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BUDGET AND WORKFORCE CUTS: WHAT WE KNOW SO FAR
The Trump administration is embarking on a sweeping restructuring of the Defense Department, targeting budgets and personnel. Defense Secretary Pete Hegseth has ordered an 8% annual reduction in the Pentagon's budget over the next five years. The fiscal 2026 budget alone could see an immediate $50 billion reduction, with funds redirected to border security operations and other administration priorities.
Hegseth framed the cuts as necessary to align defense funding with administration policies. In tandem with budget reductions, Hegseth announced plans to cut 5,400 Pentagon civilian employees, mainly targeting those with fewer than two years of service. The initiative could ultimately trim 5-8% of the Pentagon's civilian workforce of about 764,000. The Department of Defense justified the move as a necessary measure to eliminate redundancies and streamline personnel toward "mission-critical" objectives. A department-wide hiring freeze will also take effect.
PENTAGON TO REVIEW ALL CONSULTING CONTRACTS
DoD also has directed a comprehensive review of all consulting service contracts across defense agencies, with plans to terminate or reduce those deemed unnecessary, according to a Feb. 18 memo.
Steven Morani, who is performing the duties of the undersecretary of defense for acquisition and sustainment, ordered the review to be conducted in phases between now and April: Phase one will target consulting services acquired through General Services Administration (GSA) contract vehicles. Phase two will examine all other consulting service contracts
"Components shall take action to terminate, descope, or forego exercising options for requirements determined to be non-essential as a result of this review," Morani wrote. For consulting services deemed essential, agencies must secure justification from a general officer or senior civilian official to maintain the contract.
SPACE FORCE BUDGET DRILLS
A senior Space Force official said the service is evaluating the potential impacts of the Trump administration's directed budget reductions, describing the situation as creating "a lot of turmoil and a lot of planning drills."
"We have to acknowledge that there's a new team in place, and the team has different priorities, different emphasis areas," the official said, speaking on background. "It's our job to support the Secretary of Defense, the Secretary of Air Force, because that's the civilian control of the military, and our job is to make sure we're following their priorities."
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SHIFTING NOT CUTTING — The official characterized the budget exercise as more of a reallocation than an outright reduction: "What I think is going on really is a shifting of funding, not a cut drill." The administration is focused on reprioritizing defense spending before submitting its fiscal year 2026 budget request to Congress. -
PROGRAM IMPACTS STILL UNCLEAR — Space Force leadership believes there are ways to absorb potential cuts without terminating major programs. Options include extending delivery schedules or making cost-reduction adjustments to weapon systems. In some cases, "we could give some money back without affecting the program too much," according to the official. -
CIVILIAN WORKFORCE — The Space Force has not yet disclosed how many of its civilian personnel accepted the administration's "fork in the road" buyout under the deferred resignation program. "We're still collecting inputs and kind of seeing what the lay of the land is," the official said. About half of the Space Force's 16,000 personnel are civilians. UPSIDE FOR COMMERCIAL SPACE
Commercial space companies could benefit from the defense budget realignment, according to new analysis from the investment firm Cantor Fitzgerald.
Despite Pentagon directives to reduce spending by 8% annually over five years, analysts see opportunity for commercial space contractors.
"In this environment, commercial space companies are likely best-insulated to outperform," writes Colin Canfield, equity analyst at Cantor Fitzgerald's government technology and space practice. -
Canfield cautions against misreading the administration's budget directives: "We think the notion of a ~$50 billion DoD cut in 2026 is a misconception. While the dollar value gets market attention, reprogramming of spending is an annual occurrence of any budget process." -
This reprioritization, he says, could benefit commercial space players who have developed lean operations to compete with SpaceX, particularly as the Pentagon shifts toward fixed-price contracts.
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