🔷 Fiscal Fiasco

Fiscal Fiasco

This week, we’re doing our annual refresher training on Congress and the fiscal year.

What

One of the most fundamental responsibilities of the federal government is to set and pass a budget every year. There are 2 components to this: the bills and the year.

• The bills: Each and every year, the US Congress must pass 12 appropriations bills to keep the government running. 

• The fiscal year: The US federal fiscal year is what those appropriations are tied to, not the calendar year. The fiscal year begins on October 1st and ends on September 30th. (i.e., you are reading this in FY2026, even though it's October 2025).

The Congress must pass the bills—and the President must sign them into law—before the fiscal year of execution begins (October 1st).

How’s It Going

In the 48 years this structure has been in place, Congress has only managed to pass all required appropriations bills four times on time (1977, 1989, 1995, and 1997). Since it's MLB playoff season, for all you baseball fans, that works out to a .083 batting average.

CR

To avoid a costly and disruptive government shutdown when the J-O-B can’t get done on time, Congress passes what’s known as a continuing resolution (CR). As the name implies, a CR permits the government to continue spending, obligating, and operating as before. This sounds painless, but it's not.

A CR freezes current program obligation rates and stalls defense contracts and new programs—not good things when the Pentagon is trying to modernize its force.

Shutdown

What happens when Congress can’t even pass a CR? This week, you found out.

This week was extra special because FY2026 started with neither a defense appropriation nor a continuing resolution—leading to the partial government shutdown you have all heard the politicians blame each other over.

Since 1976, this has happened 20 times. The last shutdown occurred in 2018-2019 (after a CR expired) and lasted a record 34 days.

Oh No

This shutdown is an extra special dumpster fire, though.

A late Presidential Budget Request (PBR) led to Congress drafting bills without the PBR source document; the House and Senate versions have yet to be negotiated (‘reconciled’ in D.C. speak); and the usual CR-to-kick-the-can tactic failed.

The government can reopen with a CR, but then Congress still has to draft and pass the appropriation bills.

And remember that $150B boost in defense funding that was signed into law back in July? It’s awaiting a spending plan from the Pentagon, but doesn’t have any expressed legal restrictions on how it can be spent—only strong suggestions.

Depending on the length of the shutdown and the politics in play, there is a chance that this money could be used to fund certain initiatives. However, the Pentagon has furloughed a significant portion of its civilian workforce, which would typically handle these types of tasks.

What Now

Politicians politic and the defense industry waits.

No money. No contracting officers. No offices to process export approvals. Even meetings are being cancelled.

No progress.

You might not notice it, but the military—and the industry that supports it—certainly does.

This is how China wins.

So we don’t end on a sour note, we scoured the internet for some memes to cheer you up:

In That Number

17,000

Ukraine’s new drone marketplace logged 17,000 drone orders from frontline units in its first two months, with about 13,000 already delivered.

The orders total roughly $14.5M, deliveries average 10 days, and the platform plans to scale to meet 70% of front-line drone demand.

TRIVIA

What secret military installation did Germany build in Canada during WWII, which was not discovered until 1977?

A) A refueling station for U-boats
B) A communications outpost
C) A weather station

On the Radar

DIU’s counter-drone sprint. The Defense Innovation Unit (DIU) revealed it has advanced two Counter NEXT prototypes to counter Group 3+ UAS threats. Anduril’s Roadrunner and Zone 5’s White Spike were selected from 65 applicants and recently completed baseline flight testing.

• The Merge’s Take: Now, both prototypes will get production-hardened and integrated into C2 systems as they plot a path to mass production (Anduril’s Roadrunner is more mature, but appears to be prototyping a new launch container). The sooner this tech can reach end-users, the better—but that’s a big unknown. DIU’s overall C-UAS efforts (aka Replicator 2) are currently set to be unified under the new Joint Interagency Task Force 401 (JIATF 401). This shift could either accelerate or slow down the changeover.

South Korea’s new AEW&C is going to be a Global 6500-based biz jet from L3Harris. The new Airborne Early Warning and Control (AEW&C) system will utilize an ELTA side-mounted EL/W-2085 radar, mounted on a Bombardier Global 6500. The 4 AEWC aircraft will be delivered by 2032 and cost $2.2B.

• The Merge’s Take: Can a business jet fill the AEW&C role of the larger 737-based E-7 Wedgetail? We’re going to find out. South Korea ordered 4 E-7s in 2006, and they’ve been in operation since 2012. You’d think a newer E-7 was in the cards, and 4 more were approved for sale in 2024 for this competition, but Boeing dropped out back in July. That left L3Harris and Saab, both with 6500-based platforms but using different radars (Saab uses a top-mounted ‘ski-box’ Erieye radar). In 2023, L3Harris and ELTA began this journey, making this the first mating of a 6500 with the EL/W-2085 radar. L3Harris is now pushing its AEW&C to replace Taiwan’s 5 E-2K Hawkeyes.   

T-7A live + virtual link. Boeing and the Air Force linked a ground simulator to an in-flight T-7A Red Hawk, streaming real-time aircraft data and high-resolution visuals into a shared synthetic battlespace. The program is expected to field 46 simulators tied to 351 aircraft, with first deliveries to Randolph AFB expected later this year.

The Merge’s Take: The good news is that Live-virtual-constructive (LVC) training is the future, and this is part of the T-7A’s embedded training (ET) capability. LVC permits scalable immersive scenarios without the need for costly support aircraft, threat systems, and range airspace. The Air Force is slowly getting on board, but the Navy is several years ahead in this realm (more on that in a future feature). The idea of embedded LVC training is a big part of our latest episode with Red 6—which you should watch ASAP.

The Merge’s Spicy Take: The bad news: This is still in the future. Test pilots are experimenting with this capability now, but instructor pilots won’t start learning to fly the jet until next year. Actual students won’t be flying the T-7 until 2028, and that’s if the program can stay on its revised schedule. There’s a chance that the first T-7 student pilot is in high school right now.

The Army is reportedly not happy with Anduril and Palantir’s NGC2 communications platform, citing fundamental security flaws and other issues. Anduril was awarded a $100M contract to create a Next Generation Command and Control (NGC2) prototype, working with a team that includes Palantir and other companies.

• The Merge’s Take: Slow down—we highlight ‘reportedly’ for a reason. Don’t believe everything you see in the news. Anduril’s Chief Information Security Officer (CISO) clapped back on LinkedIn, and the CTO of the Army had an equally strong rebuttal of the hit piece.

They Said It

“Enemies gather. Threats grow. There’s no time for games. We must be prepared. This urgent moment, of course, requires more troops, more munitions, more drones, more Patriots, more submarines, more B-21 bombers. It requires more innovation, more AI in everything, and ahead of the curve, more cyber effects, more counter UAS, more space, more speed.”

— Pete Hegseth, US Secretary of War, in his speech to the gathering of military generals and admirals last week

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Knowledge Bombs

• Turkey started building an updated Kaan Fighter prototype

• L3Harris & Shield AI showcased a new AI-detection for counter-drone systems

• Greece received its 42nd F-16V Viper, marking the halfway point of its upgrade program

• Sikorsky won a $10.8B Navy contract to build 99 CH-53K King Stallions for the Marine Corps

• AcqBot.mil received $30M from the Air Force to accelerate AI-based acquisition processes

• Lockheed Martin was awarded a $12.5B contract for 296 F-35s (lots 18 and 19)

• Picogrid integrated its universal translator Legion software into Palantir’s Maven Smart System 

• WebAI & Aeon partnered to integrate Field AI into Aeon’s modular autonomous missile system

• An Air Force HC-130J was spotted carrying an Angry Kitten jamming pod

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ANSWER
C) A weather station. During World War II, a German U-boat crew established a secret automated weather station in a remote part of Labrador, Canada. The weather station pushed radio transmission reports every 3 hours, and the location provided the Germans with significantly better forecasting for military operations.