not have sort of much-needed clarity until the June timeframe.
So in between now and then, we'll certainly be back with a number of podcasts to update everyone as we see this kind of shaping up and shaking out. And thanks so much for joining. It's been great and we look forward to catching you again next month.

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