The Next Generation of Defense

[The Bleeding Edge]( The Next Generation of Defense By Jeff Brown, Editor, The Bleeding Edge --------------------------------------------------------------- Standing inside Boeing’s Everett, Washington, manufacturing building is a site to behold… The picture shown below just doesn’t capture the sheer scale of the facility. This is where Boeing has been manufacturing since 1967. And if you’ve flown on a 747, 767, 777, or 787 aircraft, this is where it came from. Boeing’s Everett, WA, Manufacturing Site | Source: Boeing Scale of Manufacturing I had the pleasure and excitement of seeing it with my own eyes in the early 1990s. I had recently earned my degree in aerospace engineering at Purdue University, was desperate to work in the industry, drove to Seattle, and managed to find an entry-level job as a contractor working on the 777 program. The work was completely uninteresting, but I loved being on site and I was able to take classes related to software systems used for Boeing’s aerospace engineering and design. The Everett facility was, until just recently, the world’s largest manufacturing building. It’s not surprising considering the size of a 777 and the building needed to house an entire production line of these aircraft. The building operates almost like a small city where more than 30,000 workers make use of its fire department, medical clinic, banks, daycare center, and water treatment plant. The entire site encompasses 98.3 acres – a little larger than Disneyland Park. It was Tesla’s Gigafactory in Austin, Texas, that has since taken the top spot for the world’s largest manufacturing site. This is the location where Tesla manufactures its Model Y and Cybertruck electric vehicles (EVs), as well as the 4680 cylindrical battery cells for its EV battery packs. The Gigafactory can produce about 375,000 EVs a year. The scale of these facilities makes sense. Commercial aircraft production lines – or hundreds of thousands of EVs – require a lot of space to produce… but how much space does one need to manufacture autonomous drones? Recommended Link [Bill Gates’s Next Big AI Bet: Stargate]( [image]( During his PC revolution in the 1980s, Bill Gates gave investors a chance to turn $1k into more than $3.7 million in Microsoft over the decades. Regardless of how you feel about the man… You’ll want to see this because I believe he’s about to make a lot of people rich with his new AI project called Stargate [(Click here to see details)]( -- Lattice on the Front Lines Just last month, private defense firm Anduril raised $1.5 billion at a $14 billion post-money valuation. The purpose? To finance the construction of a modern 5 million-square-foot manufacturing facility even larger than Boeing’s Everett location. Arsenal-1 Design | Source: Anduril The above picture is a mockup of the aptly named Arsenal-1 manufacturing facility that will be used to build “every conceivable variety of autonomous vehicle and weapon and doing that at hyperscale.” Anduril initially focused on building autonomous drones for counter intrusion against other unmanned aircraft systems (UAS). The immediate utility was to provide defense against drone attacks on military bases, oil and gas fields, and critical infrastructure, as well as for the use of border control. But this was just the starting point for Anduril. Its drones were just the foundation upon which Anduril built its Lattice operating system. Lattice enables coordinated real-time autonomous operation for both defensive and offensive missions at speeds that are impossible to achieve by humans alone. Arsenal-1 will be used to manufacture tens of thousands of these autonomous aircraft annually. Its approach is completely upending what has historically been done in the aerospace and defense industry. Anduril’s Secret Sauce Industry incumbents like Raytheon Technologies (RTX) and Lockheed Martin (LMT) used expensive, highly customized manufacturing processes that are slow, very expensive, and have complex supply chains. There have been very few incentives for efficiency and lowering costs amidst the military-industrial complex. But SpaceX led the way in the aerospace industry by radically changing the economics of getting payloads, including astronauts, into Earth’s orbit. SpaceX considered everything in its design, testing, manufacturing, and commissioning looking for ways to improve performance and quality and to deliver dramatically lower costs. Doing so has literally enabled a new commercial space economy. Anduril is to the defense industry what SpaceX is to rockets and spacecraft. Anduril’s secret sauce is definitely in its intelligence software systems. About 90% of its manufacturing uses commercially available off-the-shelf components and materials. This dramatically lowers the costs of finished products and enables a faster ramp to production at scale. Doing so the company is leading the industry in modern autonomous defense technology at scale. Founded just in 2017, Anduril generated about $420 million in revenue in 2023 – up 78% from the year prior – and is now worth $14 billion. Its strategy has been remarkably successful, resulting not only in impressive growth but also in impressive gross margins to the tune of 40–45%. Raytheon Technologies and Lockheed Martin are delivering only 12% and 20.5% gross margins, respectively. A New Era of Defense I’m pretty sure that most of us would prefer a world where we don’t need to mass-produce autonomous weapons. The CEO of Anduril, Palmer Luckey, saw the world as it is, not as we wish it to be, and built his company’s strategy based on that worldview. The U.S. government’s war with Russia, through its proxy Ukraine, is a perfect example of that. It’s a perfect example of how government-initiated conflict and war have changed dramatically. It’s a tragedy that has been intentionally drawn out for more than two and a half years now. Instead of more traditional large-scale, ground-based attacks, cheap drones are used to deliver explosive payloads to target locations. And without autonomous defense technology, these are dangerous and hard to defend against. The company made a salient point below… The U.S. and our allies do not have enough missiles to credibly deter conflict with a near-peer adversary. CEO Palmer Luckey further called out the need to “mass-produce whole batteries of Barracuda at a scale that can beat China.” [Note: the use of “batteries” in this context pertains to multiple aircraft systems.] The Barracuda referenced in his tweet was just announced a few days ago and is shown in the photo below. Barracuda-250 | Source: Anduril The Barracuda is an impressive piece of technology. It can be configured for as much as 500+ nautical miles of range, 100+ pounds of payload capacity, and more than 2 hours of loitering time. These Autonomous Air Vehicles (AAVs) are powered by small turbojet engines, which is why they have such impressive speed and range. This product line of AAVs is an accurate reflection of both current U.S. government policy and advanced autonomous technology today. Anduril’s radical rethink of how to produce autonomous drones – autonomous cruise missiles – means its products take 50% less time to manufacture, 95% fewer tools, and 50% fewer parts. These efforts have resulted in a product that Anduril estimates is on average 30% cheaper to produce than other similar products in the market. Expect the Best, Prepare for the Worst I wish we lived in a world where we didn’t need this kind of technology. But we do need it. Even if for defensive purposes, this technology is necessary given how easy it is for bad actors to use off-the-shelf drone technology to wreak havoc on intended targets. This is an example of the new breed of defense technology companies. It’s both a reflection of today’s geopolitical agendas, as well as the application of modern manufacturing techniques and artificial intelligence to disrupt the “old way” of doing things. This is an incredible high-growth company, in a high-growth sector, that is on track for an IPO in the coming years. Depending on market conditions, I expect we could see an IPO around the fourth quarter of 2026, or early 2027, given the progress currently being made. And in the meantime, let’s hope that cooler, more rational minds prevail and global conflict de-escalates to a much more peaceful balance. 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