Ensuring A-Rated Defense Corporations Follow National Security Objectives Published May 16, 2025 By CDR Thomas M. Verchère Maxwell AFB -- This proposes how the U.S. Department of Defense (DoD) could secure significant equity stakes in the leading “A-rated” defense corporations to align these companies’ strategic decisions with national security objectives. Following the post–Cold War consolidation of fifty major defense suppliers into five, concerns have surfaced about shrinking competition, rising costs, and persistent underinvestment in critical research and development. Though government-led bailouts and share acquisitions are rare in the American economic system, past cases such as the General Motors rescue in 2008 and Department of Energy loan guarantees for nuclear energy projects illustrate the feasibility of such interventions. The paper explores how existing mechanisms under the Emergency Economic Stabilization Act and the Troubled Asset Relief Program could be adapted to support the Defense Industrial Base. It then analyzes successful precedents for state ownership in foreign contexts, including France’s Agence des Participations de l’État, which nominates representatives to corporate boards and manages state-held equity in strategic sectors. Building on these insights, the paper proposes a new or expanded DoD entity—potentially an extension of the Office of Strategic Capital—to manage equity purchases in defense firms. In doing so, it envisions protections for shareholders, taxpayers, and military pensions while introducing transparency and oversight through Congressional review. By aligning private-sector decision-making with national security priorities, the United States could strengthen its industrial capacity, foster innovation, and secure long-term defense readiness. Introduction The U.S. Defense Industrial Base (DIB) is critical to maintaining United States national security and ensuring U.S. preeminence in an era characterized by Great Power Competition with China.[1] The 2022 National Defense Strategy (NDS) emphasizes innovation and technology investment.[2] However, recent conflicts and geopolitical shifts have revealed vulnerabilities, notably stemming from a lack of capital for future development and innovation. The post–Cold War consolidation of the U.S. DIB demonstrated a significant weakness in the U.S.’s ability to innovate, as 50 companies consolidated into 5, and competition deteriorated; after 30 years, these five firms accounted for 30% of all contracts.[3] The newly consolidated DIB did develop new systems during the post–Cold War timeframe; however, these were often delivered with massive delays and cost overruns. Expressing growing concerns about industrial vulnerabilities—particularly in the context of geopolitical competition with China—the National Defense Industrial Strategy (NDIS) outlines a framework for transforming the U.S. DIB to meet modern security challenges.[4] Among the NDIS’s four priorities, “flexible acquisition” and “economic deterrence” resonate with the need for new financing and improved relations between the government and industry. In a related warning, House Armed Services Committee Chairman Mike Rogers declared that the DIB is atrophied and unable to meet military needs, advocating a new policy and a “whole-of-government” approach leveraging diplomatic, military, and economic power.[5] A-rated Defense Corporations (hereafter “the Big Five”)[6]—primarily motivated by profit-driven contracts and short-term shareholder demands—do not always align with the longer-term strategic value that the Department of Defense (DoD) and national security imperatives require. Company board directives seeking to satisfy shareholder interests can divert benefits toward dividends or stock buybacks rather than investing in Internal Research and Development (IR&D), innovation, Capital Expenditures (CapEx), or infrastructure. This approach risks eroding future value and long-term growth.[7] Experts have found a positive correlation between long-term shareholder returns and robust investments in research and development. Risk-averse boards, however, are inclined to emphasize short-term profit rather than the most suitable priorities vis-à-vis the National Security Strategy (NSS).[8] Suppose the government secured the right to nominate DoD personnel (civilian or military) as members of these boards. In that case, board-level decision-making might better reflect NSS objectives and long-term value creation. Considering that these firms are privately owned, a feasible option to gain this influence—while respecting America’s free-market traditions[9]—is for the U.S. government to acquire a meaningful portion of shares on the open market. This article proposes a process by which the U.S. government can invest in top defense firms to steer board decisions. The government’s capital injection would enable improved IR&D, innovations, and capacity expansions—investments that might otherwise remain underfunded due to the current reluctance of venture capital (VC) in this sector.[10] Three major benefits would likely result: These firms could undertake capital-intensive projects without shifting all costs into proposals billed to the government. Increased capacity and improved technical competencies could strengthen the overall DIB. The government would likely enjoy a return on its invested capital, potentially reinvesting profits or using them to offset rising defense expenditures. The rest of this article examines historical precedents in the United States (such as the General Motors bailout in 2008) and in foreign contexts (notably European ventures like Airbus) to show that buying a significant equity stake in strategic industries is hardly unprecedented. The discussion then considers funding sources, legal and regulatory concerns, and the structures required to ensure robust oversight. Finally, recommendations address how to engage Congress, manage the market, and counter potential industry resistance while reassuring service members that their pensions remain secure. Past and Present Government Shareholdings 2.1. In the United States Despite the uncommon nature of significant federal shareholding in a capitalist economy, history offers precedents of the U.S. government taking equity positions to stabilize or bolster critical industries. Two notable instances are the 2008 General Motors (GM) bailout and the Department of Energy (DOE) loan guarantees for the Vogtle nuclear power plant. During the 2008 financial crisis, the U.S. government’s rescue of GM was a significant turning point. Under the Emergency Economic Stabilization Act (EESA) of 2008,[11], which included the Troubled Asset Relief Program (TARP),[12], the government provided $49.5 billion in loans and equity investments. At one point, the U.S. Treasury held a 60.8% stake in GM. The primary goal was to avert the collapse of a crucial sector and protect millions of associated jobs. By 2013, the government had divested its stake, incurring a net loss of $11.2 billion[13] but achieving its broader economic and strategic goals: saving the automotive supply chain in the Midwest and limiting the economic shock.[14] The experience also revealed the political difficulty of securing congressional approval for such measures[15] and underscored the need for close coordination with industry and Capitol Hill. A related example comes from the energy sector. In 2010, the DOE provided $8.33 billion in loan guarantees for constructing Vogtle Nuclear Power Plant (NPP) Units 3 and 4—the first new U.S. reactors in decades—pursuing strategic aims of energy security and lower carbon emissions.[16] By 2017, this support grew to $12 billion, demonstrating the federal commitment to advanced energy projects in the public interest.[17] Beyond these high-profile cases, the Department of Defense manages Working Capital Funds, including the Defense Working Capital Fund (DWCF) and Transportation Working Capital Fund (TWCF). These arrangements offer self-sustaining frameworks by allowing certain DoD activities to generate revenue from their services, thus improving operational efficiency. This concept—where a government-driven fund invests in or acquires equity—could be adapted for the defense industry. 2.2. In France France, historically, managed vast portions of its defense industry and other strategic sectors as state-owned enterprises. Over the last several decades, France partially privatized many of these enterprises, creating a hybrid model. In 2004, the French government established the Agence des Participations de l’État (APE)[18] to manage state equity in industries vital to national security and sovereignty. This approach aligns with the Organisation for Economic Co-operation and Development (OECD) guidelines,[19] promoting transparency and efficiency in state ownership. APE’s portfolio includes significant holdings in energy (e.g., Électricité de France [EDF], Framatome) and defense (e.g., Airbus, MBDA, Naval Group, Thales).[20] By French law,[21] the government may appoint board representatives—often senior civil servants or military officers—to the boards of these companies, giving the State a direct say in governance. Recent legislation[22][23] further mandates robust public disclosures of financial interests and affiliations, ensuring ethical oversight. Financially, the APE draws from two main channels: (1) dividends from government-owned shares and (2) proceeds from the partial or complete sale of non-strategic assets. For instance, France has sold down stakes in automaker Renault and reinvested proceeds into defense modernization and renewable energy programs. This cyclical model ensures that as one set of state investments matures or ceases to be strategically critical, the freed capital can be redeployed to other areas deemed vital to national security. Fund’s Sources Under EESA, TARP offers a mechanism allowing the government to purchase equity or extend loans to address distinct economic challenges. If we assess that the DIB is “in distress” (particularly regarding underinvestment and inefficiency), this statutory framework would enable the U.S. to inject capital into the defense industry, subject to strict accountability measures. TARP’s past use to support the automotive and financial sectors could be replicated for the DIB, with clear metrics tied to U.S. security and industrial outcomes. Opposition to further increases in federal debt and the DoD budget is considerable. Therefore, enlarging the DoD budget top line or diverting existing DoD funds is politically complicated and likely to meet significant resistance. Another avenue would be to leverage the military pensions budget—an annual obligation of roughly $60.9 billion for two million retirees, plus another $4.4 billion for survivors.[24] While diverting pension money directly into equity purchases would be controversial and could conflict with fiduciary obligations to retirees, the pension system is a substantial pool of funds that might serve as collateral for loans. An approximate capitalization sum provides context. The five largest U.S. defense contractors (Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, and Raytheon Technologies [RTX]) had a combined market capitalization estimated at $554 billion in 2022 and about $543 billion in late 2024.[25] For companies such as Lockheed Martin or RTX, a 5% stake—roughly $13.85 billion for Lockheed and RTX together—would likely guarantee a seat on the board and significant sway in strategic decisions. Such an investment would bring direct financial benefits through dividends and capital gains and, crucially, allow the government to steer board decisions toward alignment with national security. Expanding IR&D budgets or modernizing production lines to meet emerging threats would become more feasible, bolstering the defense base and the broader strategic posture. Fund’s Structure and Regulations In testimony to Congress, economist B. Espen Eckbo argued that government-led funds should be structured as independent entities with fiduciary duties to Congress, fulfilling statutory oversight requirements.[26] Corporate governance best practices revolve around: Shareholder Value Maximization: Emphasizing long-term gains through efficient resource allocation.[27] Minority Shareholder Protections: Guarding against actions that might benefit a controlling party at the expense of smaller investors. Legal and Contractual Investor Rights Mechanisms: Ensuring transparency, fiduciary integrity, and robust enforcement. Two real-world equivalents are the former U.K. Financial Investments Ltd, created to manage government holdings in distressed British banks after 2008 (now part of UK Government Investments), and Norway’s sizeable sovereign wealth fund. In both cases, the government accepted a temporary or longer-term ownership stake, with clear rules on managing and eventually exiting those positions. A parallel U.S. entity could be a new structure or an existing office. The Office of Strategic Capital (OSC) in the DoD, currently mandated to promote partnerships with private investment for critical supply chain technologies,[28] could be expanded to administer equity positions in the Big Five. Alternatively, an extension of a Working Capital Fund—operating under principles outlined in 10 USC 2208[29]—might incorporate equity investments. Either way, strict accountability and regulatory frameworks would be essential: Loan Collateralization: If pension assets are collateral, repayment schedules and dividends or capital gains from these equity investments must be structured to preserve retiree benefits. Transparent Governance: Requirements from EESA/TARP for taxpayer oversight would be adapted for the DIB context, accompanied by Congressional Oversight Panel reviews. Exit or Expansion Strategy: Government holdings may be reduced once the strategic and industrial objectives have been met or diversified further, depending on how the security environment evolves. Board members representing the government should be carefully chosen from high-ranking DoD officials or senior civil servants who are well-versed in acquisition processes and defense requirements. To maintain continuity, their terms should span across changes in administration. Congress, possibly through the Congressional Oversight Panel, might hold a veto right over these appointees, ensuring broad support and legitimacy. Recommendations Considering that defense companies in a monopsony environment rely heavily on cost-plus contracts and focus on short-term gains, some consider working in the “national interest” as a path to stable but unspectacular dividends.[30] This moment in history, marked by intensifying strategic challenges posed by the People’s Republic of China, calls for a bolder approach. Accordingly, the U.S. government should stand up (or designate) a body under the DoD to manage strategic acquisitions of defense equities. Key responsibilities would include: Corporate Governance: Voting shares aligned with national defense priorities and appointing qualified DoD personnel to corporate boards. Corporate Finance Advisory: Negotiating or structuring large-scale acquisitions, share buybacks, or financing for strategic ventures. Contingent Liabilities: Analyzing potential risks related to large-scale defense programs. Public Accountability: Reporting regularly to Congress and coordinating with the Treasury to address national debt concerns. Legislation would likely be needed to expand EESA/TARP’s scope to include distressed defense assets and authorize the creation or modification of an office such as the OSC or a new capital working fund. Proactive engagement with relevant congressional committees is essential to secure bipartisan support. Balancing the concerns of deficit hawks, taxpayer protection advocates, and industry shareholders will require careful framing of the China “threat environment” and the need for a rejuvenated DIB. Naturally, the Big Five’s shareholder base may protest any measures that redirect capital from near-term dividends to longer-horizon IR&D. Political messaging must emphasize that these interventions will strengthen industry resilience, open new product lines, stabilize supply chains, and yield eventual returns on invested capital. For all its controversy, the earlier GM bailout did preserve a significant portion of the U.S. automotive industry. Lastly, the administration must reassure active service members, military retirees, and survivors that their pensions remain secure. A transparent demonstration that loan interest, dividends, or capital gains from these new equity positions will cover debt obligations (thus insulating the pension system from undue risk) is crucial. Communications must highlight the national security payoff these acquisitions promise, particularly regarding readiness, technological innovation, and deterrence. Conclusion This article has argued that significant government intervention is necessary to bolster and guide the Defense Industrial Base in the face of evolving security threats and persistent underinvestment. U.S. history offers multiple precedents for strategic shareholding, from the GM bailout to DOE loan guarantees. International examples further demonstrate that state equity positions in key industries can align corporate governance with long-term national objectives. For the United States, the central challenge is to reconcile free-market principles with pressing national security needs. A targeted investment fund—implemented via a dedicated DoD entity or an expanded TARP/EESA mechanism—would allow the government to hold meaningful equity stakes in top defense firms and influence board-level decisions. Existing institutional frameworks (e.g., the Congressional Oversight Panel and the DoD’s Office of Strategic Capital) could facilitate transparency and accountability. By aligning private incentives with national defense imperatives, the United States can address vulnerabilities in its Defense Industrial Base and cultivate the capacity to innovate and surge production when necessary. This approach would better prepare the country for an era increasingly defined by strategic competition with China and other potential adversaries. As the global security landscape evolves, proactive measures to forge tighter bonds between defense corporations and U.S. national security goals will ensure strategic dominance and economic resilience. Thomas Verchere is a Commander (armament) with 16 years of experience in all areas of program management (e.g., financial, contracting, engineering, configuration management, complete life cycle, test and evaluation, and international relations). He joined the French Direction Générale de l’armement (DGA – entity of the French Ministry for Armed Forces) in 2008 at Cherbourg naval base and later occupied several positions as technical lead and program manager of complex armament systems. Before National Defense University, he served as Chief of Staff of the National Armaments Director of the DGA (3-star general). He graduated in 2007 from the Ecole Nationale Supérieure des Techniques Avancées de Bretagne (ENSTA-Bretagne). He also graduated in 2008 from the Ecole des Applications Militaires de l’Energi Atomique (EAMEA – CEA/INSTN). He enjoys reading, scuba-diving, and listening to music. [1] Valerie Insinna, “The New National Defense Strategy Keeps the Pentagon’s Focus Locked on China,” Breaking Defense, October 27, 2022. [2] Department of Defense, “National Defense Strategy” (Office of the Secretary of Defense, October 27, 2022). [3] Luke A. Nicastro, “U.S. Defense Industrial Base: Background and Issues for Congress,” September 23, 2023. [4] “National Defense Industrial Strategy (NDIS)” (OUSD A&S, November 16, 2023). [5] “ROGERS OPENING STATEMENT AT HEARING ON NATIONAL DEFENSE STRATEGY COMMISSION’S REPORT | Representative Republicans-Armed Services,” September 18, 2024. [6] Lockheed Martin, Boeing, Northrop Grumman, General Dynamics, and Raytheon Technologies (RTX). [7] Tim Koller, Richard Dobbs, and Bill Huyett, “Why Value Value?,” in Value, the Four Cornerstones of Corporate Finance (John Wiley & Sons, Inc, 2011), 3–14. [8] Biden’s Administration, “National Security Strategy” (White House, October 2022). [9] Nationalization is not a politically viable solution in the U.S. model. [10] Chip Walter and Aaron Mehta, “It’s Time for New Incentives for Defense Primes to Invest in Startups,” Breaking Defense, January 12, 2023, 2, [11] 110th Congress, “Emergency Economic Stabilization Act,” 2008. [12] U.S. Department of the Treasury, “Troubled Asset Relief Program (TARP),” U.S. Department of the Treasury, January 14, 2025. [13] Sam Frizell, “General Motors Bailout Cost Taxpayers $11.2 Billion,” TIME, April 30, 2014. [14] White House, Obama Administration, “Statement by the President,” whitehouse.gov, December 9, 2013. [15] Jim Henry, “Congressional Oversight Panel Criticizes GM Bailout, Sort Of - CBS News,” January 14, 2011. [16] Anjani Datla and Robert Lawrence, “Shaping the Future of Solar Power” (Harvard Kennedy School, May 16, 2013). [17] “Secretary Perry Announces Conditional Commitment to Support Continued Construction of Vogtle Advanced Nuclear Energy Project,” Energy.gov, accessed January 18, 2025. [18] “Les entreprises du portefeuille de l’État,” accessed December 6, 2024. [19] OECD (2024), “OECD Guidelines on Corporate Governance of State‑Owned Enterprises” (OECD Publishing, Paris),. [20] Airbus, MBDA, Naval Group, and Thales are prominent defense firms in which the French state retains partial ownership. [21] “Ordonnance N° 2014-948 Du 20 Août 2014 Relative à La Gouvernance et Aux Opérations Sur Le Capital Des Sociétés à Participation Publique,” accessed December 6, 2024. [22] “Loi N° 2013-907 Du 11 Octobre 2013 Relative à La Transparence de La Vie Publique,” 2013-907 § (2013). [23] “Loi N° 2017-1339 Du 15 Septembre 2017 Pour La Confiance Dans La Vie Politique,” 2017-1339 § (2017). [24] Kristy N. Kamarck, “Military Retirement: Background and Recent Developments” (Congressional Research Service, June 3, 2024). [25] Nicastro, “U.S. Defense Industrial Base: Background and Issues for Congress.” [26] B. Espen Eckbo, “The Government as Active Shareholder,” Testimony to The Congressional Domestic Policy Subcommittee of The Oversight and Governance Reform Committee, December 16, 2009. [27] Tim Koller, Richard Dobbs, and Bill Huyett, Value, the Four Cornerstones of Corporate Finance (John Wiley & Sons, Inc, 2011). [28] “Office of Strategic Capital (OSC) – DoD Research & Engineering, OUSD(R&E),” accessed January 22, 2025, [29] “10 USC 2208: Working-Capital Funds,” [30] “The Defense Reformation,” accessed January 20, 2025,