SIMI VALLEY, California (Reuters) - President-elect Donald Trump's planned U.S. government efficiency drive involving Elon Musk could lead to more joint projects between big defense contractors and smaller tech firms in areas such as artificial intelligence, drones, and uncrewed submarines, according to interviews with company executives.
Musk has indicated that Pentagon spending and priorities will be a target of the efficiency initiative, spreading anxiety at defense heavyweights such as Boeing (BA), Northrop Grumman (NOC), Lockheed Martin (LMT), and General Dynamics (GD).
Smaller military technology companies such as artificial intelligence software firm Palantir (PLTR) and drone-maker Anduril have been buoyed by the prospect of Musk further loosening the grip that defense giants have held on the Pentagon's budget for many decades.
Participants at the Reagan National Defense Forum, a summit in Simi Valley, California, that brought together corporate executives, U.S. military leaders and lawmakers, said they expect smaller tech firms to play a bigger role given that Musk, one of their own, is entering a position of enormous influence.
"Musk and many small defense tech firms have been aligned in criticizing legacy defense programs like Lockheed Martin's F-35 fighter jet while calling for mass production of cheaper AI-powered drones, missiles and uncrewed submarines."
Such views have given major defense contractors more incentive to partner with emerging defense technology players in these areas, some having strong personal relationships with Musk and his companies such as SpaceX and Tesla, according to executives at technology and big defense firms.
"One senior executive at a top defense contractor," speaking on condition of anonymity, told Reuters that contract negotiations by his company with smaller military tech providers have been "on steroids" since Trump's Nov. 5 election victory.
The amount of money available for the newer defense companies might be limited. Less than 20% of the Pentagon budget buys weapons systems and historically only around 1% goes to brand-new program purchases like those being offered by these young market entrants, according to Tara Murphy Dougherty, CEO of defense acquisition software company Govini.
These emerging firms could benefit from teaming up with the big legacy contractors if the newer companies want to quickly scale production of new weapons and deploy new technology platforms in the field, according to executives at the summit.