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In That Number
$45.2 Billion
The market for military AI is projected to triple in the next decade, growing from $14.5B in 2026 to $45.2B by 2036. That’s a 12% compound annual growth rate.
On the Radar
USAF
R2-D2 flies on KC-46. Beacon AI's Murdock pilot assistant has flown aboard 3 operational KC-46 tankers, logging 5 sorties and 20 hours during a recent exercise. The system rides aboard in a Pelican case, reads avionics bus data, and helps crews with checklists, taxi, takeoff, route planning, and fatigue monitoring without touching flight-critical systems. Beacon AI also announced a $5.7M funding package backed by an Air Force TACFI to support work with SOCOM.
The Merge's Take: In a sea of AI and autonomy companies trying to replace pilots, Beacon AI is one of the very few whose sole focus is trying to make the pilots better. Military mobility is a logical starting point: long missions, fatigued crews, and aircraft with commercial roots. The KC-46’s Boeing 767 lineage gives this work a potential path into airline and cargo fleets—a market that doesn’t require convincing operators to remove pilots from the cockpit. Expect to see more AI on the KC-46 in the near future: The Air Force has an open SBIR solicitation for AI that grades aerial refueling (assessment is the starting point for automation).
BWA
Drone boat lawsuit. In June 2026, Blue Water Autonomy and Saildrone sued the Navy after being excluded from its Medium Unmanned Surface Vessel (MUSV) competition. Blue Water Autonomy alleges the Navy applied unstated, overly restrictive criteria and misread its proposal. Saildrone says its design met the requirements but was rejected through a flawed evaluation. Meanwhile, the Navy has awarded 30 vessels across 3 suppliers, averaging about $40M each.
The Merge's Take: Expect a court decision very soon, and the stakes reach beyond the Navy’s $1.2B drone-boat buy. MUSV used an Other Transaction Authority (OTA), a mechanism that bypasses FAR procedures, and a successful prototype OTA can unlock production awards without another competition. The underlying issue is that OTA’s were originally developed to accelerate R&D during the Cold War, but the FAR has only gotten more onerous, and OTAs have since grown into prototyping and production agreements. A win for 2 passed-over startups could pump the brakes on these OTAs by adding scrutiny to an acquisition tool increasingly favored for speed. That could mean more protests and slower awards, but also greater accountability for how agencies choose winners. The question is how much flexibility the government retains when a prototype competition effectively decides who gets the production business.
AI
Defense tech's great divide. The defense tech sector is splitting into two markets: startups with production contracts and those surviving on prototypes, pilots, and discretionary funding. Defense tech attracted $49B in venture investment in 2025, while the top 100 startups secured just $4.3B in federal obligations.
The Merge's Take: Prototype contracts can fund multiple competing solutions, and recurring RDT&E budgets sustain new opportunities. Production is different. It forces the Pentagon to pick winners, commit resources, and make trade-offs against competing service priorities. The roughly $200B annual procurement budget is enormous, but relatively flat and largely committed to existing programs. Even the best prototype may simply have nowhere to go. While no Pentagon metric tracks prototypes (why not?), DIU does. From 2016 to 2023, just 62 of 450 DIU prototype agreements reached production, although many had not completed development (and DIU has since adjusted its strategy). As early-2020s venture funds face mounting pressure for returns, startups without a credible production pathway face a reckoning. Expect consolidation, distressed acquisitions, and down rounds to make headlines in 2027.
Fire Point
Flamingo's reality check. Fire Point’s massive FP-5 Flamingo cruise missile captured headlines for its metrics in Ukraine: 2,500-lb warhead, 2,000-mile range, and $600,000 cost—but its struggling to deliver on its promise of affordable long-range strikes. An OSINT assessment estimates a 6–8% documented hit rate, with roughly 120 missiles launched since July at an estimated cost of $72M. That's nearly $15M per confirmed impact. The manufacturer also claimed production of 100 per month, while observed launch rates suggest only about 30 per month.
The Merge's Take: Treat the numbers cautiously. Launches and impacts are incompletely documented, and firing rates don't necessarily reflect factory output. But the emerging gap between advertised capability and observed results deserves a closer look—expect to see more details as they emerge. Ultimately, a cheap missile that rarely hits its target isn't necessarily “affordable.” #costpereffect
TRIVIA
On this day in 1050 during the Korean War, UN forces were stunned when a new, high-performance Soviet-made jet fighter entered the conflict for the first time. This aircraft's appearance immediately challenged U.S. air superiority and set the stage for legendary dogfights throughout the rest of the war. What was this aircraft?
A) MiG-13
B) MiG-15
D) MiG-17
Havoc AI
The Pentagon wants thousands of autonomous systems. The question is who builds them and how fast.
Joey Arora sits down with Paul Lwin, Co-Founder and CEO of Havoc, to talk about collaborative autonomy and why the path to mass runs through software, not shipyards.
Check it out!
They Said It
“Our lower enlisted are the ones we rely on to master this craft.”
— Master Sgt. Glenn Dayton, company operations chief of Weapons Company, Battalion Landing Team 1/1, on junior Marines flying live-warhead Neros Archer drones
Knowledge Bombs
Nominal secured a $71M STRATFI to manage CCA test and telemetry data
Roboze raised $10M to scale production of aerospace and defense parts
The DIA released an image of China's secret reusable spaceplane
Aeon unveiled a 140,000 sq ft missile factory
Lockheed Martin received a $694M ARRW production contract
Castelion Blackbeard hypersonic missiles are going on Air Force F-16s
North Vector Dynamics raised a $20M Series A for its drone interceptor
Helsing unveiled its Contra air defense system and 2 new interceptors
L3Harris won an up to $60M Army deal for its ramjet drone interceptor
Lockheed Martin’s PAC-3 Edge won the Army's $1B Future Interceptor OTA
Firehawk raised a $150M round at a $1.4B valuation to scale rocket motors
Rendezvous Robotics raised $20M to build self-assembling spacecraft tiles
Re:Build Manufacturing raised $2.1B to expand U.S. hard tech production
Foundry Robotics raised a $100M Series A for an autonomous factory
Salesforce is acquiring Rune Technologies (military logistics software)
PBS Group is investing $100M to build 10,000 jet engines a year in the U.S.
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ANSWER
B) The debut of the MiG-15 on November 1, 1950, changed the face of the Korean War when 6 of these swept-wing jets attacked a flight of F-51 Mustangs and a T-6 Texan over the Yalu River. The MiG-15 was significantly faster and better armed than the propeller-driven planes and early straight-wing jets the U.S. were using. Its arrival forced the U.S. Air Force to rush the F-86 Sabre into theater, leading to the world's first major jet-vs-jet aerial battles in the famous "MiG Alley." Random factoid: Russian fighters all carry odd number designations, and bombers carry even numbers.
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