By: Dawn Zoldi
The U.S. defense industrial base is in crisis, according to the official charged with fixing it. The Honorable Michael Cadenazzi, Assistant Secretary of Defense for Industrial Base Policy, took the XPONENTIAL 2026 stage Wednesday following AUVSI President and CEO Michael Robbins’ keynote address and delivered a sobering diagnosis of America’s manufacturing readiness, and what it will take to reverse decades of strategic miscalculation.
The Problem Has a Name: Decades of Assumptions
Cadenazzi walked the crowd through a litany of failures that have accumulated across administrations, parties and generations. Despite a near-doubling of the shipbuilding budget, the U.S. Navy operates the same fleet size it had years ago. No Army vehicles met readiness targets in 2024. F-35 deliveries are running more than 200 days late. “I could go on,” he said. “There’s a litany of failures there.”
The cause, he argued, is not a funding shortfall. Congress gave the Pentagon a trillion dollars and broad authority. The results still fell short. “We’ve outsourced our manufacturing to our greatest strategic competitor. We’ve become dependent upon multiple countries and companies for things we need vitally. We’ve forgotten how to mine. We’ve forgotten how to process,” Cadenazzi said. The country has lost two generations of scientists, engineers, and production capacity in the process. A just-in-time supply chain model optimized for peacetime that was never designed for the realities of contested logistics, he said.
Fixing the System From the Inside
Cadenazzi addressed the tension between working around the acquisition system versus reforming it from within. Workarounds, he said, have not produced structural improvement. “The collective number of outside-the-lines initiatives have not resulted in fundamental structural improvement of the core acquisition system,” he said. “If we don’t get into the weeds of how things work structurally, then we miss an opportunity to pass it on to the next generation better than it was before.”
Secretary Hegseth’s Acquisition Transformation Strategy (ATS), launched in November 2025, is the department’s vehicle for doing exactly that, he said. Cadenazzi described it as a document that takes on the hard problems, such as reforming testing, certification and qualification processes; reorganizing the PEO structure; and confronting cultural inertia within the contracting workforce. “Most of what is there is not new,” he acknowledged. “There are a lot of good ideas that we’ve talked about in industry for 25 or 30 years. The difference is that we have the leadership support to do it,” he explained.
America First Does Not Mean America Alone
On allied partnerships, Cadenazzi offered a nuanced position that directly addressed the concerns of the event’s international audience. The U.S. has never lacked demand for weapon systems, he said. The gap has always been between orders placed and production capacity to fill them. The recent realignment of the Foreign Military Sales (FMS) and Direct Commercial Sales (DCS) apparatus under acquisition and sustainment closes that gap by aligning demand signals with production planning in ways the department has never previously managed.
He also highlighted a new push to advocate for non-program-of-record companies, the category that describes much of the autonomy industry, in international arms transfers. Previously, companies without a formal program sponsor inside the military services had no clear champion for FMS or DCS sales. “We’re rewriting that approach,” Cadenazzi said, “to make sure there’s clearly an advocate for selling those programs and supporting those transactions with our partners.”
Section 805 and the Supply Chain Reckoning Below Tier One
The most operationally urgent message Cadenazzi delivered for the industry concerned Section 805 of the National Defense Authorization Act, a provision that will prohibit defense contractors from doing business with companies that have certain PRC entities in their supply chains. Pilot initiatives are rolling out shortly, with full enforcement targeted for 2027.
His message to the room was to invest in the tools and analysis now to map your lower-tier supply chain, before compliance becomes enforcement. “The goal is not to punish companies. The goal is to build a more resilient base that has less strategic-competitor involvement representing potential malign action over time.” Cadenazzi praised AUVSI’s Green UAS and Blue UAS programs as a model for exactly the kind of industry-led supply chain transparency the department wants to replicate across other domains.
The Industrial Base Is Now a War-Fighting Requirement
Cadenazzi framed the broader reindustrialization effort not as a domestic policy preference but as a wartime readiness imperative. China holds 200 times the U.S. shipbuilding capacity. The U.S. has between 200,000 and 400,000 defense manufacturing jobs that need to be filled today, and will need 2.5 million over the next decade. “We’ve produced the world’s most expensive, best weapons,” he said, “but they’ve been delivered late and with significant operational challenges.”
The shift he described, from passive industrial policy to active industrial mobilization, is visible in how the department is now engaging the private sector. Where venture capital and Silicon Valley wanted nothing to do with defense contracting a decade ago, that dynamic has reversed. “Something’s changed, and that’s a great thing,” Cadenazzi said. Three teams within his office are now working in parallel: one focused on global investment transactions, one investing directly into defense industrial base resilience and one actively recruiting the next generation of companies into the defense ecosystem.
For an audience of autonomy and drone industry leaders, the message carried a specific weight. The systems being designed, built and fielded in this sector are not peripheral to national defense. They are increasingly central to it. Cadenazzi challenged the room to help rebuild the system itself, not just to move faster around the system. “We need radically different outcomes,” he said, “and that requires radically different processes.”