The U.S. Navy is betting on Republican lawmakers in its recently unveiled Fiscal Year 2026 budget, gambling one of the primary surface-to-air missiles fielded in the U.S. Navy and ordered by some major partners in the Indo-Pacific: Republic of Korea Navy (ROKN), Japan Maritime Self Defense Force (JMSDF), and Royal Australian Navy (RAN)…
The U.S. Navy is set to procure a record number of missiles, 139 in total, with a key caveat. The force is assuming the Republican led one-time reconciliation bill passes Congress, providing a large chunk of funding for the total buy.
If the reconciliation bill is not passed, the Navy has just 10 missiles earmarked, a quantity that would result in a breach of contract terms with the missile’s prime contractors. The cascading effects after a breach of contract would set in motion even more tripwires that would ultimately shutter the missile’s production lines for an unspecified amount of time through FY2026 and beyond.
“If SM-6 does not receive the full funding required of $817.420 million, the contract will require renegotiation and payment of a Request for Equitable Adjustment (REA) to the Prime Contractor for breach of contract terms and conditions.”
U.S. Navy Fiscal Year 2026 Budget Documents
With an REA payment, production of the SM-6 would cease for the entirety of FY2026. This would set in motion a series of First Article Inspections that would see SM-6 production lines sit idle—shut down—until several checks and recertifications are complete across the production line, ultimately resulting in an increase in price that the U.S. Navy estimates at around $800,000 due to the delays and cost changes with secondary supplies.
The price increase would bring the missiles to over $6 million per All Up Round (AUR) by FY2027, up from the current $5.3 million for negotiated FY2026 missile buys.
“Payment of this REA will result 0 SM-6 BLK IA procured in FY 2026 and cause a break in SM production of one year. With this break in production, the program will be required to perform production restart efforts of First Article Inspections, requalification of components, recertifying the production line. The impact of these activities will increase the unit cost for FY 2027 by $856 thousand per AUR.”
U.S. Navy Fiscal Year 2026 Budget Documents
If the reconciliation bill passes, it would make the Department of Defense budget roughly $961 billion, and would fund 138 SM-6 missiles in total (including the 10 funded by the U.S. Navy’s own budget), a much larger number than the previous year, which totaled 103 missiles after Israel Security Supplemental Appropriations Act added 24 SM-6 Block IAs to replace expended missiles during combat operations in the Middle East.
This is the first time reconciliation funding has been used in such a way, delaying budget materials and causing additional headaches for analysts and Congressional officials.
At a Pentagon media briefing this week, U.S. defense officials commented on the new justification books and the significant changes made to several programs. The Pentagon says it identified $30 billion in FY2025 ‘inefficiencies’ and used those funds, alongside others gained from Department of Government Efficiency (DOGE) contract cancellations, to increase funding to others.
The officials added that Secretary of Defense Pete Hegseth’s mandate to refocus the budget resulted in several changes to more critical programs, “increasing lethality and readiness”.
The officials did not offer specifics into how money was identified or how it was reallocated.
The U.S. Navy itself has not identified pathways to reconfigured funding if reconciliation does not pass—something that would be devastating to contractors and foreign partners alike for their reliance on a steady and balanced order book from the U.S. Navy.
