Production capacity for Lockheed Martin’s signature air & missile defense interceptor, the PATRIOT Advanced Capability 3 Missile Segment Enhancement (PAC-3 MSE), may soon increase by over 300%. Yesterday, in news releases from the United States Department of War (DoW) and Lockheed Martin, both announced that a new seven-year framework agreement had been signed, writing: “Under the framework agreement, Lockheed Martin will increase annual production of the PAC-3 Missile Segment Enhancement (MSE) interceptor from approximately 600 to 2,000, aligning industrial capacity to the long-term demand required by U.S. forces, allies and partner nations.” While an actual contract still needs to be signed, the framework agreement demonstrates the Department’s intention. The DoW identified the agreement as a result of their new Acquisition Transformation Strategy, which was unveiled by Secretary Hegseth in November. During remarks to the press, Michael Duffey, Under Secretary of War for Acquisition and Sustainment, noted that conversations with industry on accelerating the production of key munitions had been ongoing since the summer, and had intensified in the fall. He lauded the agreement as a new model for how the department would conduct acquisitions, and committed to aggressively explore other opportunities to make acquisition dollars more impactful.
That PAC-3 MSE was selected for this new acquisition pilot program comes as little surprise. The highly sought after missile has been at the forefront of the debate on the multi-dimensional disconnect between the DoW’s Total Munitions Requirement, current Foreign Military Sales (FMS) demand, ongoing combat expenditures by US & partner forces, unstable yearly procurement quantities, and manufacturer production capacities. It was thrust into the spotlight by the War in Ukraine, where it has served as the keystone of their defense against Russian ballistic missile attacks, and has since seen significant use by US forces in the Middle East as well. Supplemental funding appropriated by the US Congress to support Ukraine & Israel has allowed for some significant investments into PAC-3 MSE production, and the broader defense industrial base, but this new framework envisions production increases far beyond what has been achieved so far. Lockheed Martin had already increased deliveries by over 60% since 2023, going from 380 in that year to a record 620 in 2025. The ongoing ramp up has been beating expectations; they were contractually required to produce just 550 in 2025, and 650 in 2027, but have already invested to reach 750 by that time. With this new framework, Lockheed Martin CEO Jim Taiclet says they aim to reach the 2000 per year figure, a 320% increase over current levels, by the end of 2030.
Delivering on this timeline will still require action from both Congress and the Department though. Despite DoW’s claim that the new model reduces the need for “upfront government facilitization and capacity investments”, Lockheed Martin’s commitment to invest their own capital into those nonrecurring engineering costs hinges on having a signed contract that guarantees those investments will pay off with higher order quantities and accompanying cash flows. Taiclet confirmed that the definitized contract would include “remedy mechanisms” to make them whole in the event of an abrupt program cancellation or order quantities that fall below the agreed upon minimums. Duffey, when asked about Congress’ role, confirmed that additional appropriations would be necessary to fund the contract for the framework deal. He stated Congress had been receptive though, and that he was confident that they were conceptually aligned. This suggests an improvement in the relationship between the Pentagon and Capitol Hill. In December, Senator Coons (D-Delaware), the Ranking Member on the Senate Appropriations Defense Subcommittee, told the press that Deputy Secretary Feinberg had briefed him and Subcommittee Chairman McConnell (R-Kentucky) on a munitions supplemental budget request worth “tens of billions of dollars”. Coons expressed frustration with the last minute addition to the Pentagon’s overall budget request, but was sympathetic to the intention of bolstering munitions stockpiles with multi-year procurement (MYP) contracts. Senator McConnell’s office pointed to the Chairman’s desire to see a higher topline in the main budget request, rather than trying to fix the problem with the eleventh hour supplemental request. How Congress decides to proceed remains to be seen. The government is funded until January 30, 2026 via a Continuing Resolution, and appropriations for the rest of the fiscal year have yet to be passed.
Lockheed does have some breathing room to continue the ramp up in advance of the new contract award though. As previously mentioned, existing investments have already funded an increase to 750. Even before this potential 7 year multi-year procurement plan was announced, the US Army made a major revision to their Acquisition Objective for PAC-3 MSE last year, increasing it from 3,376 missiles to 13,773 missiles, signalling their long term intention to continue procuring the interceptor. Further to that, in September, the US Army definitized a $5.3 billion Undefinitized Contract Action that had been awarded to Lockheed Martin in 2024. The definitized contract, covering Fiscal Years 2024, 2025 & 2026, is worth a total of $9.8 billion and funds production of 1,970 missiles for the US Army and FMS customers. Analysis of budget documents suggests that the 1,970 are divided approximately in half, between the Army and FMS. The new 7 year framework would therefore cover FY27-FY33.
Lockheed Martin is also already well positioned to get beyond 750, once the contract is in place. Taiclet says that they have sufficient floor space in their Camden, AR facility to support final assembly of the PAC-3 MSE All Up Round, and won’t need to build new factories. A combination of workforce expansion and new, automated tooling will allow production lines to triple their output. Supply chain diversification, already well underway with 400 existing suppliers from 37 states and 5 countries, will continue. “We’re also going to diversify our suppliers, and the lower performing suppliers will either be replaced or complemented with second or third sources along the way,” Taiclet elaborated. The Army has already started work on this as well, having released a Request for Information in June, searching for a second source capable of producing one of the most expensive components of the missile, the seeker. The incumbent subcontractor, Boeing, has made significant investments in their own production capacity, and intended to produce between 650-700 seekers in 2025. In October they received $2.7 billion in MYP contracts to produce up to 750 seekers per year through 2030. L3Harris, who’s Aerojet Rocketdyne business produces PAC-3 MSE’s solid rocket motor, has also been busy. In November they broke ground on a 230,000 square feet expansion to their production campus, also in Camden, AR.
Looking beyond PAC-3 MSE, both the Pentagon and Lockheed Martin see ample opportunity, with the DoW stating: “This facilitization strategy will be applied to multiple munitions procurement contracts over the next year, pending Congressional appropriations, to replenish our stockpiles, rebuild our military, reestablish deterrence and strengthen and grow our defense industrial base.” For his part, Taiclet offered specifics on where he sees potential: “With THAAD, you know, we’re going to be looking to triple or quadruple the rate, is what we’re being asked to evaluate. [PrSM] could go up as much as five times or more over the next few years, by 2030. LRASM and JASSM, which are the highly sophisticated stealth cruise missiles. You know, again, what could be looking at, you know, doubling and tripling of those munitions, also, under the same sort of framework, and that’s just the programs that Lockheed’s got visibility to.” THAAD’s Talon interceptor missile, inventories of which have also been badly depleted through combat expenditures in the Middle East, is currently facilitized for 96 missiles per year. An increase to nearly 300-400 per year would go a long way towards completing FMS deliveries to Saudi Arabia, replacing the US Army’s combat expenditures, and building out a magazine depth to address the People Republic of China’s growing ballistic missile arsenal. Precision Strike Missile (PrSM), currently facilitized for 400 per year, would jump to 2,000. Compared to a modest Army Acquisition Objective of ~5,600 missiles across Increment 1 & 2, this would open the floodgates for FMS to allies and allow the Army to set a more ambitious target for itself. The JASSM/LRASM production line, capable of 1,100 missiles today, would jump to 2,200 or 3,300. Doubling it was on the US Air Force’s FY26 Unfunded Priorities List, at a very modest cost of $800 million.
Duffey concluded by saying: “we are moving quickly to find new opportunities to apply this new model across the entire portfolio of weapons that we are acquiring here in the Department.” Taiclet’s list, spanning US Army, US Air Force, and Missile Defense Agency acquisition programs, indicates that at the very least, conversations are being had. How close some of those other programs are to similar deals remains to be seen, as does whether other prime contractors will sign their own frameworks with the Department. The main limiting factor will be whether the Administration can come to an agreement with Congress on passing the necessary appropriations. A government shutdown is looming, just over 3 weeks away.
Note: The Pentagon did not respond to a request for comment prior to deadline.