It was another record year for the United States’ defense industry, with sales continuing to climb, albeit less sharply. Fiscal Year 2025 saw $331.18 billion in total sales, a nearly 4% increase over last year’s total of $318.7 billion, per US State Department figures released last week. Demand for American arms has remained strong, driven by ongoing rearmament programs in Europe, war in the Middle East, and geopolitical tension in East Asia. A notable shift in customer behaviour appeared this year though. The total increase in sales this year was driven entirely by a 12.9% increase in Direct Commercial Sales (DCS), which offset a 11.47% decrease in the Foreign Military Sales (FMS) program. Such a divergence has only been observed once before in the last 10 years, in FY 2020.
Direct Commercial Sales are contracts between foreign entities and American companies which have been licensed to export defense articles and/or services. The Foreign Military Sales program allows for foreign governments and international organizations to enter a government-to-government agreement with the United States for defense articles and/or services, in which the US Government is responsible for fulfilling the terms of the contract. FMS allows for international customers to procure from the US Department of Defense’s (DoD) own stocks or take advantage of their buying power by contracting for articles and/or services that the DoD is already procuring from industry for themselves and/or other customers. Both DCS and FMS are subject to US arms export control laws & regulations, and “Major Arms Sales” above certain monetary values are also subject to Congressional review.
DCS has historically dwarfed FMS, with FY 2021 & FY 2022 seeing approximately three times as much being sold through commercial contracts than government-to-government sales, by dollar value. The subsequent two Fiscal Years had seen that gap narrow considerably though, with DCS approximately doubling FMS in total sales in FY 2023, and only 70% more in FY 2024. This year ended with DCS more than doubling FMS, $226.8 billion to $104.4 billion. The recent growth in Foreign Military Sales had been driven by key weapon systems that are only available through the FMS program, such as the F-35 Joint Strike Fighter, ballistic missile defense interceptors, and long range missiles. The “FMS Only List”, a vague document that detailed the classes of weapons not available for purchase via the DCS program, had been a source of frustration for some US customers for many years.
Reforming America’s arms export control regime has been an ongoing mission for both Congress and successive administrations. In April 2025, President Trump issued an executive order specifying various efforts to “Reform Foreign Defense Sales to Improve Speed and Accountability”, including an update to the FMS Only List. That directive was fulfilled just after the end of last Fiscal Year, in October, with the establishment of the new “Government-to-Government (G2G) Only List”. The new list is primarily composed of specific weapon systems deemed sensitive, rather than the broad categories of the previous FMS Only List. These changes increase opportunities for customers to procure defense articles & services commercially.
Other key objectives outlined by the executive order (EO) are a single administrative tracking system for DCS & FMS cases, and a requirement for defense acquisition program managers to ensure that “exportability” features are built into system design from the outset. $500 million from the One Big Beautiful Bill reconciliation package is being allocated to the Defense Exportability Program for this effort. This will help ensure that sensitive technologies can still be sold to allies & partners without lengthy delays being incurred due to engineering change orders being issued in the middle of the acquisition process.
Further to last year’s EO, in February, the President issued one titled: Establishing An America First Arms Transfer Strategy. Among the new efforts specified by the EO are the creation of a sales catalogue of priority systems that the US Government wants to encourage allies & partners to procure, an examination of Enhanced End Use Monitoring policies for sensitive defense articles, and reform of the Third-Party Transfer (TPT) process. The TPT process is of particular importance to Ukraine, which continues to receive donations of US origin defense articles from third party countries, mostly other NATO members.
TPTs are subject to the same Congressional Notification standards and thresholds as arms sales, which adds months to the acquisition timeline. A couple months is not a long time relative to the years that it can take for defense articles to be delivered after being put on contract, but it is a long time for Ukraine to wait for badly needed ammunition to be transferred to them from the stockpiles of allies. One such proposed transfer of Major Defense Equipment from Norway to Ukraine was notified to Congress on March 12, and will not be able to proceed until a 30 day review period has elapsed.
Reform to the monetary thresholds and processes for Congressional Notifications was identified as one of the priorities of the first EO, but this requires Congress to amend the Arms Export Control Act.In written testimony to the House Foreign Affairs Committee for a recent hearing, Stanley Brown, the Senior Bureau Official for the Bureau of Political-Military Affairs, encouraged the Committee to support a proposed bill by Representative Zinke (R) [MT-01] that would increase the monetary thresholds at which possible sales must be notified to Congress. It is unclear when this legislation might be taken up by the Committee, but between the two EOs, the Trump Administration has laid out an ambitious agenda within their own purview to implement.